Thursday saw stocks finally rally leading the broader market higher, as investors welcomed a bigger-than-expected drop in jobless claims and a rise in the euro. Stocks attempted to extend their fledgling bull run, despite a few potential stumbling blocks.
After weeks of gloomy reports on the state of the U.S. economy, Wall Street received a rare economic indicator to cheer on Thursday as the government said first-time unemployment claims slid to eight-week lows. Additionally, retailers like Nordstrom (JWN) and Abercrombie & Fitch (ANF) reported June sales figures that came in better than the markets had been bracing for.
A barrage of same-store sales results from the retail sector provided food for thought; total sales rose by a smaller-than-expected 3.1% in June, but strong numbers from department-store stalwarts Macy's (M) and J.C. Penney (JCP) also helped offset the overall disappointment.
On the economic front, bulls clung to a glimmer of hope for the jobs market, with the Labor Department noting that initial jobless claims declined by 21,000 during the week ended July 3.
Meanwhile, speculation -- and anxiety -- is already ramping up ahead of second-quarter earnings season, which will unofficially launch next Monday night when Alcoa (AA) steps up to the plate.
After a day-long tug-of-war between the bulls and the bears, an eleventh-hour buying push translated to a third consecutive win for the major market indexes. The market's advance accelerated in the final hour. Many traders, seeing stocks hold their gains, wanted to be sure they didn't miss out on the rally, so they began buying before the closing bell.
Thursday’s performance was especially striking given the fact the Dow surged 275 points on Wednesday -- its third best day of the year -- amid calls the two-week slump was overdone and optimism for the start to earnings season next week.
“There’s a little bit of resiliency in the markets again,” said Peter Kenny, managing director at Knight Capital Group. “Considering we had a close to 3% rally yesterday, just to be flat after a day like that would be big. To close higher, that’s really going to give the markets” some momentum.
In another bullish signal, the markets closed at session highs for the second day in a row after having flirted with negative territory earlier in the afternoon.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 10,138.99) finished with a good gain of 120.71 points, or 1.20%.
The S&P 500 Index (SPX – 1,070.25) had nice gain, on the day, of 9.98 points, or 0.94%.
The Nasdaq Composite (COMP – 2,175.40) also had a gain of 15.93 points, or 0.74%.
The Russell 2000 Index of smaller companies had an impressive gain of 8.61 points, or 1.41%, to settle at 620.27.
All but one of the Dow's 30 stocks closed in the green, led by American Express (AXP), McDonald's (MCD) and DuPont (DD). The index's worst performers were JPMorgan Chase (JPM) and Intel (INTC), which closed slightly lower.
The Nasdaq Composite saw lighter gains as some technology stocks, including Research in Motion (RIMM) and Electronic Arts (ERTS), experienced weakness.
Among retailers, American Eagle Outfitters Inc. fell 46 cents, or 3.8 percent, to $11.80 after its June sales disappointed traders. Abercrombie & Fitch rose $2.55, or 7.8 percent, to $35.45 after its sales at stores open at least a year rose 9 percent. Gap Inc. said sales at stores open at least one year were unchanged in June, less than analysts expected. The stock fell $1.50, or 7.6 percent, to $18.22.
Macy's rose 53 cents, or 3 percent, to $18.44. Penney was up $1.46, or 6.7 percent, at $23.24.
But semiconductor shares fell after posting their best one-day gain in weeks on Wednesday.
"It's a nervous environment, and there is not a whole lot of confidence in the market for investors to jump in with both feet," said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.
Micron Technology (MU) fell 2.3 percent to $8.69 and the PHLX semiconductor index .SOXX slipped 0.1 percent after rising more than 5 percent on Wednesday.
Apple (AAPL) was down 0.2 percent at $258.09 and Intel (INTC) fell 0.2 percent to $20.10.
Volume was about 8.1 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion.
Market breadth was positive. On the New York Stock Exchange, winners beat losers nearly four to one on volume of 1.16 billion shares. On the Nasdaq, advancers beat decliners nine to four on volume of 2.07 billion shares.
Notes of Interest….
• The Dow Jones Industrial Average’s (DJIA) continued to flex its muscle above the psychologically significant 10k mark, maintaining its perch above this key millennium marker throughout the session. Thanks to its bullish performance so far this week, the Dow conquered its 20-day moving average for the first time since June 23.
• The S&P 500 Index’s (SPX) staged a second consecutive daily close above its 10-day moving average, but fell just a hair's breadth short of its 20-day trend line.
• The Nasdaq Composite (COMP), the tech-rich index, finished on the positive side of its 10-day moving average for the first time since June 21.
• Crude futures for August, tacked on $1.37, or 1.9%, to finish at $75.44 per barrel. Oil enjoyed a respectable daily gain today, as traders took their cues from a larger-than-expected weekly slide in U.S. petroleum stockpiles. Commodity players also considered an upwardly revised global growth forecast from the International Monetary Fund (IMF), which stated that the prospect of a double-dip recession was unlikely.
• Gold futures endured a modest decline. Following a few positive sessions for the equities market, along with today's relatively tame dose of economic data, the safe-haven commodity failed to lure any buyers. By the close, gold for August delivery was down $2.80, or 0.2%, to settle at $1,196.10 per ounce.
• Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.02% from 2.98% late Wednesday. The yield fell below 3 percent last week for the first time since April 2009 as investors grew nervous about the economy. The yield on 10-year Treasurys helps determine the interest rate on some mortgages and other consumer loans.
Roughly 454,000 Americans filed new claims for unemployment insurance last week, down from 475,000 in the previous week, according to a Labor Department report released Thursday. Economists surveyed by Briefing.com expected 460,000 new claims.
Continuing claims, a measure of Americans who have been receiving benefits for a week or more, fell to 4,413,000 from 4,637,000 in the previous week. Economists expected 4,600,000 continuing claims.
While the drop-in claims was welcome, economists say the nation still has a long way to go before it creates enough jobs to promote growth.
"The report was positive, but we don't see evidence that significant progress is being made to bring down the unemployment rate on a stable or recurring basis," said King.
The June jobs report, released a week ago, showed a rise in private-sector hiring that was smaller than expected, and a drop in the overall number of jobs.
Sales at the nation's retailers rose for a tenth consecutive month in June, but the pace of consumer spending continues to slow after a burst in the early part of the year.
June same-store sales rose 3.1% versus forecasts for 3.2%, according to tracker Thomson Reuters. Sales rose 2.5% in May and dropped 4.9% in the same month a year ago. The term 'same-store sales' is an industry metric that refers to stores open a year or more.
On the upside, department stores such as J.C. Penney (JCP), Nordstrom (JWN) and Macy's (M,) all reported better-than-expected results, while Gap (GPS) and BJ's Wholesale (BJ) were among the losers.
"Frugality's still out there," said Christian Hviid, chief market strategist at Genworth Financial Asset Management, noting that weakness in the jobs market is likely still cutting into spending. "It's a needs-versus-wants spending environment we're back into."
Long-term rates fell to the lowest point since the 1950s, dropping for a second-straight week. The average rate on a 30-year fixed mortgage fell to 4.57% from 4.58% in the previous week, Freddie Mac reported. Its the lowest rate since Freddie Mac started tracking rates in 1971 and the lowest since the 1950s.
Overseas ConcernsInternational Monetary Fund
Stocks got some support from a global economic forecast from the International Monetary Fund. The IMF raised its world growth estimate for the year to 4.6 percent from 4.2 percent. The stock market's losses since the major indexes reached 2010 highs in late April have been largely due to fears that debt problems in European countries might hurt the recovery around the world.
Also on the labor front, Australia released monthly employment figures that significantly beat expectations, saying its economy created nearly 46,000 jobs in June. According to analysts, that would be the equivalent of creating 647,000 jobs in the U.S.
In currencies, the euro rose to a two-month high versus the dollar, on some optimism about the results of European bank stress tests, also gave stocks some support.
The euro closed solidly higher and even eclipsed the $1.27 level in the wake of the widely-expected decision by the European Central Bank to leave its interest rates unchanged. The European currency was up 0.56% to $1.2704 as U.S. markets closed.
European Markets: gained, with Britain's FTSE 100 rising 1.8%, Germany's DAX advancing 0.7% and France's CAC 40 climbing 1.6%.
Asian Markets: ended higher except for China. Japan's Nikkei rose 2.8%, Hong Kong's Hang Seng gained 1% and the Shanghai Composite fell 0.3%.
Company Earnings Reports
Company News and Movements:
• Merck (MRK) said it was closing eight research and eight manufacturing plants as part of its restructuring following its merger with Schering-Plough.
• H&R Block (HRB) lost 8% of its value and fell to 52-week lows a day after it announced the immediate resignation of CEO Russ Smyth, who has been tapped to lead another company in his hometown of Chicago. The tax service provider said Smyth will be replaced on an interim basis by Alan Bennett, who previously served as H&R’s interim CEO from 2007 to 2008.
