Shoppers encouraged by cooler temperatures and falling gas prices went on a clothes shopping spree in September, giving many retailers better-than-expected gains and lifting the industry's spirits two months before the holiday season.
Meanwhile, although the Conference Board last week reported a rebound in consumer confidence in September, the survey showed lingering concerns about the job market. Employment showed modest gains in August, with wages barely up, and analysts are forecasting only a modest increase of 120,000 jobs for September. The Labor Department reports that figure Friday.
In a positive sign, the Labor Department reported Thursday that the number of newly laid off workers filing claims for unemployment benefits fell last week to the lowest level in 10 weeks.
Good data shows that economy not slowing that much. So negative for stocks.
NEW YORK (MarketWatch) -- The Dow Jones Industrial Average ended at its second record high in two days Wednesday, and the S&P 500 rallied to its best level in more than 5 1/2 years on increasing optimism that economic growth will continue at a pace that will sustain job creation and corporate profits.
The Nasdaq Composite also rose to its best level since May.
The Dow industrials rose 123.27 points, or 1.1% to 11,850.61. The benchmark index easily surpassed its previous all-time intraday high of 11,750.28 reached on Jan. 14, 2000.
The Nasdaq Composite Index was up 47.30 points, or 2.1% at 2,290.95, while the S&P 500 Index gained 16.11 points, or 1.2% to 1,350.22. The broad gauge is now at levels not seen since February 2001.
"Equity market gains have been fueled by a drop in energy prices and interest rates," said Michael Sheldon, chief market strategist at Spencer Clarke, referring to the precipitous decline in the price of oil over the last two months and the drop in the yield on the benchmark Treasury 10-year note.
"And investors are increasingly optimistic that the Fed will orchestrate its famed soft landing."
A soft landing happens when an economy slows after a period of strong growth but remains robust enough to create jobs and maintain corporate profits. A hard landing is when an economy tumbles into recession after growing strongly for some time.
Investors have been worried that the Federal Reserve went too far in raising interest rates as it sought to choke inflationary pressures by slowing economic growth. The central bank raised its key short-term rates over a period of two years to 5.25% before deciding to pause at its monetary policy meeting in August. Raising interest rates lifts the cost of borrowing, acting as a brake on consumer spending and on corporate investment.
Sheldon said Wednesday's gains are partly the result of heavy buying from those investors who "have missed out on the recent rally." He said much of the buying has benefited blue-chip companies and other large-cap stocks.
"In the past, when market leadership is concentrated in just a few names, this has not been a healthy development," said Sheldon. "Therefore, it will be important for market leadership to broaden out and include other industry groups such as the transportation stocks and small caps, which have lagged the market in recent days."
Adding to positive sentiment on the market, Federal Chairman Ben Bernanke offered some soothing remarks on the weakening housing market.
Although he expects the housing slump to cut into second-half economic growth, strong underpinnings may limit the duration of the "substantial correction" underway.
These underpinnings include a good job market, strong income growth, demographics and continued low mortgage rates," he said in a speech on public policy challenges from the aging U.S. population to a business group in Washington. See full story.
On the broader market for equities, advancers led decliners by more than 3 to 1 on the New York Stock Exchange and by more than 2 to 1 on the Nasdaq.
Heading into September '06, some pundits fretted over the market's poor historical performance in September. They noted that September was, on average, the worst month on the calendar for both the S&P 500 and Dow industrials.
The numbers bore that out. According to the Stock Trader's Almanac 2006, from 1950 to 2005 the S&P 500 fell an average of 0.7% in September, a worse showing than in any other month. September was also the worst month for the Dow, down an average of 1.1%.
In August 2006 the S&P 500 rose 2.1%. But volume stayed light for most of the month, as traders took vacations. Many on Wall Street worried that stocks would fall hard in September, with higher volume combining with the curse of Septembers past to whack the market.
Nothing is set in stone. Expect the unexpected. September is historically the worst month for the stock market, but every market cycle is different. Focus on the daily price and volume action of the major market indexes and leading stocks above all.
The Dow industrials rose as much 42 points to strike a fresh all-time high of 11,769.12. It was last up 37 points at 11,764.
The Nasdaq Composite Index was up 14 points at 2,257 while the S&P 500 Index gained 2.6 points a 1,336.
"People are now afraid of missing out on the bull market," said Michael Metz, chief investment strategist at Oppenheimer & Co. "Investors are chasing performance."
Metz said the latest economic reports did little to dissuade the market that the economy is in a "Goldilocks" scenario where there is enough growth to sustain job creation and corporate profits, but not too much to stoke inflationary pressures.
At the same time, he said, a report pointing to modest job growth in September should be giving investors some pause for thought ahead of Friday's employment data.
Investors will be hoping to garner fresh clues on the Federal Reserve's thinking on the economy and the outlook for interest rates when Chairman Ben Bernanke addresses the Economic Club of Washington at 12 p.m. Eastern.
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