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Stocks rallied and sent both the Dow Jones Industrial Average and the S&P 500 to record closing levels, as the market bounced back from initial weakness due to an overnight sell-off in the Shanghai stock market. Investors also cheered minutes from the Federal Reserve showing that while central bankers now forecast a longer impact from housing on the economy, they expected risks to growth to have “diminished slightly” after a first-quarter slump.
Today, the Dow Jones industrial average closed up 111.74 or 0.83% to 13,633.08, and closed at a record high at 13,633.08; the blue-chip average also hit a new intraday record of 13,636.09 shortly before the close. The broader S&P 500 index closed up 12.12 or 0.80% to 1,
530.23, at an all-time high, taking out its previous high of 1,527.46 from March 24, 2000. The Nasdaq composite closed up 20.53 or 0.80% to 2,592.59, at a fresh 6-year high.

Market breadth was positive. On the New York Stock Exchange, winners beat losers 11 to 5 on volume of 1.56 billion shares. On the Nasdaq, advancers bested decliners nearly 16 to 13 on volume of 2 billion shares.

While initially investors were worried that the 6.5% slump in the Chinese market could spell gloom, by midday, investors looked beyond such worries on release of the minutes from the last Fed meeting. The central bankers said that economic growth was slow, but that it would pick up in the quarters ahead, thanks in part to an improved business spending environment. The housing market will likely continue to struggle for longer than initially anticipated, and the possibility of inflation remaining stubbornly high was their predominant concern going forward.

Investors also eyed the May ADP employment survey, a measure of job growth in the private sector. The report showed weaker-than-expected payroll growth, perhaps signaling weakness in Friday’s broader government job report for May.

Shares of biotech Novacea closed up $6.93 or 86% to $14.99, after the company said it signed a licensing deal with Schering-Plough which closed up $0.06 to $32.77. The deal is to develop and market its treatment for prostrate cancer.

Shares of CDW Corp closed up $2.06 or 2.5% to $85.17, after it agreed to be bought out for $7.3 billion by private equity investor Madison Dearborn Partners LLC.
Stock of Coldwater Creek closed up $3.47 or 16.6% to $24.37, after the women’s clothing retailer said that sales and earnings grew from a year ago and topped expectations.

Shares of IBM gained 1% after saying it has bought back $12.5 billion in company stock as part of a previously announced $15 billion buyback plan. IBM also said it expects its 2007 earnings to now rise between 13% and 14% over the $6.06 a share it earned last year.
In additional news, Intercontinental Exchange Inc. has reached a deal,
valued at $665 million, that would settle a dispute between CBOT, parent of the Chicago Board of Trade, and its rival, the Chicago Board Options Exchange. That deal can go into effect only if ICE wins CBOT. Both ICE and the Chicago Mercantile Exchnage had bid for the CBOT, whose management factors the Chicago exchange.

U.S. light crude oil for July delivery rose 34 cents to $63.49 a barrel on the New York Mercantile Exchange.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter