Stocks Overcome Jitters, End Higher

Updated from 4:12 p.m. EDT

New York's major averages struggled for direction for a good part of the session Tuesday, but they went out higher as investors ultimately decided that mixed news on the corporate and economic fronts tilted toward the positive side.

The Dow Jones Industrial Average spent time on both sides of the flat line before finishing 60.41 points higher at 12,362.47. The S&P 500 added 6.11 points at 1334.43, and the Nasdaq Composite ticked up 10.22 points at 2286.04. All three were up by about 0.5%.

Hank Smith, chief investment officer with Haverford Investments, noted that encouraging numbers from both Charles Schwab (SCHW Quote) and M&T Bank (MTB Quote), in particular, helped keep some upward pressure on shares.

Mildly positive earnings from Dow component Johnson & Johnson (JNJ Quote) also seemed to buoy investor sentiment a bit, considering recent disasters from the likes of fellow industrials General Electric (GE Quote) and Alcoa (AA Quote).

J&J posted a first-quarter profit of $3.6 billion, or $1.26 a share -- 6 cents above the consensus estimate. The company also reported better-than-expected sales and upped its 2008 earnings guidance by a penny. Still, shares were down slightly at $65.65.

"I think the enthusiasm was probably overrated," said Edgar Peters, chief investment officer with Pan Agora. "Volume has been thin, and when the volume stays thin, it's definitely not the catalyst everyone's been waiting for."

Smith said that, because J&J ranks among the big companies that should be able to withstand a recession, its numbers helped simply by not being downbeat.

"Their earnings should be more or less impervious to whether we're in a recession or a severe slowdown, and we got confirmation of that," he said. "I think, more broadly speaking, the market's finding a base here, and one encouraging sign is it's able to shrug off some bad news, the GE news notwithstanding. I think we're at the very latter innings of this credit crunch/financial crisis, and the market is prepared to start looking forward again."

Also giving legs to the Dow on Tuesday was Intel (INTC Quote), which ran up 1.1% in heavy volume amid anticipation for its post-bell earnings release. The chipmaker reported beating on both top and bottom lines, even as earnings came in lower than last year, and current-quarter sales guidance leaned to the higher end of consensus. After hours, the stock was leaping 6.7% at $22.31.

Overall, breadth was positive in the regular session. Roughly 1.79 billion shares changed hands on the New York Stock Exchange, with advancers topping decliners by a 3-to-2 margin. Volume on the Nasdaq reached 1.88 billion shares as winners edged out losers 5 to 4.

As for the erratic trading throughout the session, Jim Paulsen, chief investment strategist with Wells Capital Management, pointed out that, regardless of anything else, fears continue to linger regarding the financial crisis that has been plaguing the market for months.

"That, and in the last several days, there have been these fades," he said. "I think on the floor, if you get a strong rally and things start to fade, you take your money off the table."

Traders were also digesting a surprise uptick in the New York manufacturing sector. The Federal Reserve Bank of New York said the Empire State Index came in at 0.6 for April, indicating a slight expansion in the state's factory activity -- well ahead of both last month's reading of negative 22.2, which suggested a significant contraction, and of economists' expectation of minus 17.

Ian Shepherdson, chief U.S. economist with High Frequency Economics, is skeptical about the sharp reversal. "Reports like this give regional surveys a (mostly deserved) bad name," he said in an emailed statement. "It is inconceivable to us that real business conditions have improved to this degree in the NY region over the past month, so we strongly recommend taking no notice at all of the headline number."

Paulsen believes that, if anything, the outlier came in last month's reading. He also remarked that the New York and Philadelphia manufacturing indices appear to have been anomalies compared with the rest of the country, since nationwide manufacturing numbers remain just below the break-even level.

Elsewhere on the economic docket, the Labor Department said March prices at the wholesale level, excluding the volatile effects of food and energy -- the "core" number -- rose an in-line 0.2% from the prior month and 2.7% from a year earlier. Keeping in spiking food and energy costs, the producer price index jumped 1.1% sequentially, compared with a 0.3% rise in February and economists' targets of just 0.6%.