Stocks Climb Ahead of the Close; Banks Slip

Stocks climbed in mid-afternoon trading Wednesday as materials and retail stocks rose, despite ongoing conflicts in the Middle East, and uncertainty about the outcome of the nuclear disaster in Japan.

The Dow Jones Industrial Average rose more than 70 points after trading in negative territory all morning. The blue-chip index fell slightly in the previous session following three days of strong gains.

Among Dow components, Alcoa and Disney gained, while Bank of America and Wal-Mart slipped.

The S&P 500 and the tech-heavy Nasdaq also advanced. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to near 19.

Of the key S&P 500 sectors, materials, consumer discretionary and technology rose, while financials and health care declined.

"The money put to work today was by investors bullish on the global economic recovery continuing," said Michael Sheldon, chief market strategist at RDM Financial. "Those investors probably believe current risks are not enough to derail the recovery."

But Kenneth Polcari, managing director at ICAP Equities, said the move higher reflected technical factors more than fundamentals. As Polcari pointed out, stocks started to move higher after the S&P 500 hit 1,284. From there, the index kept rising until it touched 1,300, and it then turned slightly lower.

The move, however, reflected "no real thrust of commitment," Polcari said, noting that volume was very light. Volume on the consolidated tape of the New York Stock Exchange was only 3.8 billion shares, while 878 million changed hands on the NYSE floor.

Polcari expects the market will continue to trade between 1,300 on the S&P 500 and 1,220, its 200-day moving average, until a catalyst such as strong earnings or a clear outcome in Libya moves the market decisively in one direction or another. But with stocks trading close to their two-year highs, the market could easily fall, especially if it becomes clear the Federal Reserve is not going to continue stimulating the economy.

"If the Fed walks away, the market gets a fairly decent correction," Polcari said.

Meanwhile, Bill Miller, chief investment officer and portfolio manager of Legg Mason Capital Management, told CNBC that the stock market is 20 percent undervalued.

Earlier, well-known stock analyst Laszlo Birinyi, head of Birinyi Associates, said on CNBC that stocks were only half way through a bull market, and so the S&P 500 index could rise another 60 percent over the next two to three years.

"The last bull market was five years," Birinyi said. "We're still looking for (this) bull market to last four to five years. If we cobble together all the long bull markets, we come up with a historical projection of about 2,100 out two or three years from now on the S&P."

Oil prices rose as tensions in the Middle East and North Africa continued. London Brent crude near $116 a barrel, while U.S. light sweet crude traded above $105 a barrel. Crude oil inventories rose by 2.1 million barrels, according to the Department of Energy. Gasoline inventories fell by 5.3 million.

Gold rose above $1,438 an ounce, hitting its highest level since early March and silver struck a 31-year peak, as investors sheltered in precious metals following a key vote threatening Portugal's government. Freeport McMoRan shares advanced more than 4 percent as metals rose. Newmont Miningand United States Steel also gained, as did Alcoa.

Traders had plenty of bad news to consider on Wednesday, including an explosion near a bus in downtown Jerusalem, which harmed at least 30 people.

Also, Japan estimated the direct damage from the earthquake and tsunami to be $185 to $308 billion, making it the costliest natural disaster ever.

The U.S. became the first nation to block some food importsfrom Japan and Japanese authorities advised against allowing infants to drink tap water in Tokyo due to raised radiation levels.

Toyota slipped after the automaker said the disaster in Japan will delay the Japan launch of two new Prius models due to production disruptions.

In Europe, minutes from the Bank of England’s latest meeting showed the Bank’s Monetary Policy Committee remained split over the need to hike rates.

Despite the events in Japan, a rate hike in May looks likely, analysts said, particularly in light of soaring inflation. The European Central Bank has also hinted it may raise rates in the near future.

Among financials, Bank of America fell more than 2 percent after news the Fed didn't give the banking giantthe go-ahead to raise its dividend. The bank said it will seek permission to provide a modest dividend in the second half of 2011.

Meanwhile, analysts are cutting their estimates for first quarter bank earnings, after volatile markets caught traders by surprise and prompted many investors to remain on the sidelines.

Banks including Citigroup , Goldman Sachs and JPMorgan were all under pressure. Wells Fargo slipped even after Bernstein increased its price target on the bank to $40 from $39.

Retail shares gained, even Talbot's , which had traded lower earlier in the session. The women's apparel retailer will post fourth-quarter earnings on Thursday. Sterne Agee had cuts its earnings estimate for the retailer. Children's Place , TJX Companies , and Limited Brands also gained.

On the earnings front, Discover Financial Services rose almost 5 percent after the credit-card provider reported a quarterly profit and raised its quarterly dividend. In addition, Credit Suisse raised its price target on the firm to $23 from $20.

General Mills slumped after the maker of Wheaties and Green Giant foods said commodities inflation would affect revenuesthis year and next, and delivered a disappointing report on fiscal third-quarter domestic sales.

Adobe Systems declined more than 5 percent after the software company reduced its revenue forecastfor Japan by one third. Cree shares plunged over 10 percent after the LED lighting maker slashed its revenue and margin forecast as higher inventories weighed on demand and prices.

But shares of Jabil Circuit jumped more than 11 percent after the electronic parts maker posted strong quarterly results and gave a solid forecast for the current quarter.

Also on the tech front, Motricity , which provides technology for non-smartphones to surf the Internet, continued to rise sharply after gaining more than 12 percent on Tuesday. (Read more: Cramer—This Tech Stock Is 'Misunderstood.')

AOL , meanwhile, soared after UBS raised its rating on the stock to "buy" from "neutral."

Among the day's economic news, new home sales sank 16.9 percent in February to a seasonally adjusted annual unit rate of 250,000, the lowest since records of sales have been kept. January sales were at an upwardly revised 301,000-unit pace. Economists surveyed by Reuters had expected new sales would rise to an annual rate of 290,000 from the previously reported 284,000 in January.

Homebuilders slumped following the news, with Hovananian and Toll Brothers among the biggest hit.

But Pulte rose after Goldman Sachs added the homebuilder to its "conviction buy" list and raised its price target to $10 from $8.

Also, the Mortgage Bankers Association'sseasonally adjusted index of mortgage application activity rose 2.7 percent for the week ended March 18.

Europe’s sovereign debt crisis was in the spotlight again as Portugal’s parliament votes on the government’s austerity measures. The vote could spell the collapse of the government and further trouble for the debt-battered country.

The uncertainty put pressure on the euro, while the dollar gained against a basket of currencies.

Egypt’s stock market reopened Wednesday morning after a two-month suspension put in place when stocks plunged as a revolution shook the country. Trading was halted just moments after the bourse reopenedwhen circuit breakers kicked in, but later resumed, with further heavy selling by foreign investors.

European shares ended higher, helped by strong mining stocks.

On Tap This Week:

THURSDAY: EU summit; durable goods, jobless claims, natural gas inventories, 10-year TIPS auction, money supply; before-the-bell earnings from Best Buy and ConAgra; after-the-bell earnings from Oracle, Research in Motion.
FRIDAY: USDA food prices outlook; GDP revision, corporate profits, and consumer sentiment.

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