Goldilocks Bloodies Bonds

The stock market was never pricing in a consumer-led recession, so it had less to gain when the strong retail sales rolled in. Indeed, traders are locked in on the price of oil, as they start to work out what the economic weakness in the manufacturing sector means for equities in the coming months.

"Manufacturing may make up a small part of the economy, but it is tied to 40% of the S&P 500 companies and their earnings," says Jeffrey Kleintop, chief investment strategist at PNC Advisors. "Energy prices offset some of the positive for the consumer," says Kleintop. Oil rose 35 cents to close at $61.37.

Stocks turned up slightly on news of the retail sales but weakened later in the day. The three major indices ended up a fraction. The Dow Jones Industrial Average finished at 12,317.50, while the S&P 500 closed at 1413.21 and the Nasdaq Composite closed at 2432.41.

Major averages were aided by strength in Home Depot (HD Quote), up 1.1% after announcing the purchase of 12 home-improvement stores in China, and Apple Computer (AAPL Quote), which jumped 3.4% after Morgan Stanley raised its price target to $110 from $90.

Meanwhile, the Dow Jones Transportation Average's declines reflect concerns about manufacturing weakness. The index slipped another 0.5% Wednesday, after falling 1.2% Tuesday. Shares of railroad company CSX(CSX Quote) slipped 4.5%, and FedEx(FDX Quote) fell 1.3%.