Stocks came off their session highs Thursday after news Bernanke said the Federal Reserve is not prepared to take further action on the economy, but were still buoyed from positive economic news as well as stronger-than-expected earnings results from bank titan JPMorgan.
The Dow Jones Industrial Average pared back but continued to hold onto modst gains, led by JPMorgan and McDonald's after snapping a three-day losing streak in the previous session.
Alcoa was the biggest laggard on the blue-chip index.
The S&P 500 and the tech-heavy Nasdaq turned lower. The CBOE Volatility Index, widely considered the best gauge of fear in the market, traded above 20.
Utilities and energy were the biggest gainers among key S&P sectors, while materials slipped.
Fed Chairman Ben Bernanke's comments appeared to shut the door on any near-term possibilities of another round of bond buying, giving a boost to the dollar.
"The situation is more complex," Bernanke told the Senate Banking Committee. "Inflation is higher...We are uncertain about the near-term developments in the economy. We would live to see if the economy does pick up. We are not prepared at this point to take further action."
Stocks had gained in recent days following Bernanke's statements that implied the Fed may be preparing for another round of Treasury bond buying.
“I don’t think even QE2 was effective as the Fed estimated," Joe Lavorgna, chief economist for Deutsche Bank Global Markets. "They’re really downplaying the big commodity move we had, the weak dollar and the fact that headline inflation rose quite dramatically in the first half of the year really crimping household incomes—so I hope they don’t do QE3 as I think it may do more harm than good at this point.”
JPMorgan led the Dow gainers after the banking giant reported better-than-expected earnings as the absence of a British tax on bonuses helped improve their bottom line. Rivals BofA , Citigroup and Goldman Sachs were also higher. Citigroup is slated to report on Friday.
However, some traders remained skeptical on the banking sector.
“I think you need to wait for more information,” Dan Fitzpatrick, trader and senior contributor to RealMoney.com told CNBC. “One great earnings from JPM does not meant that financials have bottomed.”
On the economic front, weekly jobless claims dropped 22,000 last week to a seasonally adjusted 405,000, the lowest level in almost three months, according to the Labor Department. Economists had expected jobless claims to fall to 415,000.
“We’re getting close to the 400,000 mark—if we can get down to the 35,000 to 37,000 area again, that sets the idea that we have a better jobs environment,” said Steve Rick, Sr. Economist at CUNA. “We’re heading in that direction, but not there yet.”
Rick said today’s encouraging data supports his expectation that the economy may see a rebound in the second half.
Meanwhile, NYSE Euronext shares were halted after Deutsche Boerse confirmed and approved its merger with the firm.
Oil giant ConocoPhillips jumped after news the oil giant is splitting into two divisions, with refining and marketing in one and exploration and production in the other. Rivals including ExxonMobil and Chevron also gained.
Gold prices hit record highs for a second day, after the Fed hinted of further monetary policy easing.
Yum Brands climbed after the parent company of KFC and Taco bell reported earnings that topped expectations and raised its full-year forecast.
Meanwhile, Marriott International tumbled to lead the S&P 500 laggards after the operator of Residence Inn and Ritz-Carlton hotels, reported a 13 percent increase in quarterly profit, but provided a weak guidance that disappointed investors. Rivals Host Hotels and Starwood also fell.
Google is slated to post earnings after-the-bell.
News Corp is also among stocks in focus. Shares in the company rose in the previous session after the media giant walked away from its bid for BSkyB.
The government is slated to auction $13 billion in 30-year bonds at 1pm ET.
Also on the economic front, business inventories rose more than expected in May as sales recorded their first decline in almost a year, according to the Commerce Department.
Inventories increased 1.0 percent to $1.51 trillion, the highest level since October 2008, after rising by an upwardly revised 1.0 percent in April. Economists polled by Reuters had forecast inventories rising 0.8 percent after a previously reported 0.8 percent increase in April.
Producer prices in June posted their biggest decline since Feb. 2010as energy prices eased. The producer price index fell 0.4 percent, following a 0.2 percent rise in May, according to the Labor Department.
And retail sales edged up 0.1 percent in June, according to the Commerce Department, after dipping 0.1 percent in May. Economists had forecast sales slipping 0.1 percent according a a poll from Reuters.
Investors shrugged off news that Moody’scould lower the United States’ top ratingif lawmakers fail to agree on raising the debt ceiling. Moody’s said it saw the risk of a default as Congress struggles to find a deal to cut the deficit. President Obama will resume White House debt talks at 4:15 pm ET.
European stocks ended lowerfor the fourth session in five amid ongoing debt worries.
Coming Up This Week:
THURSDAY: 30-yr bond auction, money supply, NPD video games sales; Earnings from Google
FRIDAY: CPI, Empire state mfg survey, industrial production, consumer sentiment, credit card default rates reported, Dell shareholder mtg; Earnings from Citigroup and Mattel
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