An increase in long-term interest rates gave a boost to Charles Schwab, Goldman Sachs and other financial stocks Tuesday afternoon, helping major stock indexes hold on to slight gains. Rates ticked up following a report showing that consumer prices increased last month.
KEEPING SCORE: The Standard & Poor’s 500 index rose three points, or 0.2 percent, at 1,941 as of 2:10 p.m. Eastern Time. The Dow Jones industrial average added 21 points, or 0.1 percent, to 16,802. The Nasdaq composite gained 20 points, or 0.5 percent, to 4,341.
PRICE HIKE: The Labor Department reported that U.S. consumer prices increased in May by the largest amount in more than a year, propelled by rising costs for food, gasoline and airline fares. Over the past 12 months, consumer prices are up 2.1 percent. Prices have risen at a modest pace near the Federal Reserve’s 2 percent target.
FAVORED FINANCIALS: Several financial stocks were trading higher as the yield on the 10-year Treasury note increased. Among them was E-Trade Financial, which rose $1.54, or 7.3 percent, to $21.92. Charles Schwab rose $1.41, or 5.4 percent, to $27.29. Banks including Bank of America, Goldman Sachs and Morgan Stanley also posted gains, as the rise in long-term interest rates gave lenders the prospect of earning more money from making loans. Bank of America rose 26 cents, or 1.7 percent, to $15.54, while Morgan Stanley added 76 cents, or 2.4 percent, to $32.47. Goldman Sachs gained $2.45, or 1.5 percent, to $168.29.
HOUSING: The Commerce Department said homebuilders started work at an annual rate on 1.01 million homes in May. That was down 6.5 percent from 1.07 million in April. Home construction has struggled to gain much traction this year, limiting its ability to contribute as much to broader economic growth as it has in the past. After initially sliding, shares in most homebuilders rebounded in afternoon trading.
ANALYST’S TAKE: The mixed news on the U.S. economy and lingering concern over the conflict in Iraq left investors with little to trade on, said Brad Sorensen, director of market and sector analysis at the Schwab Center for Financial Research. “There really isn’t a lot of impetus to sell or buy. We’re kind of drifting along.”
SECTOR FOCUS: Seven of the 10 sectors in the S&P 500 rose, led by financials. Energy fell the most.
GAME ON: GameStop shares surged 5.5 percent on a report from the NPD Group that revealed huge video game sales in May and likely some bigger margins for the video game retailer. GameStop rose $2.09 to $39.81.
HIT THE ROAD: Separate reports from UBS and Susquehanna analysts struck an optimistic tone about growth in the travel industry. That helped lift shares in travel website Expedia $2.79, or 3.7 percent, to $77.37.
FED WATCH: The central bank meets Tuesday and Wednesday. Fed officials are widely expected to keep a key short-term rate near zero. Economists don’t expect the Fed to begin increasing that rate for another year. The Fed will also update its economic forecasts. That could result in the Fed trimming its estimate of 2014 growth after the government said last month that the economy shrank in the first three months of the year.
“We’re all waiting to see what the Fed has to say tomorrow,” said JJ Kinahan, chief strategist at TD Ameritrade. “That’s really the primary thing today.”
IRAQ & OIL: The price of crude slipped 68 cents to $106.22 a barrel. The U.S. said it was deploying a small group of troops to Iraq, helping to ease concerns that a conflict could disrupt exports from OPEC’s No. 2 oil producer. Those concerns have been behind crude oil’s 3.4 percent rise this month.
BONDS: Government bond prices slipped, pushing Treasury yields up. The yield on the 10-year note rose to 2.65 percent from 2.60 late Monday.