After a monthlong market correction, Tuesday's gains were most welcomed by traders. But any optimism was dampened by the market's shrinkage in the final hour of trading. After trading as high as 10,509.83, the Dow Jones Industrial Average dropped from its session highs in the final hour of trade, closing up 92.95 points, or 0.9%, to 10,462. Despite losing some altitude, the Dow posted its best gain since Dec. 21. Following similar patterns, the S&P 500 closed up 4.66, or 0.4%, to 1168.41, vs. its intraday high of 1174.30, while the Nasdaq Composite gained 11.25, or 0.6%, to 2019.95 after trading as high as 2037.18. Newswires provided plenty of positive talking points to set the groundwork for a day that seemed to bode well for a much-desired rebound for stocks. The Conference Board said its consumer confidence index rose unexpectedly to 103.4 in January, after economists had predicted a dip. That contradicted continued talk about consumer spending weakness on the horizon after the University of Michigan said its consumer sentiment index was lower for the month. Amid a sea of earnings news, Merrill Lynch ( MER), Johnson & Johnson ( JNJ) and Merck ( MRK) beat expectations despite posting year-over-year earnings declines. Overseas, China recorded 9.5% GDP growth for the fourth quarter, higher than economists' estimates that called for 8.6% growth. The report raised spirits in the U.S., where investors have long been concerned about efforts in Beijing to slow China's economic growth, for fears of overheating. Still, as far as earnings and economic indicators go, the market has not exactly been starved for good news in January. Overall earnings growth for the S&P 500 has been posting better-than-expected results throughout the reporting season, and recent economic data have been stellar for the most part. Rather than mounting a fresh run to the upside, Tuesday's action looked more like a stabilizing day at best. The Dow is now up 0.7% for the week, but still down 3% for 2005. The S&P remains negative for the week, down 0.6%, and down 3.6% for the year.
Meanwhile, the Nasdaq remains down 0.6% for the week, 7% for the year, and it's only a stone's throw away from the psychologically significant 2000 level. The last time it reached that mark was at the beginning of November, before the re-election of President Bush. With 1.6 billion shares on the Big Board and more than 2 billion in Nasdaq trading, volume was above average but upside volume was only 50% of the total on the New York Stock Exchange and 70% on the Nasdaq; investors were not exactly breaking down the doors to buy stocks. Instead, Wall Street appeared to be content, for now, that stocks have returned to appropriate levels after a violent swing up in the last two months of 2004 that accounted for virtually all of that year's gains. "We clearly got way ahead of ourselves in December," said Barry Ritholtz, chief market strategist with Maxim Group and a contributor to RealMoney.com. "There was obviously a lot of January profit-taking, no real inflows and there's no institutional appetite for risk." Ritholtz noted that while the S&P 500 is headed for year-over-year earnings growth of around 16% for the fourth quarter, growth is closer to 10% if energy stocks are removed from the equation. "The reason why that is significant is that as oil and gas prices go up, that sucks the air out of the rest of the room," he said. "While 10% growth is respectable, it's not very good when you look at it in the context of earnings momentum from quarter to quarter." Oil prices were climbing back toward the $50-a-barrel mark, up 83 cents on the day to $49.64, as traders anticipated the release of U.S. inventory data Wednesday morning. The upcoming election in Iraq and the likelihood of violence in that region also may be causing oil market jitters.