U.S. Stocks Inch Higher

By Corrie Driebusch And Saumya Vaishampayan 

U.S. stocks inched higher Tuesday, pushing the Dow industrials and the S&P 500 to fresh record highs.

Both the Dow Jones Industrial Average and the S&P 500 hit new intraday highs amid what traders described as a slow day in the market. The Dow industrials added 49 points, or 0.3%, to 18347. The S&P 500 gained 3.5 points, or 0.2%, to 2133 and the Nasdaq Composite Index rose 2.5 points, or 0.1%, to 5081.

The gains come a day after the S&P 500 ended at its third record in a row, adding 0.3% to 2129.20 on Monday. The Dow advanced 0.1% to 18298.88, notching its first closing high since March 2.

The Dow has risen 2.6% in May and is up 2.7% for the year. The S&P has gained 2.1% this month and 3.4% in 2015, through Monday's close.

Despite the continued climb to new records, traders and strategists said there isn't any clamoring by investors to put more money into stocks.

"We continue to get the question from clients of how can the markets keep reaching new highs," said Sean Lynch, co-head of global equity strategy for Wells Fargo Investment Institute. "There's nervousness among investors, and that's a good thing. They're not blindly rushing into stocks."

Contributing to the positive tone Tuesday, U.S. housing starts rose 20.2% in April from a month earlier to an annual rate of 1.135 million, the Commerce Department said Tuesday. That was the highest reading since November 2007. Economists surveyed by The Wall Street Journal expected April housing starts to reach a rate of 1.01 million.

"The housing starts were very impressive, and they may lead some people to think weak first-quarter GDP numbers were temporary," said Mr. Lynch.

Following the housing starts data, U.S. Treasury bonds sold off. The yield on the 10-year Treasury note rose to 2.264% from 2.228% on Monday.

As yields on the 10-year Treasury note climbed, so did shares of bank stocks. Investors tend to buy up bank stocks as Treasury yields rise, as higher bond yields can allow banks to earn more income from lending.

Financial stocks in the S&P 500 added 0.8% on Tuesday, making it the best performing sector in the index.

Some money managers say they believe there is more room for gains in U.S. stocks.

"Stocks are selling above their historical average, there's no question about that," said Hank Smith, chief investment officer of Haverford Trust, which has about $6.5 billion under management. "But given the low level of interest rates and the low level of inflation, stocks are fairly valued."

U.S. stocks followed international markets higher Tuesday.

European stocks and bonds surged after the European Central Bank published comments delivered by board member Benoit Coeure saying the central bank would moderately front-load purchases in its bond-buying program in anticipation of less market liquidity in the summer. Mr. Coeure added that the central bank would maintain its monthly average of 60 billion euros (about $68.35 billion) in bond purchases. Germany's DAX rallied 2.2% and France's CAC 40 advanced 2.1%. The euro dropped against the dollar in the wake of the comments, down 1.6% to $1.1137.

Stocks also rose in China after Beijing approved six rail projects amounting to a total investment of 243.8 billion yuan (about $39.3 billion) and said it would speed up reform in the finance sector.

Several retailers are scheduled to report earnings this week. Recent reports have showed flat retail sales in April and a drop in consumer sentiment. "The consumer still seems to be hibernating," said Haverford Trust's Mr. Smith.

Wal-Mart Stores Inc. on Tuesday reported weaker-than-expected sales and a 7% drop in profit. The company logged its third-straight quarter of U.S. same-store sales growth. Shares fell 3.9%.

TJX Cos. raised its annual guidance and reported that its earnings rose 4.5% on better-than-expected sales and improved margins during the quarter ended in April. Shares climbed 3.9%.

In commodity markets, gold futures declined 1.6% to $1207.90 an ounce. Crude-oil futures lost 3.4% to $58.21 a barrel.

Josie Cox and Saumya Vaishampayan contributed to this article.

Write to Corrie Driebusch at [e-mail]

Access Investor Kit for The Dow Chemical Co.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US2605431038