After a turbulent day of trading Tuesday, amid conflicting economic news, bank stocks ended up just about where they started.
The consumer price index showed minimal inflation, and weak housing starts signaled economic sluggishness, but industrial production rose more than expected, unnerving the bond market.
The Standard & Poor's bank index eked out a 0.07% rise, to 555.47, virtually matching the broader-based S&P 500 index, which rose 0.06%, to 894.42. The Dow Jones industrial average of 30 blue-chip stocks-which also flip-flopped-ended the day 11.31 points lower, at 7,760.78.
"Today's news is somewhat of a mixed bag," said Scott Brown, an economist at Raymond James & Associates, St. Petersburg, Fla. "The inflation story is very good, due to declines in energy prices." On the other hand, "that good news may be largely behind us."
Rising industrial production indicates a strengthening economy, he said. "The question now is, is it going to be too good in the second half of the year?"
The much-watched CPI inched up just 0.1% in May, and housing starts dropped 4.8%, to 1.397 million units, a third consecutive decline. Both reports offered further evidence that inflation is tame and suggested the Federal Reserve will not raise interest rates in July.
Even so, with production of durable goods like automobiles and computers advancing a healthy 0.4%, the long bond fell slightly as its yield rose two basis points, to 6.72%.
"The fact is, inflation is low, and that means the Fed can't raise interest rates," said Kenneth T. Mayland, chief economist at Cleveland- based KeyCorp.
The see-saw pattern in the market did not surprise Mr. Mayland, who anticipates more volatility. "After the stupendous week we had last week, we may be in for some sideways to down trading for stock prices."
"All the good news you could think of has been factored into the market," said Larry J. Wipf, economist at Minneapolis-based Norwest Corp. He cited a decelerating economy, low inflation, heavy foreign buying of stocks and bonds, and a strong dollar. "As signs of renewed economic growth emerge in the third quarter," he added, "we're likely to have a pullback in the financial markets."
American Express Co. jumped $1.125 a share, to $76.375, as rumors of a Citicorp takeover resurfaced yet again. Thomas Facciola of Lehman Brothers asserted that the rumors, which had moved the stock up $3.375 last Friday, remain unfounded.
Susan Roth of Donaldson Lufkin & Jenrette said American Express merits investor attention due to its fundamental soundness. She predicted the stock would hit $100 within 18 months. Morgan Stanley's Jennifer Oliver Martin reiterated a "strong buy" and raised her target price to $100 Tuesday.
Elsewhere, J.W. Charles Securities, Boca Raton, Fla., cut its rating on Signet Banking Corp. to "hold" from "buy" as the stock reached the company's target price of $35.
Dillon Read unveiled a "buy" rating on First Union Corp., and Wheat First Butcher Singer reinstated its "outperform" rating on Centura Banks. Keefe, Bruyette & Woods Inc. downgraded BankBoston Corp. to "attractive" from "buy." The stock was down $1, to $74.875