Stocks Fight for Higher Ground

Updated from 12:23 p.m. EDT

The U.S. stock market was fighting to stay positive Wednesday afternoon as investors, neck-deep in earnings statements, mulled over the prospect of government aid for the mortgage industry and a continuing decline in oil prices.

The Dow Jones Industrial Average was up 32 points at 11,634, and the S&P 500 was tacking on 6 points to 1,283. The Nasdaq was up 16 points at 2320.

On Tuesday, the three major indices ramped up in the final hour of trading to close near their highs. Shortly thereafter, Internet portal Yahoo! (YHOO)announced lackluster second-quarter earnings and tepid guidance, but the stock was up 1.3%.

Content Continues Below

---

In the financial sector, Washington Mutual (WM) reported a loss that was worse than analysts had feared, but also said it wouldn't need to raise additional capital. Shares were recently declining 7.2% after Standard & Poor's downgraded one of the bank's credit ratings.

In commodities, crude oil for September delivery was recently down $1.77 to $126.65 a barrel after losing $3 Tuesday. August gold futures slumped $25.70 to settle at $922.80 an ounce.

James Paulsen, chief investment strategist for Wells Capital Management, said that ever since May, the market's been all about oil. Wall Street was speculating that record-high oil prices would wreck the U.S. consumer and subsequently the housing market. "That has been the mindset since oil surged, and I think that is what's reversing."

Paulsen said the housing bill passing through Congress today is an added bonus, but not the determining factor in today's rally. Outside of the financials, "You've got, actually, just as big if not bigger move in consumer cyclical. I don't think that's tied to the housing bill," he said. "Their crisis discounts are coming out."

Paulsen said that as concern about sky-high oil prices abates, investors begin to focus on other indicators that the economy is in decent shape. He said investors have seen generally solid earnings from the majority of companies in the S&P 500, results from the financials that aren't nearly as bad as was feared and unemployment claims that remain within control. "When oil was going up, none of this was focused on," he said.

Before Wednesday's open, Boeing (BA) and AT&T (T), two members of the Dow's 30-stock club, reported earnings. Boeing shares tumbled 3.3% as the company reaffirmed forward guidance, but its earnings for the second quarter dropped 19% from a year earlier. AT&T's profit rose 30% year over year and was in line with expectations. The stock inched up 4.7%.

Traders also heard from integrated oil company ConocoPhillips (COP), which saw adjusted income rise 13% year over year, beating estimates. Northwest Airlines (NWA) marked a $377 million loss on rising fuel costs.

On the health care side, biotech firm Genzyme (GENZ) saw earnings fall on rising costs, but excluding items the company edged ahead of Wall Street's expectations. Big Pharma firm GlaxoSmithKline (GSK) likewise saw profits decline, and it said it would delay a planned share repurchase.

Pfizer (PFE), a Dow component, posted profits that more than doubled year over year and topped the Wall Street consensus. The solid quarter owed largely to a decline in restructuring charges and overseas sales buoyed by a weak dollar. Fellow drugmaker Wyeth (WYE) also edged out an earnings beat and raised guidance.

Also showing strength thanks to sales abroad, fast-food giant and Dow stock McDonald's (MCD) swung to a profit, besting analyst forecasts.

Meanwhile, soda and chips provider PepsiCo (PEP) beat expectations, reaffirmed guidance and announced a $1 billion share buyback.

Elsewhere in the beverage space, brewer Anheuser-Busch (BUD), which earlier this year agreed to be bought by Belgian beer purveyor InBev, reported increasing second-quarter earnings and said it would raise its dividend.

Tobacco concern Philip Morris International (PM) likewise delivered strong profits, and also raised its own earnings expectations for 2008.

Outside the earnings sphere, members of Congress have worked out a housing relief pact that would prop up homeowners as well as mortgage companies Fannie Mae (FNM) and Freddie Mac (FRE). The White House press secretary said this morning that President Bush, who previously had opposed the housing bill, has now elected to sign it.

Retailer Costco (COST) saw shares drop 12% after it issued a warning that, due to rising energy costs, its fourth-quarter profit would be far below the Street's view. The company also announced a $1 billion share buyback plan. Costco's decline belied a broader rally in consumer-sensitive stocks, with Home Depot (HD), casino stocks and Sears Holdings (SHLD) leading the charge.

Banking titan Citigroup's (C) chief financial officer Gary Crittenden said that the company is not due to split up and said the company's earnings would probably stem losses resulting from having to account for its off-balance-sheet securities.

Automaker General Motors (GM) announced that its second-quarter global sales slipped on weak U.S. demand, placing the company behind rival Toyota (TM).

As for the bond market, 10-year Treasury notes were down 12/32 in price to yield 4.15%. The 30-year was off 19/32, yielding 4.7%. The dollar was stronger against the euro and yen, but weaker vs. the pound.

Looking at economic data, weekly crude oil inventories fell by 1.6 million barrels, a narrower decline than was expected, while gasoline inventories rose by 2.8 million barrels. Refinery utilization declined 2.4 percentage points to 87.1%. Later, the Federal Reserve will release its beige book, a summary of anecdotal economic information collected by each of the central bank's regional branches.

Abroad, global markets were stronger. The FTSE in London, the DAX in Frankfurt, Japan's Nikkei and Hong Kong's Hang Seng all climbed.

© 1996 - 2008 TheStreet.com, Inc. All rights reserved.

Stocks With Insider Buying, Buybacks: CVS
Large repurchases make CVS and Lexmark stocks to watch.

Kodiak Joins 'Stocks Under $10' Watch List
The main catalyst for the oil and gas company lies in the Bakken Shale play, located in the Williston Basin of North Dakota and Montana.

Cramer on Top-Searched Stocks: Joy Global
Joy Global is among the most-searched stocks on <I>TheStreet.com</I>. Here's what Cramer had to say about it recently.