CPI Report Buoys Stocks; S&P Nears 1420

Stocks rallied Wednesday, with the Dow industrials up about 100 points, as Wall Street cheered what appeared to be a tame inflation reading.

All three major indexes -- the Dow Jones Industrial Average, S&P 500 index and Nasdaq -- were higher throughout the day. The S&P hit an intraday high of 1419, a level it's only seen twice so far this year -- once last week and the other in January.

“I think the market can hold onto these gains,” Robert Heller, managing director at Chapdelaine Brokerage told CNBC. “We like the [Dow] 13000 level. As long as it can stay there it can go higher.”

The CBOE Volatility Index, or VIX, was on track for its 10th straight close below 20, indicating that the market is more comfortable with risk.

Consumer prices ticked up 0.2 percent in April, less than expected, as energy prices held steady and gasoline costs dropped 2 percent. Core inflation, which excludes volatile food and energy costs, climbed 0.1 percent. Compared with April 2007, consumer prices were up 3.9 percent and core prices rose 2.3 percent, as expected.

The April slip in gasoline costs was most likely temporary -- not to mention a statistical fluke -- as this week saw oil blow out the top of its recent range to nearly $127 a barrel. Crude oil was down between $125 and $126 a barrel in Wednesday's session. The weekly inventory report showed crude supplies increased by 200,000 barrels last week, much less than the 1.8-billion-barrel build expected.

"Do more risks lie ahead with oil at $125 a barrel? They sure do," said Robert Brusca, chief economist at Fact & Opinion Economics. "But that should not keep us from saying, so far so good."

Prices went down on big-ticket items such as cars and computers as consumers don't have the money to buy such items, but prices on everyday items have soared, said Joel Naroff of Naroff Economic Advisors, offering an explanation for why inflation seemed to be tame this month.

“I doubt this report will persuade anyone at the Fed that inflation is not a threat … for the average family who is not going to buy a vehicle or a computer this year, conditions are distressing,” Naroff said.

“There’s no doubt we’re going to get higher headline [CPI] probably next month because those numbers are bogus,” Jim Paulsen, chief investment strategist at Wells Capital Management, told CNBC.

Still, Paulsen said now is a good time to be in the market. “I think stocks are pretty attractively priced -- even if the core rate rises a little bit in the next several months,” he said, adding that he recommends buying into early cyclicals.

In other economic news, foreclosures rose 4 percent in April from the previous month but were up a whopping 65 percent from April 2007, real-estate data firm RealtyTrac said on Wednesday. A separate report showed mortgage applications rose for a second consecutive week as mortgage rates eased.

On the earnings front, Deere reported earnings of $1.74 a share, meeting analyst expectations as the company benefited from soaring crop prices that boosted worldwide demand for its equipment.

But Deere, the world's largest tractor maker, warned that "escalating raw-material costs and the availability of various parts and components are expected to have an impact on operations for the balance of the year."

Applied Materials said the chip-equipment industry is nearing the end of its downturn but that it expects business capital spending to fall more than expected this year. After the bell Tuesday, AMAT reported its fiscal second-quarter profit fell 26 percent to $302.5 million, or 22 cents a share, but excluding items, its earnings beat expectations. Still, the company projected third-quarter earnings of 10 to 14 cents a share and expects revenue to drop 10 to 18 percent. Analysts said that was lower than they'd expected.

Sony reported a surprise operating loss, hit by losses in its videogame division and a fall in the value of its securities holdings, but it forecast a gain in profit this year.

Electronic Arts , meanwhile, beat expectations but issued a disappointing forecast as a strategy to improve quality and boost growth is likely to cut into margins more than many analysts had expected.

"This is a do-or-die year" for EA, Evan Wilson, an analyst with Pacific Crest Securities, told Reuters.

Freddie Mac , meanwhile, reported its loss widened but beat expectations. The second-biggest provider of US mortgage funding said credit issues resulted in a loss of $151 million, or 66 cents a share, compared with a loss of $133 million, or 35 cents a share, a year earlier. It is coming off a record $2.5 billion loss in the fourth quarter. Analysts had expected a loss of $1.57 a share.

Macy's shares jumped after the department-store operator posted a quarterly loss, hit by restructuring costs and falling sales, but backed its full-year forecast.

Whole Foods shares tumbled after several analysts lowered their price target on the stock. The upscale, organic grocer late Tuesday reported its profit declined and missed by a penny as results were hit by an acquisition of Wild Oats and decelerating sales at its stores.

First-quarter profit at the world's largest steel maker, ArcelorMittal , topped the company's forecast, coming in at $5.04 billion.

In Europe, earnings from banks continued to disappoint while Airbus parent EADS posted a higher-than-forecast profit.

Yahoo shares wobbled, following the prior session's 5-percent gain on news that billionaire investor Carl Icahn might launch a proxy fight at the Internet-search giant. Icahn could force Yahoo back to the table with Microsoft, though he's going to have to act quickly -- the deadline for a proxy fight is Thursday.

Radio and outdoor advertising company Clear Channel Communications resolved a legal dispute with its lenders, clearing the way for its prospective buyers to take it private, by lowering the deal's value to $17.9 billion from $19.5 billion. 

Still to Come:

THURSDAY: Jobless claims; Philly and NY Fed surveys; industrial production; Earnings from Blockbuster, JCPenney, H-P and Kohl's
FRIDAY: Housing starts; consumer sentiment

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