The Dow average turned positive for 2011.Google soared as stocks rose today after strong retail sales news.
This jobless, bottom line recovery attempts to march on with all kinds of confusing economic data.
Retail sales rose more than expected in September as Americans spent more on cars, clothing and fuel, an indication that consumers remain willing to shop despite high unemployment and a weak recovery.
Here are the top financial stories of the day:
1) Wall Street racks up second week of gains-From Reuters
Stocks scored their first back-to-back weekly gains since early July on Friday, on strong Google (GOOG - News) earnings and as investors kept riding the optimism for a solution to the euro zone's debt crisis.
The gains put the Dow industrials and the Nasdaq back into positive territory for the year, marking a dramatic reversal from two weeks ago, when the threat of a Greek default and sour U.S. data had buyers running from the market.
"There are these positive catalysts that may be in place -- earnings being one and a more formalized policy action out of Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.
The benchmark S&P index has climbed 14 percent from the October 4th intraday low of 1,074.77, which had temporarily tipped it into bear market territory. Now investors are looking to see if stocks can sustain a move above the 1,215-1,220 area that has been upper end of the market's range since early August.
For the week, the Dow rose 4.9 percent, while the S&P 500 jumped 6 percent and the Nasdaq climbed 7.6 percent.
Google Inc (GOOG - News) led the Nasdaq higher on Friday as shares jumped 5.9 percent to $591.68, a day after its results sailed past Wall Street's expectations, helped by strong advertising sales and cost controls.
"To the extent earnings come through as expected or better than expected, which we think is more likely to be the case, then that will provide sufficient support for the equity markets," Trunow said.
Next week third-quarter earnings kick into high gear, with reports coming from Goldman Sachs (GS - News), Bank of America (BAC - News), Apple Inc (AAPL - News) and other prominent companies.
The Dow Jones industrial average (^DJI - News) was up 166.36 points, or 1.45 percent, at 11,644.49.
The Standard & Poor's 500 Index (^SPX - News) was up 20.92 points, or 1.74 percent, at 1,224.58.
The Nasdaq Composite Index (^IXIC - News) was up 47.61 points, or 1.82 percent, at 2,667.85.
Apple rose 3.3 percent to $422, just below its intraday lifetime high of $422.86 set on September 20, as the newest version of its iPhone went on sale across the country.
The CBOE Volatility Index, or VIX(^VIX - News), fell 8 percent to end at 28.24, and closed lower for the ninth day in a row, a pattern suggesting more gains could be in store as investors find less need for protection against losses.
"This has only happened four other times in the last 15 years and each time following this decline, the market over the next two months went up or stayed flat," wrote Jay Pestrichelli, co-founder and principal of Zega Financial LLC, an investment advisory firm specializing in option strategies.
French and German officials are trying to put flesh on the bones of a crisis resolution plan in time for a European Union summit on October 23, overshadowing Standard and Poor's cut of Spain's credit rating, a move that underlined the challenges facing Europe's finance ministers.
Stronger-than-expected retail sales data added to the upbeat mood Friday.
U.S. retail sales rose 1.1 percent in September from a month earlier, a report showed, beating the median forecast in a Reuters poll of a 0.7 percent rise. Sales growth during August was revised upward to 0.3 percent.
About 6.6 billion shares were traded on the New York Stock Exchange, NYSE Amex and Nasdaq for the day, well below the year's daily average so far of about 8 billion.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 5 to 1, and on the
Nasdaq, advancers outpaced decliners by 3 to 1.
2) Why The Economy Looks Like Expansion, Feels Like Recession-From The Contrary Indicator
There's a great mismatch between the way people feel about the economy and many of the underlying trends. The sentiment says recession, but much of the underlying data suggest growth.
The Thomson Reuters/University of Michigan measure of consumer sentiment, released Friday morning, showed consumer confidence fell and that consumers' expectations for the future are at their lowest level in 30 years. They're not the only ones worried. Lakshman Achuthan of Economic Cycle Research Institute, perhaps the most reliable forecaster on changes in the business cycle, recently told the Daily Ticker he believes a recession is unavoidable.
And yet the numbers continue to tell the story of a grinding, continuing recovery that, in some ways, appears to be accelerating. Amid the rising gloom, the data flow in recent weeks has generally been positive. Retail sales, reported this morning, were up strongly in September, up 1.1 percent from August; August's figure was revised upwards. Compared with a year ago, retail sales are up 8 percent.
They were led by strong car sales. After putting up a bagel in August, the economy added 103,000 payroll jobs in September, including 137,000 private sector positions. Overall GDP growth, which fell dangerously close to flatlining in the first quarter, in which it grew at just a .4 percent annual rate, grew at a 1.3 percent rate in the second quarter. Macroeconomic Advisers, which tracks and continually updates estimates in real time with each new data point, currently has the third quarter expanding at a 2.7 percent rate. The Conference Board Leading Economic Index pushes higher every month.
