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Stocks rallied after the latest reading of economic growth and housing data eased inflation worries and emboldened investors to seek out attractively valued shares in the wake of a two-week sell-off. Yesterday and today represent the market’s first back-to-gains since the Federal Reserve last lifted interest rates on May 10 and issued a statement that rattled investors by leaving them uncertain about the central bank’s future policy moves.

Today, the Dow Jones industrial average closed up 93.73 or 0.8% to 11,211.05, the broader Standard & Poor’s 500 index closed up 14.31 over 1% to 1,272.88, and the Nasdaq composite index closed up 29.07 or 1.3% to 2,198.24.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by a margin of 25 to 7 on volume of 1.73 billion shares. On the Nasdaq, winners beat losers by a margin of 11 to 4 as 2.01 billion shares changed hands.

Economist feel that the market is likely to remain volatile in the near term but “the vast bulk of the decline has taken place.” The news that stirred the market was when founder of Enron, Kenneth Lay was found guilty on all counts of fraud and conspiracy, and former chief executive Jeffrey Skilling was found guilty on 19 of 28 counts of securities fraud. Additionally, Federal Reserve Chairman Ben Bernanke reiterated in a letter that long-term inflation expectations appear to be well contained and would remain so as long as the Fed remains committed to price stability.

On data news, the Commerce Department stated that the economy grew at a 5.3% annual rate in the first quarter. Many economist were forecasting an upward revision to 5.6%. The core personal-consumption-expenditure price index, rose at a 2% annual rate unchanged from the Commerce Department’s initial estimate. Sales of existing homes fell 2% in April and the decline was close to the expected. First-time claims for unemployment benefits, fell to 329,000 in the week ending May 20, the Labor Department said, a decrease of 40,000 from the prior week. Therefore, the latest economic reports shows solid growth but few signs of inflation flaring up. It implies the Fed has another reason to perhaps drag its feet or pause in June.

Shares in Wal-Mart Stores Inc. closed up $1.42 or 3% to $49.45, after Banc of America Securities raised its rating on the retailer to “buy” from “neutral.” This reflects early success from the company’s current merchandise initiatives, and hopes for improved margin expectations. Shares of General Motors Corp. closed up $1.39 or 5.2% to $27.90. The company reported that more than 20,000 U.S. factory workers have accepted buyout offers, surpassing its internal target with a month remaining before the offer expires.

Shares in Yahoo Inc. and eBay Inc rallied after the two companies entered a multi-year partnership. Stock of eBay closed up $3.68 or 12% to $33.88, after Prudential upgraded the online auctioneer to “overweight” from “neutral.” Yahoo closed up $1.13 to $32.92. Yahoo will become the exclusive third-party provider of graphical advertising on eBay’s site and eBay’s PayPal will become the exclusive payment system on Yahoo’s sites.

Stock of Mastercard closed up $7.00 or 18% to $46.00, in its first day of trading. The credit card company priced its initial public offering of stock at $39 a share, below the $40 to $43 forecasted range. The credit- card giant became a listed company after its origins as a banking collective 40 years ago

Shares of XM closed up 4.7% at $14.35, despite cutting its 2006 subscriber forecast to 8.5 million from 9 million, citing “overall softness” in retail sales of its radio products during the second quarter. In the first quarter, XM had been on pace to achieve its initial projection of 9 million subscribers and has affirmed that it is on track to be cash flow positive in the fourth quarter of this year.

U.S. light crude oil for July delivery climbed $1.46 to settle at $71.32 a barrel on the New York Mercantile Exchange after tumbling below $70 Wednesday.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter