U.S. stocks reversed to the upside early Tuesday afternoon, as a rally in financials overcame an earlier profit warning from United Parcel Service (UPS) and more negative economic data showing further slippage in home prices and consumer confidence.
On Tuesday, the Dow Jones industrial average was trading 34.44 points, or 0.29%, higher at 11,876.80. The broader Standard & Poor's 500-stock index was up 7.67 points, or 0.58%, at 1,325.67. The tech-heavy Nasdaq composite index gained 5.53 points, or 0.23%, to 2,391.27.
The dollar weakened on the new batch of gloomy economic data, while gold and oil prices gained strength.
A Dow Jones Newswires report that UBS AG (UBS) was trading higher on market talk that HSBC could bid up to $80 billion to take over the Swiss bank spurred a rally across the financial sector.
American Express (AXP), Citigroup (C), Merrill Lynch (MER) and Goldman Sachs (GS) were also showing big gains.
United Parcel Service shares dropped after the world's largest express and package delivery company cut its second-quarter earnings outlook from 97 cents to $1.04 to 83 to 88 cents s share, citing slow U.S. economic growth and an "unprecedented" increase in the cost of fuel. Standard & Poor's downgraded the stock to hold from buy, and Robert W. Baird downgraded it to neutral from outperform.
Spiking fuel costs are wreaking havoc in other industries, too. United Airlines (UAUA) said it is laying off 950 pilots and reducing its fleet by 100 aircraft, while Dow Chemical Co. (DOW) confirmed a $300 trucking surcharge, a $600 rail freight surcharge and a 25% price hike in July along with production cuts.
Leading the week's batch of new economic data, the Consumer Confidence Index plunged to a 16-year low of 50.4 in June, well below the median forecast of 56.1, after a reading of 58.1 in May.
All the confidence measures are now showing massive declines since August, 2007 despite the surprising resilience of consumer spending relative to after-tax income, as soaring prices are boosting nominal spending while fueling public angst. While there are plenty of reasons for pessimism, it's the explosive surge in prices that explains the sizable discrepancy between confidence readings on the monthly spending figures, made clear with the last round of big retail sales gains right alongside the array of new record lows being set by the various confidence measures, according to Action Economics.
The Standard & Poor's/Case-Shiller Home Price Index of 20 cities fell 1.4% in April after a 2.2% drop in March, with Miami and Phoenix showing the worst declines in home value and prices starting to rise in some other cities. The 20-city index was down more than 15% from a year ago, however, the biggest drop since its inception in 2000.
The U.S. Treasury Department said it will sell another $30 billion in 2-year bonds on Tuesday, just ahead of the Fed policy committee's rate decision on Wednesday. Fears of a shift toward a tighter monetary policy stance around the world have weighed heavily on bonds, particularly shorter-dated issues. The yield on the 2-year note is up 30 bassi points since the May offering after Fed comments warning of rising inflation risks, and concerns that the Fed's policy statement will say inflation has become the dominant risk are likely to dim the prospects for this auction, Action Economics said. Recent offerings have been disappointing as much of the safe haven buying has dried up.
Oil prices crested above $138 a barrel briefly on rumors of an attack by Israel on an Iranian nuclear facility, which prompted a denial by Iran.