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By Ryan Vlastelica
July 6, 2011 4:42 PM EDT
Transportation stocks were among the standouts in another flat session for U.S. equities on Wednesday, and the sector's rally could be cause for optimism ahead.
Broader gains were limited as a downgrade of Portugal's credit rating weighed on banking shares, while a rate hike in China loomed as another concern for investors. However, the Nasdaq rose for its seventh straight day, extending its rally to 6.8 percent.
The Dow Jones Transportation Average <.DJT> rose 1.2 percent and hit a new closing high at 5,566.07. The gains were led by Con-Way Inc
Transports are considered a barometer for economic activity because shipping activity signals demand for goods. FedEx Corp
"Strength in transportation stocks goes a long way to signaling that manufacturing will continue to be robust and that the cyclical nature of the recovery is picking up steam," said Roger Volz, director of cash equities at BGC Financial in New York.
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Volz added that if the sector maintained its highs, "that would suggest we're working out of this current soft patch and into a new leg of economic growth."
The S&P 500 has been fluctuating in a range from about 1,250 to 1,350 for the last several months, with flare-ups in the euro-zone debt crisis often serving as a catalyst for profit-taking in a short-term trader's market.
The Dow Jones industrial average <.DJI> was up 56.15 points, or 0.45 percent, at 12,626.02. The Standard & Poor's 500 Index <.SPX> was up 1.34 points, or 0.10 percent, at 1,339.22. The Nasdaq Composite Index <.IXIC> was up 8.25 points, or 0.29 percent, at 2,834.02.
Moody's downgrade of Portugal's credit rating on Tuesday to "junk" cast new doubt on European efforts to rescue distressed euro-zone states without debt restructuring.
Reflecting concerns about the euro-zone debt crisis, the iShares MSCI Italy index
Banks were among the worst performers on concerns about their exposure to euro-zone debt and sluggish U.S. growth. The KBW Bank Index <.BKX> fell 0.7 percent, with Bank of America Corp
Gains were also limited by a softer-than-expected survey on U.S. services sector growth, which slowed slightly in June. The data gave investors little reason to make big bets after last week's rally drove the S&P 500 up 5.6 percent.
Michael McGervey, president of McGervey Wealth Management in North Canton, Ohio, said the 1,345 level was serving as resistance for the S&P 500, referring to a recent high on the index, reached at the start of June.
"There's new momentum in the market following last week's surge, and generally speaking, the markets have an upward bias. But until we break through 1,345, we'll be trading sideways," he said, adding that there was further upside potential if the level was breached.
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