An erratic period for the markets finally came to a close with mild gains on Friday as the retail sales report upped the mood. This was the first time since early July that the Dow and the S&P 500 registered two consecutive days of gains. However, the magnitude of losses that the benchmarks had suffered could not be entirely washed out and all the benchmarks were down less than 2% for the week.
On Friday, the Dow Jones Industrial Average (DJIA) recorded its fifth-straight day of triple-digit movement for the first time since January last year. The Dow was up 125 points or 1.1% to close the day at 11,269.02. The Standard & Poor 500 (S&P 500) gained 0.5% and settled at 1,178.81. The Nasdaq Composite Index rose 0.6% and finished at 2,507.98. The fear-gauge CBOE Volatility Index dropped less than 7% to trade roughly at 36. The busy week had seen consolidated volumes on the New York Stock Exchange reaching even up to 9.7 billion shares. On Friday, volumes were also above average, but settled at 5 billion shares. On the NYSE, for every couple of stocks that jumped, one stock moved up. On the NYSE, Amex and Nasdaq, consolidated volumes were 9 billion shares. The daily average of shares traded through the week amounted to 16 billion, reflecting how busy the week had been.
This has been the Street’s most volatile week since the financial crisis in 2008, marked by substantive gains as well as huge losses. The Dow gained 3.9% on Thursday, sank 4.6% on Wednesday, climbed 4% on Tuesday, and had plunged 5.6% on Monday. Over the same period, the S&P 500 moved up 4.6%, down 4.4%, again gained 4.7% and plunged 6.7% a day before that. The Nasdaq gained 4.7% on Thursday, lost 4.1% on Wednesday, jumped 5.3% on Tuesday and had plunged 6.9% on Monday. For the week, the Dow, S&P 500 and the Nasdaq have declined by 1.5%, 1.7% and 1.0%, respectively. This has been the worst-three week fall for the markets since March 2009.
The 125-point jump in the Dow looks petty in comparison to the 400+ point swing that the blue-chip index had witnessed over the week. Investors had been responding to every small and big development, and their anxiety ensured benchmarks were in for a roller-coaster ride. However, the modest jump is indicative of declining anxiety and the investors are not as worried now about the double-dip recession. As for Friday, it was the retail sales report and business inventories that led the markets upward, eroding fears from disappointing consumer sentiment data.
The Commerce Department reported: “Advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $390.4 billion, an increase of 0.5 percent (±0.5%)* from the previous month, and 8.5 percent (±0.7%) above July 2010. Total sales for the May through July 2011 period were up 8.2 percent (±0.3%) from the same period a year ago. Dispelling fears of the US moving towards another recession, the report showed retail sales had jumped the highest since March. Since consumer spending accounts for two-third of the nation’s activity, it is an important indicator of the nation’s economic health.
Separately, the Commerce Department also reported a 0.3% jump in business inventories. However, it came in lesser-than expected as the consensus for the current period estimated a 0.5% jump. It was also up 11.1% from June 2010.
These positive reports overshadowed disappointing data about consumer sentiment. According to the Thomson Reuters/University of Michigan's preliminary August reading, consumer sentiment was down to 54.9 from 63.7 in July. This was also the lowest reading since May 1980.
Coming to retail stocks, Macy's, Inc. (NYSE:M), Wal-Mart Stores Inc. (NYSE:WMT), Target Corp. (NYSE:TGT), The TJX Companies, Inc. (NYSE:TJX) gained 0.3%, 0.04%, 2.6% and 1.6%, respectively. However, other retail stocks including J. C. Penney Company, Inc. (NYSE:JCP), Gordmans Stores, Inc. (NASDAQ:GMAN), Fred's Inc. (NASDAQ:FRED) and PriceSmart Inc. (NASDAQ:PSMT) declined by 1.0%, 4.0%, 0.9% and 0.6%, respectively.