Stocks inch higher as investors await Europe news
The major market indexes closed modestly higher, after wavering between slight gains and losses throughout the morning. Trading volume was light and the stock moves were small, as the Dow Jones rose rose 26 points to 12,127.
The major market indexes closed modestly higher, after wavering between slight gains and losses throughout the morning. Trading volume was light and the stock moves were small. In Europe, markets were mixed.
The Dow Jones industrial average rose 26.49 points, or 0.2 percent, to 12,127.95. It traded within a range of 75 points, one of the narrowest of the year.
Timothy McCandless, senior stock analyst at Bel Air Investment Advisors in Los Angeles, described Tuesday's market as stuck in purgatory: The economy is not strong enough to represent a healthy recovery, but not weak enough for the Federal Reserve to do more to help.
"It's wrestling with those two sides," McCandless said. "We're right in between."
Finance ministers and central bank presidents from the world's seven wealthiest nations held an emergency conference call to discuss how Europe can heal its weakest countries without alienating the stronger ones that have to foot the bill. Leaders are worried that Spain and Cyprus, which are scrambling for money to prop up their troubled banks, will soon need to be bailed out by their richer counterparts.
"As we saw in Lehman Brothers, when fear hits the banking system, it shuts down," said Jim Millstein, CEO of the advisory firm Millstein & Co. and a former Treasury official who oversaw the agency's investments in AIG and other troubled financial institutions.
The call didn't yield any concrete solutions for Europe, at least not publicly. Several investors who were unsure of what to do Tuesday said they expect more clarity — and perhaps more drama — later this month, after Greece holds elections June 17 and world leaders from the nations known as the Group of 20 meet for the two days afterward.
Spain isn't part of the Group of Seven, the countries that held the conference call, but the U.S. and Germany are. As the G-7 leaders met, Spain's prime minister issued a plea for Europe "to support those that are in difficulty." Just beforehand, Spain's finance minister said the country was in danger of not being able to borrow money on the open market.
The yield on Spain's 10-year bonds crept down to 6.31 percent, but that is still dangerously high. Other countries including Greece and Portugal were forced to seek bailouts once their borrowing costs hit 7 percent.
Patrick O'Keefe, director of economic research at the accounting and consulting firm J.H. Cohn, was surprised that markets didn't react more forcibly to Spain's warning flags.
"A couple of years ago, a statement like that by any sovereign would have roiled the market," O'Keefe said. He guesses that the market, used to bad news by now, has already priced in European calamity.
"We were saying, 'We're on the brink' in 2008,'" O'Keefe said. "We're not all that far from the brink now."
In the U.S., the Institute for Supply Management reported that U.S. service companies grew at a slightly faster pace in May. The stock indexes briefly popped higher on the news.
O'Keefe said the market is waiting for a blueprint about what to do in Europe and other regions. "I think the markets are looking and saying, 'Where is the political leadership?" O'Keefe said. "And that's true around the world. The Europeans just happen to be out of the frying pan and into the fire right now."
A central problem in Europe is whether the best solution means spending less money or more. Any plan is sure to irritate at least some countries. The German finance minister said again Tuesday he would oppose watering down budget cuts that stronger countries like his own want to impose on weaker countries like Greece.
Some leaders have pushed for a central body that would have more authority over banks in all 17 countries that use the euro. A deposit-insurance program, like the one run by the Federal Deposit Insurance Corp. in the U.S., could keep fearful customers in Spain and Greece from yanking their money out of banks there.
Spain on Tuesday pushed for a European "banking union" that could give bailouts to European banks directly, possibly bypassing national governments and the strings they want to attach to any rescue loans.
European markets were mixed. Greece's main stock index plunged 5 percent. Germany's benchmark index was basically flat. Stocks rose in France and Spain.
Starbucks fell nearly 3 percent a day after announcing it will remake its food offerings. J.C. Penney fell 4 percent after CEO Ron Johnson said his new pricing strategy had confused customers. Homebuilders Lennar and PulteGroup each rose 6 percent or more after being hammered in the past two trading sessions.