• Madison Square Garden’s (MSG) stock slumped 6% as ESPN reported NBA superstar LeBron James plans to sign with the Miami Heat, not MSG parent New York Knicks. MSG’s shares rallied almost 7% on heavy volume late Wednesday amid buzz James may announce he will sign with the Knicks Thursday night.
• Target (TGT) posted weaker-than-expected June same-store sales growth of 1.7%. Analysts had forecasted a rise of 2.7%. Overall sales at Target grew by 4% to $5.91 billion. The discounter projected July same-store sales will rise in the low-single digits.
• Abercrombie & Fitch (ANF) surged 7.75% as the teen apparel maker said its same-store sales soared 9% last month, making it the biggest upside surprise among retailers reporting Thursday. Analysts had forecasted a much more modest 2.8% rise in same-store sales.
• Gap (GPS) tumbled 7.6% after the apparel maker reported its June same-store sales were flat, widely missing expectations for a 3.4% rise in comparable sales. A year earlier same-store sales were down 10%.
The following companies had some impressive options movements:-
• Gannett Co., Inc. (GCI)
• Madison Square Garden, Inc. (MSG)
• CBOE Holdings, Inc. (CBOE)
• SunTrust Banks, Inc. (STI)
• Western Digital Corp. (WDC)
• H&R Block (HRB)
• America Movil (AMX)
• Citi (C)
• IShares Hong Kong Fund (EWH)
• Abercrombie (ANF)
• Marvell Tech (MRVL)
Stocks surged Wednesday after State Street's improved earnings forecast boosted financial shares, giving a lightly traded market a reason to rally. A stronger euro took the pressure off European debt worries.
The positive mood continued Thursday, after a shaky start to the session.
"The sentiment had gotten overly bearish and in an environment like that, you can see these oversold bounces," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
"The data we saw today was better than what we are used to seeing ... it shed a bit of hope," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut.
"But there is still so much bearishness in the market that it is causing stocks to swing in such a swift manner."
Through the end of last week, the major stock indexes dropped more than 15% off the rally highs of late April as investors tried to price in the threat of a so-called double-dip recession. While the selling seems to have tapered off in the short term, stocks remain vulnerable.
"The stock market is not going to get its footing and show overall progress until we can see an improvement in the labor market," said James King, chief investment officer at National Penn Investors Trust.
Hank Smith, chief investment officer of equity at Haverford Investments, said some investors have been worried about a so-called "double-dip" in the economy but that more recent data, including Thursday's jobs report, are a reminder that the recovery is continuing.
"It's hard to see rolling into a double dip," he said. The Dow jumped back above 10,000 Wednesday. Traders say the recent gains, which came after seven straight days of declines, were not tied to any one particular catalyst. Instead some investors went back into the market thinking prices had been beaten down too much in the past couple of weeks. But trading volume has been light this week. That's a sign that few investors are driving the advance. And that means the gains could quickly unravel if more disappointing economic news arrives.
Stocks have regained their footing after a slew of poor data had raised fears of a double-dip recession. But low market volume suggested investors are still skeptical, and few expect to see a sustained rally.
Worries about the U.S. economy slipping into a double-dip recession dominated the past two weeks, but seem to be taking a back seat this week.
“I think there is enough monetary and fiscal stimulus in the pipeline that we’re going to avoid a double-dip,” said Scott Black, president at Delphi Management. “I know people worry about the European [debt] contagion; I don’t. The real fulcrum of earnings power is the United States of America, Latin America and Asia.”
"The question is, does this continue and does this bring in buyers?" said Quincy Krosby, chief market strategist at Prudential Financial. She said some traders believe the market's advance has been driven by program trades, which occur when traders use computers to buy and sell stocks at certain levels. That would mean stocks are rising because of the market's own internal dynamics, not renewed confidence.
Krosby said earnings reports from the April-June quarter, which start to arrive next week, will help determine whether longer-term buyers step in. Investors are expected to be most interested in companies' forecasts for the coming quarters. "This market is not worried about the last three months, it's worried about the next three to six months," Krosby said.
Wall Street continues to look ahead to earnings season, which could give the markets a better idea on whether companies have felt the economic recovery slow down. Aluminum maker Alcoa (AA) is set to kick off season-quarter earnings season next week.
“This is our best picture, our most real-time data on what’s happening on the ground. This is a very, very important earnings season,” said Peter Kenny, managing director at Knight Capital Group.
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