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Encouraging retails sales reading was accompanied by disappointing inventory growth and the two left the benchmarks struggling for definite direction yesterday. While the Dow managed to chalk up paltry gains, S&P 500 and Nasdaq slipped marginally. Negligible movement in the benchmarks meant it was another day of low volumes and Reuters noted that investors are calling this a ‘fatigued market’.

The Dow Jones Industrial Average (DJI) ended just 2.71 points or 0.02% higher at 13,172.14. The Standard & Poor 500 (S&P 500) slipped a negligible 0.01% or 0.18 point to finish yesterday’s trading session at 1,403.93. The tech-laden Nasdaq Composite Index lost 0.2% to end at 3,016.98. The fear-gauge CBOE Volatility Index (VIX) jumped 8.4% to settle at 14.85. Volumes were yet again low with consolidated volumes of roughly 5.16 billion shares on the New York Stock Exchange, Nasdaq and American Stock Exchange, lower than last year's daily average of 7.84 billion shares. Advancing and declining stock on the NYSE were almost even; as for 47% stocks that gained, 49% stocks closed lower.

Even in the absence of few negatives yesterday, the fear-gauge index made a sharp movement upward. However, one might not read too much into it, as on Monday the index had dropped to five-year low while the markets closed in the red. Generally, The VIX moves in the opposite direction of the market and a drop in the fear-gauge index reflects improving investor confidence and vice versa. On Monday, certain market onlookers had opined that investors were not too bothered by negatives.

Low volumes are another trend that the Street is witnessing over the past few days. On Tuesday also, volumes were sharply lower than the average. A cautious stance has largely prevented investors from betting big. Strategists also opined that volumes will pick up only after investors return from summer holidays.

Investors are awaiting concrete action from the central banks, and they have focused less and less on the limited number of headlines. Yesterday too, benchmarks were reluctant to move on either side following surprisingly encouraging retail sales data and dismal growth in inventories.

Coming to the retail sales data, the Commerce Department reported that retail sales had increased 0.8% in July. This was the best jump since February this year. Also, the 0.8% jump far outpaced consensus estimates of a 0.3% gain. Separately, the Labor Department reported that U.S. producer prices index had increased 0.3% in July, up from the 0.1% gain in June and higher than consensus estimates of a 0.2% increase.

Retail sales data was encouraging news not only for the retail sector but for the overall economy as well. Retail stocks registered gains yesterday and the SPDR S&P Retail (XRT) was up 0.2%. Among retailers, Target Corporation (NYSE:TGT), PriceSmart, Inc. (NASDAQ:PSMT), Wal-Mart Stores, Inc. (NYSE:WMT), Macy's, Inc. (NYSE:M) and the The Bon-Ton Stores, Inc. (NASDAQ:BONT) jumped 1.4%, 0.4%, 0.8%, 1.0% and 3.1%, respectively. Another retailer, The Home Depot, Inc. (NYSE:HD) jumped 3.6%. Not only did the company’s quarterly results surpass Street’s estimates, the company also upped its guidance.

However the positive mood emanating from this data was offset by another on business inventories. The Commerce Department noted a mere 0.1% rise in business inventories in June to $1.58 trillion. This was lower than May’s growth of 0.3%, but was in line with consensus estimates. Moreover, the report also noted a 1.1% drop in sales, the largest decline since March 2009.


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