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Stocks Close Higher Amid Gains in Oil Prices

Thursday, 12 May 2011 | 4:49 PM ET

Stocks closed modestly higher on Thursday, cutting in half the losses made on Wednesday when a commodity rout roiled global markets.

The Dow Jones Industrial Average rose 65.89 points, or 0.5 percent, to close at 12,695.92, following a 1 percent decline in the previous session.

Cisco was the biggest laggard on the blue-chip index throughout the session after the tech bellwether warned that it would perform worse than analysts had expectedin the current quarter. Shares of the networking giant tumbled to the bottom of the S&P 500, and at least five brokerages cut their price targets on the firm.

TheS&P 500 rose 6.57 points, or 0.5 percent, to close at 1,348.65, while the tech-heavy Nasdaq rose 17.98 points, or 0.6 percent, to close at 2,863.04. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to nearly 16.

Among key S&P 500 sectors, consumerstaples and health care gained, while financials fell.

It's difficult to read too much into the fact commodities and stocks have moved in the same direction the last two sessions, according to Jeremy Zirin, chief U.S. equity strategist at UBS Wealth Management.

"Commodities have a inconsistent relationship with stocks over time," Zirin said. "They move together if it’s demand driven, and if they rise too far too quickly, and (commodity prices) start to crimp demand, then you’ll see risk assets start to sell off."

When commodities and stocks do move together, it's usually out of a concern the economy is experiencing "demand destruction," meaning commodities like oil are in less demand, which can be a sign of a slowing economy. On Wednesday, the market learned industrial activity in China was slowing, and inventories of crude oil and gasoline supplies in the U.S. were growing, two signals of slowing economic demand.

But, Zirin added, the reason for Wednesday's fall in energy and oil prices could also be simply some of the froth coming out of those sectors.

Others viewed the slide in stocks on Wednesday as a "risk off" trade, said Yu-Dee Chang, chief trader and principal of ACE Investment Strategists.

But Chang, noted, the stock market wasn't as "emotional" as the rest of the "risk on" assets, as the U.S. market fell only about 1 percent amid much steeper losses among precious metals and oil.

The dollar , which rose on Wednesday, slumped slightly against a basket of currencies after a European Central Bank official said a 25 basis point boost in interest rates in April was "certainly not" a one-time occurrence, according to Reuters. His comments gave a modest boost to the euro.

Oil prices, which nose-dived Wednesday, stabilized with U.S. light, sweet crude rising 0.77 percent to settle at $98.97 a barrel and LondonBrent crude gaining 0.4 percent to settle at $112.98.

Energy stocks were also in focus as executives of the major oil companies, including Chevron, BP, Shell, ConocoPhillips and ExxonMobiltestified before a Senate committeeon a proposal to cut tax breaks for the industry.

Precious metals prices also reversed, shedding losses from early in the session. Silver gained 2 percent to settle at $34.79 an ounce, while gold gained 0.4 percent on Thursday to settle at $1,506.60.

Also on the earnings front, Symantec soared to the top of the S&P 500 after the computer security firm reported solid earnings. In addition, at least five brokerages raised their price targets for the company.

And Kohl's rose after the retailer raised its profit forecast for the year, and said its gross margins were intact despite rising commodity costs.

Kohl's results, combined with Macy's strong results earlier in the week, lifted retail shares. The S&P 500 Retail Index gained while shares of most department stores traded higher on Thursday, including JC Penney and Target .

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Goldman Sachs sank after news that Rochdale Securities downgraded the investment firm to "sell" from "neutral." Analyst Richard Bove cited the decision by the CFTC to request a fraud complaint against Goldman, as well as hedge fund billionaire Raj Rajaratnam's conviction on insider trading.

Meanwhile, S&P Equity research downgraded Goldman to "hold" from "buy" and cut its price target to $18 from $20, saying the bank faces "an increased risk of a material lawsuit by the Department of Justice for allegedly misleading clients by not disclosing its proprietary interest in certain CDO (collateralized debt obligation) sales." S&P Equity also said financial reform legislation presents headwinds.

The Goldman downgrades pressured the financial sector. Rivals JPMorgan and Citigroup also fell.

Volume on the consolidated tape of the New York Stock Exchange was 3.6 billion shares, while 959 million changed hands on the NYSE floor.

In Washington, President Obama and Senate Republicans agreed on the need to raise the national debt ceiling, and the president told them both sides have to "give a little" in deficit talks, according to the White House.

Treasury prices continued to lose groundafter the government auctioned $16 billion in 30-year bonds which had a high yield of 4.380 percent and a bid-to-cover of 2.43.

On the economic front, retail sales posted their smallest rise in nine monthsin April and wholesale prices increased more than expected.

In addition, new claims for jobless aid fell 44,000 to a seasonally adjusted 434,000 last week, but remained too high to signal a strong labor market recovery.

Also, business inventories rose 1 percent in March and sales rose 2.2 percent, the Commerce Department reported. The gains for inventories, the 15th in a row, was to $1.48 trillion. A rise in inventories usually leads to gains in factory orders.

Asian andEuropean marketsfell on Thursday as the renewed selloff in commodities unsettled investors. Mining and energy stocks fell.

On the Calendar This Week:

THURSDAY: Money supply, NPD video game sales; earnings from Nordstrom after-the-bell.
FRIDAY: CPI, consumer sentiment, Transocean shareholder meeting; earnings from Petrobras after-the-bell.

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