Wall Street shook off some more daunting economic news and barreled ahead on the strength of a share buyback from IBM and more strength from home builders benefiting from an increasing belief that the housing market has hit bottom.
The major indexes each were around their daily highs as investors continued to snap up undervalued stocks as well as recessionary staples.
Inflation fears generated by producer Price Index gainsnot seen since October 2006, as well as consumer confidence down sharplyfrom December, couldn't derail the market, though stocks were lower in the morning.
But the International Business Machines news seemed to single-handedly change the market mood, though analysts said there could be broader forces at work. The Dow stalwart said its board authorized a $15 billion share buybackthat could boost 2008 earnings by up to 5 cents per share, and the company said it now expects $8.25 EPS.
"I would be a little bit more sanguine right now if we saw some more volume," said Fred Froewiss, vice president for institutional sales at RF Lafferty. "I think as we go tino the balance of the week with lots of economic data coming out, traders may become a little bit more cautious as we end the trading day."
Some investors feared that the unexpected increase in the PPI would dissuade the Federal Reserve from instituting rate cuts that the slipping market has used as harbingers of hope. But analysts were broadly rejecting the notion that the economy was heading into 1970s-style stagflation, despite the dueling threats of inflation and recession.
"The inflation phenomena that we saw in the 1970s and 1980s is fundamentally different than now for a whole bunch of reasons," David Resler, Nomura Securities chief economist, said on "Power Lunch, "not the least of which is that we have more competitive pressures and finished goods markets than we had then."
While the market was expected to be sensitive to comments from Fed officials through the week, investors also took some encouragement from comments from Donald Kohn, the central bank's vice chairman, who said economic weakness is a bigger threat than inflation. The remarks were viewed as suggestive that more interest rate cuts were on the way.
In active retail earnings news, Home Depot fell short of analyst estimates and warning of difficult times ahead. The home improvement giant said earnings per share could fall as much as 24 percent this year, and it scaled back plans for new store openings. Its shares, though, posted only modest losses.
Radio Shack, meanwhile, saw shares soar after it reported a 19.5 percent increase in fourth-quarter profit that beat analyst estimates. The electronics retailer led gainers on the S&P.
Also pushing stocks upward were home builders, benefited from continuing sentiment that the real estate market was at or near a bottom despite a continuing battery of bad news.
The residential construction sector was up 5.8 percent on the day, led by Hovnanian and Lenar.
"Anything they say about home prices now or the housing sector is not moving the markets at all," Linda Deusel, strategist for Federal Investors Equity, said on "Power Lunch."
Among companies reporting before the bell, Target posted profitof $1.23 a share that, though sharply lower from 2007, narrowly beat expectations. Macy'sbeat analyst estimateswith a profit of $1.65 a share, and Office Depot badly missed expectations, with its profit tumbling to 7 cents a share against projections of 18 cents.
Technology stocks showed early strength, even briefly sending the Nasdaq into positive territory, but fell as leaders Google and Apple continued to see their shares pummeled.