Stocks Finish Modestly Higher

Jobless claims fell last week, giving hope that the U.S. will avoid recession. Oil prices hit yet another record high

by Ben Steverman

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Stocks were narrowly higher Thursday as oil once again hit a record high and a drop in jobless claims eased some recession worries.

Also, retailers reported April sales figures, with overall chain store sales rising 3.6% from a year ago. With the consumer squeezed by higher gas prices, "sales were dominated by necessities," says Ryan Sweet of Moody's Economy.com.

Discounters like Wal-Mart Stores (WMT) did the best. The giant chain saw same-store sales increase 3.2% in April, and total company sales jumped 9.8%. Wal-Mart expects May same-store sales excluding fuel in the range of flat to 2% positive.

U.S. initial jobless claims fell 18,000 to 365,000 last week. The jobless claims data "frustrated the view that the labor market is tracking a recession scenario," says Action Economics. If the economy was headed for a recession, and not just a slowdown, jobless claims should be in the 400,000 to 475,000 range by now, Action said. Bear Stearns economist John Ryding said claims "remain elevated" but "do not suggest, at this point, an intensification of economic weakness as May commenced."

Stocks repeatedly wavered in and out of positive territory on Thursday, following a sell-off on Wednesday. By the end of trading Thursday, the Dow Jones industrial average was up 52.43 points, or 0.41%, to 12,866.78. The broader S&P 500 index rose 5.11 points, or 0.37%, to 1,397.68. The tech-heavy Nasdaq composite index gained 12.75 points, or 0.52%, to 2,451.24.

Oil has soared to new heights recently, repeatedly hitting records day after day. Despite trading lower most of the day, oil spiked late on Thursday, hitting yet another all-time high. At the NYMEX, crude oil for June delivery jumped 97 cents to a new record $124.50 per barrel.

"If energy prices remain at these speculatively high levels, the U.S. and probably most of the rest of the world run a far greater risk of slipping into recession later this year," says William Knapp, investment strategist for MainStay Investments.

On Thursday, U.S. Treasury Secretary Henry Paulson said the credit crisis is "closer to an end" than a beginning. "This is a tough quarter," he told a television interviewer Thursday, but the federal stimulus package should boost growth.

Among other stocks in the news Thursday, Target (TGT) saw same-store sales rise 3.1% in April and total sales increased 9%.

McDonald's Corp. (MCD) posted a 2% increase in U.S. same-restaurant sales, with global sales up 5%. Total system-wide sales jumped 14% from a year ago.

Best Buy (BBY) plans a venture with the Carphone Warehouse. Best Buy will buy 50% of the firms retail interests in the U.S. and Europe for $2.1 billion and create a new company.

Crocs, Inc. (CROX) posted earnings of 9 cents per share, vs. 31 cents a year ago, as profit margin narrowed but revenue still rose 40%. Crocs says it still expects earnings of $1.54 to $1.64 per share this year.

Illinois Tool Works (ITW) plans to buy Enodis PLC in a $2.3 billion deal.

New York & Company's (NWY) same-store sales dropped 6.6% in the first quarter, and total sales fell 1.5%. The retailer expects earnings to increase 25% in the quarter, due to an improvement in profit margins.

Major European indexes were mixed Thursday. In London, the FTSE 100 index gained 0.16% to 6,270.80. Paris' CAC 40 index fell 0.39% to 5,055.58, and Germany's DAX index edged down 0.06% to 7,071.90.

In Asia, Japan's Nikkei 225 lost 1.13% to 13,943.26, and Hong Kong's Hang Seng index fell 0.63% to 25,449.79.

Treasury market

Treasuries rallied Thursday. The ten-year note rose 20/32 to 100-23/32 for a yield of 3.79%, and the 30-year bond rallied 30/32 to 97-06/32 for a yield of 4.55%.

Steverman is a reporter for BusinessWeek's Investing channel.