RTTNews - Stocks saw notable strength on Tuesday, partly offsetting the steep losses posted in the previous session amid some encouraging earnings reports. The major averages all finished in positive territory by solid margins, but they remain well off their recent highs.

Buying interest was boosted early on by a set of positive earning reports, with Home Depot (HD), Saks (SKS) and Target (TGT) all exceeding Wall Street estimates on the bottom line, although their revenues fell short of estimates.

Optimism won out despite the release of a report from the Commerce Department showing an unexpected decrease in housing starts in the month of July.

The report said that housing starts fell 1.0 percent to an annual rate of 581,000 in July from the revised June estimate of 587,000. Economists had expected starts to rise to 598,000 from the 582,000 originally reported for the previous month.

Separately, the Labor Department revealed that producer prices dropped 0.9 percent in July following a 1.8 percent increase in the previous month. Economists had expected the measure to slip 0.3 percent for the month.

Core prices, which exclude the volatile food and energy sectors, ticked down 0.1 percent in July. Economists were looking for core prices to edge up by 0.1 percent.

While the major averages pulled back off their highs for the session going into the close, they remained firmly in positive territory. The Dow closed up by 82.07 points or 0.9 percent at 9,217.41, the Nasdaq advanced by 25.08 points or 1.3 percent to 1,955.92 and the S&P 500 rose by 9.94 points or 1 percent to 989.67.

Sector News

Networking stocks turned in some of the day's strongest performances, as reflected by the 3.1 percent gain posted by the NYSE Arca Networking Index. The index was boosted by shares of Ciena Corp. (CIEN), which surged up by 9 percent on the day. The gain propelled the stock to its best finish in eleven months.

Electronic storage, steel, airline and financial stocks also saw strong outings along with most of the other major sectors, reflecting the day's broad based strength.

Within the financial sector, shares of Goldman Sachs (GS) saw notable strength, closing up 2.2 percent after ending Monday's trading at a one-month closing low. The gain by Goldman Sachs comes after Pali Research upgraded its rating on the company's stock to Buy from Neutral

Health insurance stocks were among the few groups the bucked the uptrend by the broader markets after they managed to close mostly higher on Monday. The pullback came as the White House sought to reassure supporters that it is still pushing for a public health care option.

Dow Components

American Express (AXP) led the Dow higher, advancing by 4.3 percent on the day. With the gain, the stock was able to bounce off of a two-week closing low set on Monday. The upward move by AmEx came after Keefe, Bruyette & Woods upgraded the stock to Outperform from Market Perform. The broker also raised its target price to $37 from $33.

Alcoa (AA) and Home Depot (HD) also rose, posting gains of 4.1 percent and 3.1 percent, respectively. The stocks also saw a partial recovery from two-week closing lows set in the previous session. Home Depot was helped by its second quarter earnings results, which beat analyst estimates, while its full year guidance adjustment also boosted the stock.

McDonald's (MCD) also advanced, but saw a much more modest gain of 1.4 percent. The move helped the stock move off of its worst closing price in roughly a three-month period.

Caterpillar (CAT), JP Morgan Chase (JPM), Bank of America (BAC) and Microsoft (MSFT) also bolstered the blue chip index, while Boeing (BA) disappointed with a 0.9 percent pullback. The stock extended its recent losses, closing at a fresh two-week closing low. Merck (MRK) and Wal-Mart (WMT) posted more modest losses.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region finished on a mixed note Tuesday. Japan's benchmark Nikkei 225 Index rose by 0.2 percent, while Australia's All Ordinaries Index fell 0.3 percent.

Meanwhile, the major European markets all ended the day higher, with the French CAC 40 Index and the U.K.'s FTSE 100 Index rising by 0.6 percent and 0.5 percent, respectively, while the German DAX Index finished up by 0.7 percent.

In the bond markets, treasuries saw some weakness amid the rally on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, closed at 3.526 percent, posting a gain of 3.5 basis points.

Looking Ahead

With no first-tier economic reports on tap for Wednesday, traders will have a chance to focus on quarterly results from Analog Devices (ADI), Hewlett-Packard (HPQ), and Deere & Co. (DE).

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