A day after the lowest trading volume session of the year, investors made their presence felt in a big way on Tuesday, driving stocks to their highest levels of 2011.
The Dow Jones Industrial Average gained 115 points to 12,595, the Nasdaq rose 22 points to 2848 and the S&P 500 finished 12 points higher to 1347.
A steady flow of decidedly upbeat earnings reports brightened an already optimistic mood for U.S. traders, as mega-cap companies were delivering either a positive surprise with profit reports, or, in the case of Humana (NYSE:HUM) and IBM (NYSE:IBM) an extra boost to shareholders in the form of higher dividend payouts.
It probably didn’t hurt matters that oil, at recently elevated levels, took a small step backward to settle at just over $112 a barrel. This, of course, was a huge boon for transportation stocks, which soared on Tuesday, thanks also to surprisingly good earnings reports from Delta Air Lines (NYSE:DAL), US Airways (NYSE:LCC) and UPS (NYSE:UPS).
Showcasing the broad rally in transports, Delta gained more than 11%, Ryder (NYSE:R) added nearly 5%, and Union Pacific (NYSE:UNP) tacked on 3%
In fact, away from equities, the trade was fairly quiet. Gold and silver both finished lower (practically unheard of these days), as a lower dollar, which set a 52-week low against a basket of other currencies, couldn’t prop up precious metals on Tuesday.
The day’s economic data consisted of just two nuggets – consumer confidence, which came in above expectations and the Case-Schiller home-prices index for February, which showed a decline back to 2009 lows.
That latter data point contributed to one of the rare black marks on the day – home improvement stocks were underperformers as a whole – Home Depot (NYSE:HD) slipped 1%.
And therein lies the crux of the latest fork in the road for investors (those not fully embracing a risk-free upside) at a new high for the year – are we nearing a point where the trend in stocks and the trend in the economic recovery are out of whack?
One wonders whether the tone of first-quarter earnings reports is fully capturing where we are just four weeks later with regard to higher energy and commodities costs. For example, while just the second half of March saw crude trade between $98 and $108 a barrel, the range this month has included $106 to nearly $114 at the high end.
While many companies have publicly tempered reports of strong profits with concerns over managing increasingly rising costs, the faith from investors that margins are invincible has never been stronger.