So what's going on? Is all the data fudged? Is it simply backward-looking information telling us a positive story? I think of it as follows: The grind-it-out recovery continues. The underlying trends are moving in a positive direction, in many instances better than most people think and expect. But there's an overwhelming sense of fragility due to three significant factors.
First and foremost, there's the weak labor market. Go back and look at the Bureau of Labor Statistics' depressing monthly employment market update. It's not simply that the unemployment rate is at an elevated 9.1 percent, or that the U-6, a broader measure of un- and underemployment, is at 16.5 percent. Rather, the equation between management and labor has shifted drastically in the past several years. Simply put, capital is beating the living daylights out of labor. Personal income fell in August from July. Corporate profits bounced back impressively since 2009, but between June 2009 and June 2011, real household median income fell 6.7 percent. Workers' share of income has fallen to historic lows. (Check out this chart, courtesy of Mark Thoma at Economists' View).
Second, call it muscle memory, or post-traumatic stress disorder, or the new normal. But Americans remain shocked and traumatized by the events of the fall of 2008 and the deep recession of 2008-2009.
A dog that's been repeatedly abused cowers the minute someone — even someone with good intentions — raises his hand. The American public is like a dog that's been kicked one too many times.
The cascade of failures, the massive job loss, and the huge declines in home equity, have altered sentiment, psychology and actual behavior. Each time there's a new trauma — a month in which there is no jobs growth brinksmanship that almost results in default, a downgrade by Standard & Poor's, a damaging hurricane — Americans suffer flashbacks.
Third, beyond imagined threats, the world is a pretty dangerous place, full of potential shocks that can harm the U.S. economy. And because consumers and companies were caught unawares by the 2008 credit shock, they continue to take preventative action and be on the lookout for warning signs.
Many companies in 2008 suffered near-death experiences in 2008 due to a lack of cash; so today they stockpile it, and hesitate to invest or boost dividends. Meanwhile, there are plenty of potential shocks for which people should prepare: a Greek default, a new recession in the heart of Europe, instability in the Middle East, a sharp slowdown in China.
As the mood sours, the U.S. economy continues to grind its way, slowly, out of the deep hole of 2009. At present, the economic data we have points to a continuation of the current expansion, now in its 30th month, even if many people feel as if the recession never ended.
3) Retail Sales Rise, but Consumers Still Worried-From The Wall Street Journal
U.S. retail sales jumped in September, though consumers' sour mood makes it unclear if the stronger-than-expected spending figures are sustainable.
Retail and food-services sales climbed 1.1% from the previous month to an adjusted $395.47 billion, the Commerce Department said Friday. Economists surveyed by Dow Jones Newswires had forecast a 0.8% increase.
But a separate gauge of consumer sentiment declined in October. The Thomson Reuters/University of Michigan consumer sentiment index for early October fell to 57.5 from an end-September reading of 59.4, below the 60.0 expected by economists.
The mood among Americans has frequently been more dour than hard retail spending numbers, and some economists think the disconnect will continue as families dip into savings to maintain their standards of living.
"Consumers seem to be chugging along even though consumer confidence is at recessionary levels, household net worth is falling, unemployment is high, and wage gains are outpaced by consumer price inflation," said Chris Christopher, senior principal economist at IHS Global Insight.
A separate Labor Department report Friday showed that U.S. import prices rose in September amid higher petroleum and food costs, an indication that lingering inflation pressures could further crimp consumers. The price of goods imported to the U.S. increased 0.3% from the month before, the biggest rise since April. On an annual basis, import prices last month were 13.4% higher than in September 2010.
Friday's Commerce Department figures, meanwhile, showed that August's retail numbers were better than initially thought—sales were revised up to a 0.3% gain. The Commerce Department originally estimated that sales were flat.
In September, consumers bought more cars, fuel and back-to-school clothes.
"Part of the rebound may simply reflect a makeup for purchases put off during August, when the stock market was in freefall and recession fears heated up," said Mark Vitner, senior economist at Wells Fargo.
Friday's data showed a 3.6% jump for auto and parts sales. Excluding cars, overall retail sales were up 0.6%.
Businesses aren't anticipating a huge revival in demand. A separate Commerce Department report Friday showed business inventories rose 0.5% to a seasonally adjusted $1.536 trillion. The inventory-to-sales ratio, which measures how many months it would take for a firm to deplete its current inventory, held steady at a relatively lean 1.28.
Quote of the Day from Dave Ramsey.com:
Great leaders are almost always great simplifiers, who can cut through argument, debate, and doubt to offer a solution everybody can understand. — General Colin Powell
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