Despite merger news in the online brokerage industry and a sharp drop in Treasury yields, stocks went nowhere fast Wednesday, with oil prices still casting a long shadow on a market in search of new momentum.

The S&P 500 rose 0.27 points, or 0.02%, to 1213.88. The index was weighed down by a 4.4% drop in shares of Ford ( F - Get Report), which cut its 2005 profit outlook for the second time this year due to weak SUV sales.

The Dow Jones Industrial Average fell 11.74 points, or 0.11%, to 10,588. General Motors ( GM - Get Report), which fell 3%, contributed to the downside. The Nasdaq Composite added 0.96 points, or 0.05%, to 2092.03 but failed (once again) to maintain an advance above the 2100 level.

Some support for shares was found thanks to news that Ameritrade ( AMTD - Get Report) plans to acquire TD Waterhouse, the online brokerage unit of Toronto-Dominion Bank ( TD - Get Report), for $3 billion.

Meanwhile, a surge in bond prices was inspired by fresh concerns about global growth, this time from the U.K.; the minutes of the Bank of England's last rate-setting meeting noted that two members, including the bank's chief economist, favored a rate cut. Many hope this will help convince the Federal Reserve that it should soon halt its year-old rate tightening campaign. The benchmark 10-year Treasury note soared 26/32, sending the yield again well below the 4% mark, to 3.94%.

But ahead of the Fed's rate-setting meeting next week, market players have been looking with increasing nervousness at the price of crude oil. On Tuesday, crude oil for August delivery fell 95 cents, to $58.09 a barrel, following bearish inventory data.

Still, crude reached an all-time high of $59.37 earlier this week and -- not surprisingly -- the S&P retail index has started to look flimsy since last week. The rearview mirror perspective -- recent signs of a rebound in consumer confidence -- is now being tested as consumers again have to deal with gasoline prices at well above $2 per gallon at the pump.

The S&P retail index has had a nice run over the past month, surging 11.3% since May 16. That compares with a 5% gain for the S&P 500 during the same period. The surge coincided with a sharp gain in April retail sales and hopes of more to come as crude oil prices had fallen to $48 per barrel.

On Tuesday, the index rose 0.31%. The Redbook weekly chain store sales survey showed a bullish 4.1% year-on-year increase, the largest increase in sales in 12 weeks. The gain follows a 3.7% rise last week, and points to "very strong June retail sales," says Ian Shepherdson, chief U.S. economist at High Frequency Economics.

What's Next for Retail Shares?

The correlation between rising gasoline prices and dipping consumer sentiment and retail sales is well known, and was again demonstrated during the so-called oil-induced "soft-patch" seen in early spring.

Now the question centers on how the newfound confidence of consumers will withstand the return of high gasoline prices, assuming that prices remain at current levels or move higher.

According to the Energy Information Agency, the U.S. average retail price for regular gasoline rose for the third week in a row, gaining another 3.1 cents this week to $2.16 per gallon.

Last year, every 10% rise in gasoline prices amounted to a 0.66% drop in sales at discount retailers, according to Michael Niemeira, chief economist for the International Council of Shopping Centers. The impact on sales was lower, at 0.33%, for department stores such as Saks ( SKS), Gap ( GPS) or Nordstrom ( JWN - Get Report), whose more affluent clients can better weather the hit to their wallets.

But "consumers have become more resilient to rising gasoline prices," says Wachovia financial economist Gina Martin. "Those prices have been better included into lifestyles than was expected."

According to Martin, gains in disposable income and most importantly, the ever-rising prices of homes, are having an unusual buffering effect on consumer resilience.

After all, even if, as oil and gasoline prices dropped last month, they remained very high. Yet retailers such as Best Buy ( BBY - Get Report) continued to post stellar results.

"Let's not forget that over the last couple of years, mortgage refinancing has been the main fuel of consumption, and refinancing activity is at new highs," she says.

Unless gasoline prices rise to $3 a gallon, even discount retailers the likes of Target ( TGT - Get Report), J.C. Penney ( JCP - Get Report) and even Wal-Mart ( WMT - Get Report) can benefit from sustained consumer spending, Martin says.

Perhaps luckily for retailers, the highest gasoline prices in the nation, at $2.35 per gallon, are found in California, an area where even Fed Chairman Alan Greenspan would concede real estate prices are red hot and prone to "froth."

Of course, if the fate of retailers becomes tied to the housing bubble, it will be bad news when "some of the most exotic mortgages begin to unwind and consumers feel the squeeze," says Martin.

"We do think that the Fed will tighten to 3.75% by year, and after that some adjustable-mortgage resets will start to occur next year," she says. By then, it may be time to start shorting not only housing stocks but retailers as well.

To view Aaron Task's video take on today's market, click here .

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.