MARKET REPORT
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Favorable economic news from Washington, a possible end in sight for the
presidential election stalemate, along with positive comments from a Wall
Street sage, and bargain hunting after yesterday's plunge, all combined to
propel U.S. stocks higher in Tuesday trading.
Small cap indexes headed higher, as the leading Russell 2000 Index advanced
10.4, or 2.2%, to 486.91, while the S&P 600 tacked on 4.1, or 2%, to
212.96. The Wilshire Small Cap 1750 added 18.82, or 2.4%, to 806.25.
It was a "relief rally and nothing more," said Dan Peris, small cap
strategist at Argus Research Corp. "If I were a small cap investor, I'd
still be on pins and needles."
Peris noted the relief rally was shaping up simply in response to the
election, or the onset of an end-of-year surge. In either case, he sees the
buoyancy favoring larger, stronger stocks rather than smaller, potentially
weaker ones.
"We're keeping our eyes on the major vendors in each of the sectors. The
smaller players are going to have a harder time getting the attention of
wary, conservative investments made from now on," he said.
Others were less cautious, including Goldman Sachs & Co. analyst Abby Cohen
who in a research note to clients was downright sanguine about stocks and
their valuations.
"Economic and profit growth are slowing to more moderate and sustainable
rates," she wrote, while noting that inflation remained "mild-mannered,"
and the likelihood of the Federal Reserve raising rates in the near term
was less likely.
Cohen, whose comments have often moved markets in the past, said stock
valuations "are the most attractive they have been all year," noting a
decline in stock prices, a lower Federal Reserve discount rate and rising
corporate profits as causes for her optimism.
Cohen did note the recent volatility in stocks, caused by the uncertainty
over November elections and rising energy prices, may affect consumer
spending habits for the next three to four months or more.
Fresh Commerce Department data before trading opened on Tuesday supported
Cohen's comments and helped launch the market upward. The government said
retail sales rose 0.1% in September, slightly ahead of analyst projections
for a flat reading.
The government also reported retail sales, excluding the volatile
automobile sector, rose 0.4% also beating analyst expectations by 0.1%.
September's figures stood pat at an increase of 0.9% and 0.7% excluding autos.
Several big U.S. retailers stepped forward with earnings reports for the
third quarter, including discounter Wal-Mart Stores Inc. (NYSE: WMT) and
home-improvement giant Home Depot Inc. (NYSE: HD).
Both retailers reported profits, but Home Depot injected a cautious note
about future earnings. Despite the news, retailers advanced smartly in
Tuesday's trading because the earnings reports weren't as disappointing as
some analysts had expected.
Today's retail-sales figures and corporate-earnings reports lent more
credence to the view that the Federal Reserve is engineering a soft landing
for the U.S. economy. However, while some analysts generally see lower
demand for consumer goods and services as a positive sign that the nation's
economy is slowing, there are those who think the brakes may have been hit
too hard.
The Federal Reserve will undoubtedly ponder these points of view Wednesday
at its regularly scheduled Federal Open Markets Committee meeting. While no
analyst expects the Fed to lower interest rates at this juncture, investors
are keen to hear what language the Fed board uses about inflation, which
some analysts have considered overly hawkish given the indications of a
slowdown.
For the session, the tech-laden Nasdaq Composite Index rose to 3138.27, up
171.55, or 5.8%, easily overtaking the 3,000 level, which it broached on
Monday for the first time in 2000. The Philadelphia Semiconductor Index of
large cap chip issues continued yesterday's late-day rally, adding another
37.18 points, or 5.7%, to 688.40.
The Dow Jones Industrial Average recovered all of Monday's losses and then
some, adding 163.81, or 1.6%, to 10,681.06. Shares of Hewlett-Packard Co.
(NYSE: HWP), which tumbled over 11% Monday on disappointing earnings,
taking the Dow industrials with it, advanced 8.4% for the day. The broader
S&P 500 added 31.66, or 2.3%, to 1382.94.
In Canadian trading, the Toronto Stock Exchange also recouped some of
Monday's losses and then some, gaining 150.20, or 1.6%, to 9265.30. The
Canadian Venture Exchange in a choppy day of trading gained 10.06 points,
or 0.3%, to 3184.08, after dropping nearly 59 points in yesterday's trading.
In currency markets, the Canadian dollar was nearly unchanged at US$0.6474
down from US$0.6475 yesterday, while in late New York trading, the euro
dropped a bit to US$0.8574.
In commodities news, December crude oil futures added 40 cents, or 1.2%, to
$34.87, while December natural gas surged 32 cents, or 5.6%, to $6.02.
December gold added 10 cents to $265.40.
This week's schedule is filled with fresh economic data from Washington.
Tomorrow, watch for September business inventories along with October
industrial production and capacity utilization. October's Consumer Price
Index premiers on Thursday, and Friday, watch for October housing starts.
