Stocks turned slightly higher Tuesday as investors weighed positive earnings from two of the market's most influential companies against worries about the economy.
Major indexes spent the first two hours mostly in negative territory but drifted above breakeven on the strength of housing and commodities stocks. The lackluster trading comes a day after the market posted its biggest gain since June 1.
Dow component Home Depot gained more than 1.5 percent and home builder Hovnanian Enterprises moved up nearly 4 percent. The SPDR S&P Homebuilders ETF posted solid gains for the morning as the market clawed to positive ground.
Larger-than-expected gains in producer prices and retail salesfor June presented conflicting signals on the economic front. Producer prices rose 1.8 percent on the strength of autos and energy sales, while retail sales were up 0.6 percent primarily, also on the energy-auto movement.
An additional economic report showing a 1 percent drop in business inventories also was higher than expected but seemed to have little effect on the markets.
The economic reports triggered expectations of inflation, and at least some of the late-morning pop in stocks was attributed to short-covering.
"All the inflation bonds are acting very well today because it feels like the market is buildig in some inflationary expectations," said Dave Lutz, managing director of trading for Baltimore-based Stifel Nicolaus.
The iShares Barclays TIPS ETF edged higher though it was off its peak. The fund is up about 5 percent in 2009.
Hotel stocks, including Starwood, helped push the market higher.
"We basically have a consumer reflation trade coming out right now," Lutz said. "This is typical of a short-covering move."
Earnings season kicked into full gear as both Goldman Sachs and Dow stock Johnson & Johnson posted numbers that surprised to the upside.
Johnson & Johnson posted earnings of $3.2 billion that beat expectations, while also affirming its full-year outlook, sending shares higher.
Goldman shares inched up following its earnings report, even though the numbers easily beat analyst estimates. The company reported net income for common shareholders of $2.7 billion, or $4.93 a share, compared with $2.05 billion, or $4.58 a share, in the closest year-earlier quarter.
The morning's moves also were limited after Sun Microsystems said it expects fiscal fourth-quarter results below Wall Street estimates.
The server and software maker, which is being bought by Oracle in a $7.4 billion deal, predicts a loss of 24 cents to 34 cents per share in the quarter ended June 30. Excluding one-time items, Sun expects a loss of 6 cents to 16 cents per share.
In the financial sector, the government may help troubled commercial lender CIT Group get back on its feet. CIT shares surged on the news.
