U.S. equities ended higher on Thursday but considerably off the best levels of the session as oil prices recovered from selling pressure and investors learned that there would be no deal between Microsoft (MSFT) and Yahoo Inc. (YHOO).
Earlier gains had been spurred by a better-thasn-expected reading on May U.S. retail sales.
On Thursday, the Dow Jones industrial average finished 57.81 points, or 0.48%, higher at 12,141.58. The broader Standard & Poor's 500-stock index gained 4.38 points, or 0.33%, to close at 1,339.87. The tech-heavy Nasdaq composite index advanced 10.34 points, or 0.43%, to 2,404.35.
On the New York Stock Exchange, 16 stocks traded higher for every 15 that were being sold, while on the Nasdaq the ratio was 15-13 positive.
Doug Roberts, chief investment strategist at ChannelCapitalResearch.com, says he sees investors "betwixt and between," encouraged on the one hand by stronger than expected retail sales figures and concerned on the other hand by continued increases in jobless claims, which portends more pain for the economy.
"There's not a reason to go too buoyant" on stocks, he says. "Long-term, nothing significant is going to happen. With unemployment [on the rise], I don’t think the Fed’s anywhere near to raising rates. If they raise rates, it's not going to prevent inflation."
Yahoo shares fell 10% after it announced an end to discussions with Microsoft over a possible acquisition of either all or part of the Internet search company after several talks about various kinds of transactions. Last week, Microsoft said it wanted to buy only Yahoo's independent search business, but Yahoo's Board decided its display business wouldn't stand without the search business. Microsoft's stock was up 3%.
Talk that Yahoo might instead be considering a partnership with rival Google (GOOG) to outsource its search business with no clear boon for shareholders was expected to anger shareholders.
Lehman Brothers Holdings (LEH) shares were down again, albeit modestly compared with losses earlier this week, after the investment bank ousted its chief financial officer, Erin Callan, and chief operating officer, Joseph Gregory, less than a week after pre-announcing a $2.8 billion loss for the second quarter and said it had raised $6.0 billion in fresh capital.
The latest victim of the cash shortfall plaguing banks is KeyCorp (KEY), which said on Thursday it was cutting its dividend in half starting in the third quarter and seeking to raise $1.5 billion in capital through a sale of common and preferred stock in order to offset tax accounting charges and to maintain strong capital ratios. Axing the dividend to 75 cents a year will save KeyCorp $200 million a year and will end 43 consecutive years of dividend increases, the Wall Street Journal reported.
Leading the economic data, retail sales came in stronger than expected, rising 1.0% in May, double the median estimate, and were up 1.2% excluding automobiles.
The U.S. initial jobless claims climbed 25,000 to an annualized rate of 384,000 for the week ending June 7, more than the median forecast of a 366,000 pace.
Meanwhile, import prices soared 2.3% in May, near the median estimate, while export prices were up 0.3%. Business Inventories climbed 0.5% in April, slightly ahead of the median estimate and vs. a 0.2% gain in March. The increase in business Inventories is expected to boost Gross Domestic Product data, S&P MarketScope said.
There was more tough talk on inflation, this time from Charles Plosser, head of the Federal Reserve Bank of Philadelphia. He told CNBC Business News that the base of inflation is broadening beyond just oil prices. While he doesn't think inflation expectations have become unanchored, he believes the Fed needs to act pre-emptively to manage those expectations.