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Stocks gained modestly as crude futures spiked above the $63-a-barrel level and Verizon Communications Inc. tumbled on the news that it plans to spend $18 billion over four years on fiber services. These issues offset the gain by Intel Corp., McDonald’s Corp. and others, that had put the Dow Jones Industrial Average within striking distance of an all-time high.

Today, the Dow Jones Industrial average closed up 19.85 or 0.17% to 11,689.24, roughly 34 points short of its record closing high of 11,722.98, hit on Jan. 14, 2000. The broader S&P 500 index closed up 0.25 or 0.02% to 1,336.59, and the Nasdaq composite index closed up 2.05 or 0.09% to 2,263.39.

Market breadth was positive. On the New York Stock Exchange, winners beat losers 5 to 3 as 1.718 billion shares changed hands. On the Nasdaq, advancers topped decliners by a narrow margin of 4 to 3 as 2.054 billion shares changed hands.

Investors have been debating whether the Federal Reserve has gone too far in raising interest rates in a bid to slow economic growth and choke off inflationary pressures. However, receding oil prices and not too slow economic growth has meant the nation is not heading for a recession. Analysts think that the market should be able to continue rising, at least in the short term. The only counters could be inadequate employment growth or profit growth slow.

A surprisingly strong consumer confidence report gave stocks a leg up and offered some ammunition to those investors that were worried that the economy is slowing down at a far greater pace than initially anticipated. Orders for U.S.-made durable goods fell 0.5% against the expected 0.7% rise in August orders. While the report raises concern that the economy is not growing as much as anticipated, the data points to a soft landing for the economy. That is to say that the economic growth slows but is still solid enough to sustain job growth and corporate profits.

After a string of weak data on the housing market, the figures on sales of newly built housing offered some relief. Sales of new homes increased 4.1% in August, and is the first increase in new-home sales since March. Economist had been expecting sales to fall about 3.4% in August. However, overall sales are down 17.4% in the past year and are down 23% from the peak last July.

Stock of Merck & Co. was up 1.5% at $42.40 after a federal jury cleared it of responsibility for a Kentucky man’s heart attack in the 10th Vioxx-related case to go to trial. The company has prevailed in its latest court case and has bought a substantial stake in cardiovascular device maker FoxHollow Technologies. The company announced that it was buying $95 million in newly-issued shares of FoxHollow as part of the expansion of an existing collaboration agreement for atherosclerosis research. This lead shares of Foxhollow to jump more than 20% to close at $32.80

Shares of Red Hat Inc. plunged 23.4% to $20.19, as its quarterly profit fell by one-third despite a 52% leap in revenue. The net profit sank to $12 million, from $18.1 million a year earlier. However, excluding the impact of options and other items, its profit would have been $25.1 million, up from $19.1 million. Revenue climbed to $99.7 million from $65.7 million, helped by its recent purchase of JBoss Inc. and on strong demand for open-source software. The company plans to continue making investments in its business and anticipates its cash flow for the year will be $210 million to $215 million. However, Jefferies & Co. downgraded the company to a hold rating, citing disappointment over its 2007 cash-flow forecast.

Shares of McDonald’s closed up $0.76 or 2% to $39.82, after its board approved an increase of nearly 50% in its dividend. The company has lifted its quarterly dividend to $1 per share from 67 cents. The bard cited confidence in the ongoing strength of its business and the reliability of its cash flow, as shares moved to a new six-year high.

General Motors is reportedly demanding a “multibillion” dollar payment from Renault and Nissan as the price to join their alliance. GM executives feel that they deserve a payment — which would come on top of any share purchases made by the two companies. However, the CEO of Renault has expressed disappointment in this approach and this could be a deal breaker. However, shares of GM closed up $0.87 to $32.28.

Shares of Intel Corp. closed up $0.43 or 2.2% to $20.39, after a Federal Judge threw out substantial parts of an anti-trust lawsuit against the chipmaker. The judge ruled that alleged foreign anticompetitive practices didn’t impact Advanced Micro Devices in the United States. AMD’s stock closed down $0.67 or 2.6% to $25.32.

Shares of Verizon closed down $1.18 or 3.1% to $36.78, as investors took a “sell the news” response to the company’s announcement that it will cost about $18 billion for it to upgrade its telephone network so it can sell cable television and high-speed Internet connections. Analysts opine that this strategy will ultimately generate positive returns for Verizon, and the competitive environment necessitates this type of capital deployment so as to force other companies to follow suit.

U.S. light crude oil for November delivery rose $1.95 to $62.96 a barrel on the New York Mercantile Exchange. There is heightened speculation that OPEC could cut production quotas.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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