Defensive shares led a rebound in stocks on Thursday as investors weighed mixed economic signals and recent volatility in commodities in search of direction.
The Dow industrials fell nearly 100 points in the morning but recovered later after a lackluster auction of 30-year U.S. bonds and headlines suggesting negotiations to raise the U.S. debt ceiling had intensified.
The strong performance by defensive shares, such as health care and consumer staples, suggested investors were still attracted to stocks while other asset classes made them more nervous.
Fixed income investments don't seem very attractive at the current yield. There's some concern about commodities. The volatility has scared a lot of people away, so I think a lot of investors are sitting back and saying, 'Where can I put my money?' and the stock market is that, said Channing Smith, co-manager of the Capital Advisors Growth Fund in Tulsa, Oklahoma.
The Dow Jones industrial average <.DJI> was up 65.89 points, or 0.52 percent, at 12,695.92. The Standard & Poor's 500 Index <.SPX> was up 6.57 points, or 0.49 percent, at 1,348.65. The Nasdaq Composite Index <.IXIC> was up 17.98 points, or 0.63 percent, at 2,863.04.
Bond yields have been declining, making them less attractive compared with stocks, particularly those that pay dividends such as utilities. The S&P utility index <.GSPU> rose 0.9 percent on Thursday and has gained 5.8 percent since April 8 when the recent decline in bond yields began.
Commodities have been under pressure in recent sessions, although oil ended the day higher.
Defensive stocks typically have more predictable revenues, which makes them attractive during volatile markets.
S&P consumer staples <.GSPS> rose 1.3 percent, while the S&P health care index <.GSPA> gained 0.9 percent. Many defensive shares have been on an upward trajectory since about mid-March.
Shares of Merck & Co rose 1.6 percent to $37.20, while Tyson Foods advanced 4.6 percent to $18.84.
The market ended down on Wednesday after another sell-off in commodities.
U.S. data showed the economy struggling to gain traction. Jobless benefit claims declined last week but retail sales posted their smallest rise in nine months in April.
Financial shares fell after Rochdale Securities banking analyst Dick Bove put a sell rating on Goldman Sachs Group and reduced the price target on the stock to $120 from $163, citing litigation worries.
Goldman shares slumped 3.5 percent to $142.75 and volume topped the 50-day moving average. The KBW bank index <.BKX> was down 0.2 percent.
Cisco Systems Inc warned late Wednesday it would fare worse this quarter than Wall Street had forecast. The tech company laid out plans for global job cuts as it struggles to revive growth. Its shares fell 4.8 percent to $16.93.
(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)