After Early, PPI-Driven Rally, Stocks Little Changed at Midday

Today's benign Producer Price Index gave this market exactly what it was looking for: a great reason to continue rallying and put its money back to work.

Last week's employment data provided a healthy kick of optimism, but Wall Street was waiting for today's numbers to confirm this sentiment. All major indices bucked up at the open, but had fallen back by midsession and were now only a bit higher.

Major Indices INDEX CHANGE % VALUE Dow -5.92 -0.06% 10,662.80 S&P 500 -1.05 -0.07% 1460.62 Nasdaq 34.40 -0.90% 3859.96 Russell 2000 5.54 +1.08% 520.10 TSC Internet 19.40 +2.12% 946.00 NOTE CHANGE PRICE YIELD 10-Year Treasury 1/32 102 22/32 6.336%

The Nasdaq Composite Index was lately up 34.40 at 3859.96; the Dow Jones Industrial Average was down 5.92 at 10,662.80 and the S&P 500 was 1.05 lower at 1460.62.

While the core PPI came in a little higher than forecast, most economists said the numbers were actually better than expected for stocks. Crude prices were down, which means some of the intermediate price pressure is off the market, while some of the core growth was related to a temporary uptick in automobile prices. In fact, some economists are already betting that the Fed won't raise interest rates at its June 28 meeting.

The total May PPI came in unchanged, compared with a Reuters consensus estimate for a 0.3% gain, while the core PPI came in double estimates, posting a 0.2% gain for the month.

Last week, a slew of cool inflation numbers, topped off by the employment report on Friday, tacked on 19% to the Nasdaq and some 4.8% onto the Dow. But, this week, trading has rotated between up-days and down-days.

Traders said today's numbers helped shore up support for the market.

"More investors seem to be feeling that we are building a little bit of a base. The Nasdaq is rebounding nicely; the Dow is fading a little bit. As expectations of a fed rate hike continue to decline, the market will continue to trade higher," said Frank La Salla, CEO of BHF Securities.

La Salla said he thinks some of today's stock moves reflect greater ease with a slowdown in the economy in the second half of the year.

"I think people are getting more comfortable with a slowdown, because they think earnings growth will remain solid. Despite the rate tightening, the economy remains amazingly resilient. So if the Fed stops tightening now, we will still have north of 3% growth rather than north of 2% this year. So it won't slow down to a pace that can really hurt profits and earnings. Recent productivity gains suggest that companies will still be able keep costs down," he explained.

"Quarter-over-quarter earnings might be tough to beat, but they are probably closer than we thought," he said.

In Nasdaq trading, MP3.com(MPPP Quote) was giving a boost to the TheStreet.com Internet Sector index after it settled copyright infringement suits with Time Warner's(TWX Quote) Warner Music Group and BMG Entertainment.

For more on this, see the TheStreet.com/NYTimes.com joint newsroom's story.

Some investors were stepping in to buy Microsoft(MSFT Quote) this morning after the stock took a little bit of a beating yesterday, and shares were off about 1/4 to 68 9/16. Yesterday, the stock closed down 1 11/16, or 2.4%, to 68 13/16 after Judge Thomas Penfield Jackson announced his decision that the company should be split in two post-close Wednesday.

In NYSE trading, Mylan Laboratories(MYL Quote) wasn't doing too hot after issuing an earnings warning, citing pricing pressure. The stock was trading down 31%.

Consumer products giant Procter & Gamble(PG Quote) was still taking a beating after being blamed for much of yesterday's losses on the Dow and was lately down 1 1/4 to 56 1/4. Early yesterday morning, the company announced that it would miss earnings expectations and that its president and CEO Durk Jager is going to resign.

Biotech stocks were doing particularly well and semiconductors were getting a boost, partly on news that National Semiconductor(NSM Quote) beat analysts' estimates and had its yearly earnings estimates raised by Merrill Lynch and Goldman Sachs. The Philadelphia Stock Exchange Semiconductor Index was 1.2% higher and the Nasdaq Biotechnology Index was up 3.3%.

Transports were also enjoying a little rally, with the Dow Jones Transportation Average gaining 1.1%.

In the financial arena, the brokerage stocks were losing some of their earlier power, but still had some steam left, and the xAmerican Stock Exchange Broker/Dealer Index was up 0.8%.

The Russell 2000 was up 1.1%.

Market Internals

Breadth was positive, but volume light on both the NYSE and the Nasdaq.

New York Stock Exchange: 1,560 advancers, 1,177 decliners, 461 million shares. 48 new 52-week highs, 32 new lows.

Nasdaq Stock Market: 2,127 advancers, 1,546 decliners, 744 million shares. 41 new highs, 31 new lows.