Everything Old Is Cool Again: Blue-Chips Rally While Nasdaq Drifts

Investors applauded the latest round of benign inflation data, as hopes rose that the curtain will soon descend on the Fed's rate-hike roadshow. Old Economy stocks were still enjoying an encore at midday, while technology stocks got shoved off to the wings.

Major Indices INDEX CHANGE % VALUE Dow 86.62 +0.8% 10,708.46 S&P 500 6.59 +0.5% 1476.03 Nasdaq 11.73 -0.3% 3839.33 Russell 2000 1.31 +0.3% 515.06 TSC Internet 3.33 -0.4% 910.30 NOTE CHANGE PRICE YIELD 10-Year Treasury 11/32 103 4/32 6.067%

The Labor Department reported the Consumer Price Index edged up 0.1% in May, compared with expectations for a 0.2% gain. Core CPI, which excludes food and energy prices, rose 0.2%, in line with consensus forecasts. For more on the latest CPI stats, see a separate story from TheStreet.com/NYTimes.com joint newsroom.

The Dow Jones Industrial Average was lately up 87, or 0.8%, to 10,708, the S&P 500 was up 7, or 0.5%, to 1476 and the Russell 2000 was up 1 to 515, while the Nasdaq Composite Index was off 12 to 3839.

Today's action is "more or less a continuation of the backdrop where interest rates have moderated. It has kind of removed some of the fear," said Steven Goldman, market strategist at Weeden in Greenwich, Conn. He points out the strong market internals and sector performance over the past few months which he said has been overshadowed by volatility.

Goldman noted a strong showing by utilities, financials and consumer cyclicals since mid-March. Indeed, from then through yesterday, the Dow Jones Utility Index was up 15.9%, the Philadelphia Stock Exchange/ KBW Bank Index was up 18.2% and the Morgan Stanley Consumer Index was up 13.8%.

Old Economy stalwarts were at the head of the pack today as investors went bargain-hunting in some of the beaten-down cyclicals including Dow Chemical (DOW), up 2.1%, International Paper (IP), up 3.6%, and Alcoa (AA), up 4.9%. The Philadelphia Stock Exchange Forest & Paper Products index was up 3.2%, while the Morgan Stanley Cyclical Index was up 1.7%.

"People might have been lost in all the talk about a slowing economy," said Goldman. "It's common for that to happen when the Fed is in the late innings of a series of interest-rate hikes." But, in retrospect, he explained, you'll see the market has done well in that period. "As corporate profits are slowing, the market gives further impact to expanding price-to-earnings ratios," said Goldman.

Microsoft (MSFT) was enjoying the legal equivalent of a good hair day after the U.S. Court of Appeals agreed yesterday to speed its review of the case while government lawyers formally requested the matter instead be sent directly to the Supreme Court. The stock, which is a component of both the Dow and the Comp, was up 2 5/16, or 3.4%, to 70 3/16.

Other tech stocks were not performing so well, with the Comp dipping into negative territory after it enjoyed decent gains for most of the morning. Internet, semiconductor and PC makers were all weaker while biotechnology stocks were flat. TheStreet.com Internet Sector index was down 3, or 0.4%, to 910; the Philadelphia Stock Exchange Semiconductor Index was off 1.6% and the Philadelphia Stock Exchange Computer Box Maker Index was down 0.8%. The Nasdaq Biotechnology Index was down 0.7%.

Doug Myers, vice president of equity trading at IJL Wachovia in Atlanta, thought today's upside was due more to a lack of selling pressure. "The market is sort of in a fashion where there is just not much on the downside. There is just a sense that you can nibble on specific stocks. I don't know that all the market timers are ready to jump back in," he said. Still, he added on a more optimistic note, "hopefully it holds and gives us a nice foundation to move upward."

Luxury goods retailer Tiffany (TIF) and chip-equipment maker Novellus Systems (NVLS)had a little extra spark today after Standard & Poor's said it would add the stocks to its benchmark S&P 500 index. Stocks usually respond well to inclusion in the index since a number of portfolio managers will now need to add the stock to their holdings. Tiffany was up 2.5% and Novellus was up 10.1%.

Oil stocks were on the rise as crude oil futures on the New York Mercantile Exchange moved up from an earlier dip amid uncertainty about OPEC's output plans. The American Stock Exchange Oil & Gas Index was up 1.1%, while the Philadelphia Stock Exchange Oil Service Sector Index was up 2.3%.

The 10-year Treasury lately was up 11/32 to 103 4/32, its yield easing to 6.07%.

Market Internals

Breadth was narrowly mixed on light-to-moderate volume.

New York Stock Exchange: 1,584 advancers, 1,182 decliners, 526 million shares. 77 new 52-week highs, 27 new lows.

Nasdaq Stock Market: 1,800 advancers, 1,910 decliners, 813 million shares. 57 new highs, 44 new lows.

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For a look at stocks in the midsession news, see Stocks to Watch, published separately.

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