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Stocks closed higher for the second straight session after encouraging comments from Fed chair Ben Bernanke. He hinted at a pause in the Federal Reserve’s rate-tightening cycle and the market jumped in joy. Sharp gains for Intel Corp helped the Nasdaq to go higher while the Dow closed at its highest level since Jan. 19, 2000.

Today, the Dow Jones industrial average closed up 26.83 or 0.2% to 11,382.51, the broader Standard & Poor’s 500 index closed up 4.31 or 0.3% to 1,309.72, and the Nasdaq composite index closed up 11.32 or 0.5% to 2,344.95.

Market breadth was negative. On the New York Stock Exchange, advancers held a 17 to 14 advantage over decliners on volume of 1.9 billion shares. On the Nasdaq, advancers edged out decliners 15 to 14 on volume of 2.4 billion shares.

Bernanke in his speech, raised the prospect of an end to rate hikes, but also made it clear that a pause in interest-rate increases wouldn’t necessarily mean the Federal Reserve was done raising rates. He said a pause, even if inflation remains a threat, would give the central bank more time to get a true picture of the economy. He said that the economy had rebounded briskly after the devastation of Hurricane Katrina, but also that the pace was likely to slow a bit after the strong first quarter of 2006. The persistently high oil and gas prices were a bother, but that as long as oil stabilizes, even at a high level, its impact should diminish over time. In the minutes right after the release of the testimony, Treasury yields reversed direction, stocks recovered and pushed to new highs.

In data, there was some disappointment on the employment front. First-time applications for state unemployment benefits rose by 11,000 last week to a seasonally adjusted 315,000.

Shares in Exxon Mobil Corp. traded after the oil giant’s first-quarter earnings missed analyst estimates. The company reported quarterly earnings of $1.37 per share against the expected $1.47 per share. The stock closed down $0.50 or 1% to $62.60. The company said higher crude oil and natural gas realizations and improved marketing margins were partly offset by lower chemical margins.

Shares of GlaxoSmithKline Plc. rose 4.4% to $55.40 after the UK drug maker surprised the market with a 25% profit rise in the first quarter, driven by strong sales of its asthma and antiviral treatments. Stock of Bristol-Myers Squibb Co. posted an in-line first-quarter profit, but sales topped analyst expectations, boosted by a strong sales of its top-selling Plavix and several newer medications. The stock closed up 35 cents at $25.33. The entire pharmaceutical sector also received a lift from strong earnings from German drugs and chemicals group Bayer AG and a raised profit view from UK drugs giant AstraZeneca Plc.

J.P. Morgan cut its rating on the defense contractor Honeywell International Inc. to underweight from neutral and this led the shares to close down 1.9% at $43.25. They cited concerns over environmental related costs. Shares of Intel Corp. shares closed up 2.5% at $19.97, after Chief Executive Paul Otellini said he plans to restructure and resize the semiconductor giant. He acknowledged the recent setbacks, but said that the company plans to burn off excess inventory, and win back market share for its computer chips.

Shares in Microsoft Corp. climbed after it reported its fiscal third-quarter profit rose 16% as revenue increased on stronger demand. Its net income rose to $2.98 billion, revenue increased 13% to $10.9 billion. The results were in line with market expectations. The company also offered a profit forecast for the coming fiscal year that lagged estimates, while its revenue forecast was above expectations.

Light, sweet crude oil for June delivery fell 96 cents to $70.97 a barrel on the New York Mercantile Exchange. The futures moved lower in a continued response to better-than-expected weekly inventory data, and with news of a surprise interest rate hike in China reducing demand expectations.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter