Stocks advanced in moderate trading Tuesday, despite reports indicating that the U.S. economy remains weak.
Traders cited upbeat remarks by semiconductor-maker Xilinx and beleaguered telecommunications equipment giant Lucent Technology as a sign that the worst may be over in the depressed technology and telecom sectors.
The Dow Jones industrial average rose 114.32 points, or 1.0 percent, to 11,175.84. New York Stock Exchange volume reached 1.12 billion shares.
The Nasdaq composite index rallied 77.73, or 3.6 percent, to 2233.66, on Nasdaq trading volume of 1.84 billion shares.
Although it was the fourth consecutive advance for both indexes, the gains left them solidly within the recent trading ranges, hardly cause for celebration.
But market breadth has turned positive. Continuing a trend, winning stocks outnumbered losers by nearly 2-1 among NYSE-listed stocks and 12-7 among Nasdaq stocks.
The Russell 2000 index gained 9.16, or 1.8 percent, to 516.48, moving the index to the top of its trading range.
The upbeat market breadth statistics and the gain in the Russell 2000 index indicate an undercurrent of optimism among professional stock pickers, even as large-capitalization stocks that dominate the major indexes remain in a funk.
Some speculative interest has shifted to biotech stocks, which have rallied since early April. The biotech index tracked at the American Stock Exchange has jumped 66 percent from its April low and stands at its highest level since December.
Meanwhile, Treasury securities closed higher, reflecting weaker-than-expected reports on factory orders and worker productivity.
“The important news … is the rise in the manufacturing inventory-to-sales ratio to 1.42 from 1.38. This is a new cycle high and confirms that there is still a huge inventory rundown ahead,” said economist Ian Shepherson at High Frequency Economics in Valhalla, N.Y.
Another tax bill: With Democrats in control of the Senate, political pundits rate chances for another major tax reduction anytime soon at about zero.
The just-passed bill may leave the cupboard bare for further tax-cut proposals, however meritorious, assuming Congress honors its balanced-budget rules.
Nonetheless, business interests continue to push for a cut in the capital gains tax rate, which essentially is 20 percent of the gain from the sale of an investment held more than one year.
A targeted capital gains tax cut, focused on small business and linked to an increase in the minimum wage, still has a chance, said Mark Heesen, president of the National Venture Capital Association.
More than 80 percent of the money in the nation’s major venture capital funds comes from tax-exempt pension funds, endowments and insurance companies, Heesen noted. He said the measure would still benefit taxpayers who provide initial capital for business startups, often friends and family of would-be entrepreneurs.
“But before companies can get to the point where they can seek venture capital, they have funding from people who are extremely tax-sensitive,” he said.
Moreover, a growing number of taxable individuals seeking alternatives to traditional stocks and bonds are investing in a new generation of small venture capital funds, including many in Illinois that finance local startups, Heesen said.
A bill with bipartisan support in the Senate would modify an existing capital gains tax break for investors in small business. It would liberalize the type of business qualifying for the break and prevent the tax break from being subject to the alternative minimum tax.
Political analysts expect Congress to consider a minimum wage increase and expect the measure to be balanced with goodies for employers. A modest capital gains tax break for investors in small business could be a good fit in that scenario.
Local news: Chicago-based building materials supplier USG, bending under the weight of asbestos injury litigation threats, dropped 55 cents, to $4.48. Moody’s Investors Service joined Standard & Poor’s in cutting the company’s debt rating.
Chicago-based executive search firm Heidrick & Struggles fell $2.45, to $30.30. The firm said second-quarter revenue likely will be less than the $139.3 million posted in the first quarter. Typically, second-quarter revenue exceeds the first quarter’s, Chief Executive Patrick Pittard told shareholders.
