All three major indexes finished slightly higher Tuesday, led by energy and bank stocks, as investors processed some not-horrible earnings results. Airline stocks skidded amid concerns about fuel prices and viability.
The Dow Jones Industrial Average, S&P 500 and Nasdaq all closed with a gain of half a percentage point.
Energy stocks were the day's best performers, with the S&P energy-sector index up 0.8 percent, after crude oil jumped above $114 a barrel before settling at $113.79 a barrel on the New York Mercantile Exchange.
After a trio of misses -- from General Electric , Alcoa and Wachovia -- kicked off this earnings season, Tuesday's reports were a welcome reprieve.
"I'll take an up market any day in earnings season," said Art Hogan, chief market analyst at Jefferies. After a significant drop last week and a significant gain the week before, the market is essentially where it was two weeks ago, Hogan observed. "It's nice to know that we're not throwing the baby out with the bath water because of earnings."
"This earnings season will be cathartic for the market, particularly if we can have financials really kitchen-sink it for us," Hogan said. "It would be nice if they said -- this is the worst-case scenario and then move on. That's an important part of processing the mess we're in with financials."
As for Tuesday's earnings news, Dow component Johnson & Johnson reported its earnings jumped 40 percent, beating expectations slightly, amid aggressive cost-cutting measures. The company also raised its 2008 outlook.
Financials, one of the top-three gaining S&P sector indexes, gained 0.6 percent following news that several smaller financial firms actually hit their earnings targets, including investment-services firms State Street and Northern Trust , and US Bancorp , which operates a chain of bank branches. Other regional bank chains also bucked the trend and posted higher results.
Northern Trust rose 4.7 percent and US Bancorp gained 1.7 percent. State Street shares, however, skidded 10 percent after the company's finance chief said the company faces "two unrealized losses" -- the first of which is $3.2 billion -- and that "the things that gave us the strength this quarter are the things that we are worried about disappearing."
(Who missed and who beat? Click here for a list of earnings surprises.)
A profit warning from the chip sector rattled some cages ahead of earnings from Intel and Washington Mutual , due out after the closing bell.
Avnet , which supplies components to a broad range of chip makers, said its earnings would fall short due to lower rebates and higher expenses.
Even technology-outsourcing firms have begun to feel the pinch. India's Infosys Technologies missed market forecasts with a 9.6 percent rise in quarterly profit and sounded a cautious note for its short-term outlook.
But Intel, reporting after the closing bell, hit its mark and slightly boosted its sales forecast. WaMu, the largest savings and loan, swung to a loss of $1.14 billionbut that was in-line with the company's projection.
In economic news, March producer prices jumped 1.1 percent, the second-highest reading in the past 33 years, amid a sharp rise in food and energy costs. The New York Federal Reserve's Empire State manufacturing survey unexpectedly rose to 0.63 in April, from a negative 22.23 reading in March.
Checking in on consumer spending, one-half of consumers said their personal-financial situation is getting worse, according to a survey by Discover Financial Services. Nearly two-thirds of those expecting a tax refund said they plan to spend it on basic household necessities such as groceries, gas and mortgages.
After long, drawn-out talks, Delta and Northwestreached an agreement to mergein a deal valued at $3 billion that would create the world's largest airline.
Shares of Delta and Northwest fell 13 percent and 8.4 percent, respectively, amid concerns about jet fuel, which has eclipsed labor as airlines' biggest expense. The S&P airline-sector index shed 2.4 percent.
Morgan Stanley's airline analyst added to the tail winds, dispatching a note that advised investors to "look for opportunities to become sellers once consolidation momentum has run its course because airline mergers are inherently risky."
Speculation is already swirling that this is the beginning of a consolidation trend in the industry and that Continental Airlines and United Airlines may be next. The pair have already laid most of the groundwork for a merger and could have a deal "pretty quickly,"Reuters reported. Continental shares dropped 7 percent, while United fell 5.5 percent.
AstraZeneca shares jumped 5.1 percent after the drug maker settled U.S. patent litigation against India's Ranbaxy Laboratories over its top-selling drug, ulcer treatment Nexium.
Shares of Crocs tumbled 43 percent after the shoe maker drastically cut its outlook, prompting speculation that the popular rubber footwear may have jumped the shark. JPMorgan analyst Robert Samuels said in a note to clients that the guidance cut "frankly, was stunning."
Traders seemed to sweep all the footwear trends out the door as shares of Heelys , which makes sneakers with wheels in them, and Deckers Outdoor Corp. , maker of Ugg boots, also declined.
WEDNESDAY: BlackRock, Coke, JPMorgan, Wells Fargo, eBay, IBM earnings; mortgage applications; housing starts; CPI; industrial production; crude inventories; Beige Book; Fed's Yellen, Plosser speak
THURSDAY: Merrill Lynch, Nokia, Pfizer, Capital One, Google earnings; jobless claims; Philly Fed report; leading indicators; Fed's Kohn, Fisher speak
FRIDAY: Caterpillar, Citigroup, Honeywell, Xerox earnings; Fed's Lacker, Rosengren speak
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