For the second straight day, the bulls beat the bears, and all the major U.S. indexes were up. That said, at the close, the indexes were off from their earlier highs. The S&P 500 led the way, gaining 0.5%, or five points. The Dow and NASDAQ both advanced around 0.3%. On the New York Stock Exchange, advancers beat decliners at a 3-to-2 rate. In particular, Beazer Homes (BZH) and Royal Caribbean (RCL) both advanced more than 5% on the day.
Over the past several weeks, investors have had to digest consistently poor economic reports, ranging from the slumping housing market, to yesterday’s lackluster Beige Book reading. However, today, the indexes were helped by some encouraging employment news. According to the Department of Labor, last week the number of people signing up for unemployment benefits dropped to the lowest level in two months. While the unemployment rate remains elevated at 9.6%, this report suggests that, overall, companies are not aggressively focused on additional layoffs, even though the economy appears poised for a slowdown. That said, we continue to believe that the jobless rate will remain high for the remainder of 2010 and only show modest improvement during most of 2011.
Positive news on the trade front also helped the market today. The government stated that the trade deficit narrowed significantly in July as exports climbed to the highest level in nearly two years. The narrower gap reflected big gains in exports of U.S.-made airplanes and other manufactured goods. For today at least, the two positive reports quelled investor fears that the U.S. economy was going to fall back into recession. We continue to believe that a double dip can be avoided, but the probability of such an event has been increasing.
Tomorrow completes the short trading week, and with little economic news and earnings releases on the schedule, the United States market will probably once again take its cue from trading in Europe and Asia. In addition, due to the holiday, tomorrow’s trading volume will likely remain light, and investors should be prepared for the possibility of elevated volatility, as a result.
