Stocks Rally in Face of Record Oil Prices

Major stock market indexes advanced for a third straight session Tuesday even as oil prices rose to a record.

In the bond market, the yield on the benchmark 10-year Treasury note fell to a four-month low after the government said the consumer price index dipped in July, soothing concerns about inflation.

On Wall Street, stocks rallied early in the day, building on Monday’s gains. The Dow Jones industrial average rose as high as 10,023 before pulling back.

The blue-chip index still ended up 18.28 points, or 0.2%, at 9,972.83, after rising 129.20 points Monday.

The technology-heavy Nasdaq composite added 12.41 points, or 0.7%, to 1,795.25. The Standard & Poor’s 500 inched up 2.37 points, or 0.2%, to 1,081.71.

The market was resilient in the face of the latest jump in oil prices. Near-term crude futures gained 70 cents to a record $46.75 a barrel in New York.

The July inflation report, which showed the consumer price index eased 0.1% last month, took some of the sting out of oil’s continuing climb.

“In the short term, there’s enough good news in the economic data to offset oil prices, at least for now,” said Chris Wolfe, global head of equities for J.P. Morgan Private Bank in New York.

“Certainly, we can’t see how these oil prices will be sustainable in the long term. We’re ready for a relief rally [in stocks] once prices start coming down.”

There was bullish news from the housing sector: The Commerce Department said home and apartment construction jumped 8.3% in July.

That lifted shares of home builders. Ryland jumped $3.46 to $86.01, KB Home gained $1.04 to $67.48, and William Lyon Homes surged $3.21 to $81.07.

In a separate report, the Federal Reserve said production at U.S. factories, mines and utilities rose 0.4% in July. That was below expectations, but it was held back by weakness in the utility sector.

By contrast, output was up 0.6% in the manufacturing sector, which many economists described as a solid showing.

In the bond market, traders paid more attention to the lower-than-expected inflation report than to other economic news.

The 10-year T-note yield slid to 4.19%, down from 4.27% on Monday and the lowest since April 7. The two-year T-note ended at 2.4%, down from 2.47%.

Weak inflation data may give the Federal Reserve justification to pause later this year in its credit-tightening campaign, some analysts say.

“The question comes into play: What is the Fed going to do?” said Sharon Lee Stark, fixed-income strategist at the brokerage arm of Legg Mason in Baltimore. “With inflation pressures abating and the economy slowing down, there are some who feel the Fed won’t need to raise rates” at each meeting.

Fears of a deeper economic slowdown had encouraged some investors to buy bonds in July -- and to flee stocks. The Nasdaq index is down 12.3% since June 30; the Dow is down 4.4%.

But the market has been creeping higher since Thursday, when major indexes closed at their lowest levels of the year. Nasdaq is up 2.4% since Thursday; the Dow is up 1.6%.

Winners topped losers by 3 to 2 on the New York Stock Exchange on Tuesday, and by 7 to 5 on Nasdaq. Trading volume remained subdued.

Among the day’s highlights:

* Home Depot, which reported higher quarterly earnings, helped to lead the retail sector higher. Home Depot, a Dow stock, jumped $1.12 to $35.10, Sears was up $1.21 to $38.36, and Petsmart gained $1.32 to $29.78.

* Real estate investment trust shares were mostly higher as interest rates fell. Mack Cali Realty gained 56 cents to $42.56, Starwood Hotels added $1.19 to $42.87, and Vornado Realty rallied 66 cents to $60.80.

* In the beaten-down tech sector, Motorola climbed 66 cents to $15.08, Semtech gained $1.01 to $17.48, and Corning jumped 56 cents to $10.66.

But Nortel Networks slipped 3 cents to $3.39 after the company said the Royal Canadian Mounted Police began a criminal investigation into its accounting.