NEW YORK (CNNfn) - U.S. stocks rose Tuesday as investors entered the final five months of the year betting that consumer spending, the driver of the U.S. economy, will rise as interest rates continue to fall.|
The Dow Jones industrial average, home to many companies dependent on American shoppers, led the way higher with a 121-point gain. Technology stocks lagged, with the Nasdaq composite index posting a small gain.
Two surveys showed that retail sales gained last week. And separately, the government said U.S. consumption grew with surprising strength in June. Finally, consumer confidence and manufacturing data softened, keeping alive hopes for another Federal Reserve interest rate cut next month.
To John Lonski, chief economist at Moody's Investors Service, the weekly consumer spending numbers suggest that the tax rebate checks being mailed to millions of Americans are lifting retail sales.
"We have some hint that the tax rebate program just might be able to pull the economy out of its funk," Lonski said.
On the final day of July, the flood of disappointing corporate reports slowed, soothing a market hit by hundreds of profit warnings this year.
"Without earnings, we've turned to economic data," Art Cashin, head of New York Stock Exchange floor operations for UBS Warburg, told CNNfn's The Money Gang.
That data offered a kind of "Goldilocks" scenario for investors, suggesting an economy with pockets of health but still in need of more rate-cut medicine.
"The Fed is probably not going to stop easing," Jason Trennert, investment strategist at ISI, told CNNfn's Street Sweep.
The Dow industrials gained 121.09 points, or 1.2 percent, to 10,522.81, a gain of 0.3 percent for the month. The Nasdaq rose 9.28, or 0.5 percent, to 2,027.12, narrowing its July loss to 6 percent. The S&P 500, off 1 percent on the month, added 6.71 to close at 1,211.23.
Still, gains like Tuesday's are often subject to pullbacks. Three of the Nasdaq's four biggest one-day percentage gains occurred this year – a period when the index is down 18 percent.
More stocks rose than fell. On the New York Stock Exchange, advancing issues topped declining ones 1,896 to 1,222 as 1.1 billion shares traded. Nasdaq winners surpassed losers 1,923 to 1,816 as 1.6 billion shares changed hands.
In other markets, Treasury securities edged higher. The dollar dipped lower against the euro and yen.
Sifting the data
Government and private agencies issued nearly a half dozen reports on the economy Tuesday.
Moody's Lonski focused on chain store sales numbers for last week that, according to tallies from Redbook Retail Sales Average and Bank of Tokyo-Mitsubishi, both saw gains.
"We have early indications that the tax rebates are having a lift on consumer spending," Lonski said. "The sense is that the tax rebates, to the degree that they provide a lift to spending, will further the process of inventory depletion."
In addition, the government said consumer spending, which fuels about two-thirds of the economy, rose 0.4 percent in June, topping forecasts, after a 0.3-percent gain in May.
The Conference Board, a private research group, said its index of consumer confidence fell to 116.5 in July, a month of stagnant stock prices and rising layoffs.
A regional survey from the National Association of Purchasing Management-Chicago fell to 38.0 in July, much weaker than expected, as the slump at U.S. factories continued.
Still, the weaker numbers gave investors more reason to bet that the Federal Reserve will cut interest rates for the seventh time this year when policy makers meet in three weeks.
UBS Warburg's Cashin said the NAPM-Chicago report's details on falling inventories signaled that companies are finally working through excess capacity.
Twenty-two stocks among the Dow 30 rose. Retailer Home Depot (HD: up $0.82 to $50.37, Research, Estimates) gained. So did 3M (MMM: up $2.63 to $111.88, Research, Estimates), Merck (MRK: up $1.73 to $67.98, Research, Estimates) and Caterpillar (CAT: up $1.55 to $55.10, Research, Estimates).
Static from Verizon
The session was not without disappointments. Verizon Communications (VZ: down $1.87 to $54.15, Research, Estimates), the local carrier that serves much of the East Coast, warned that 2001 sales and earnings will slow below estimates.
And Mercury Computer Systems (MRCY: down $17.10 to $31.65, Research, Estimates) fell after the company said a slowdown in spending may hurt short-term results.
Losses in Dell Computer (DELL: down $0.53 to $26.93, Research, Estimates) kept the Nasdaq's gains in check. Merrill Lynch cuts its profit outlook for the PC maker late in the trading session.
Expedia (EXPE: up $0.20 to $48.34, Research, Estimates), the online travel service, said it earned $15 million, or 25 cents per share, topping forecasts.
Drugstore chain CVS (CVS: down $0.71 to $36.01, Research, Estimates) said second-quarter profit rose to $198 million, or 48 cents a diluted share, meeting estimates.
On Monday, three high-profile Wall Street analysts cut their outlooks for the nation's biggest companies, one trading session after the government said the economy grew at its slowest pace rate in more than eight years during the second quarter.
But some expect the combination of lower interest rates, the federal income tax cut and next year's expected profit rebound to help stocks.
"We're saying it's always darkest before dawn," Tracy Eichler, investment strategist at UBS Warburg, told CNNfn's Market Call.
The days ahead bring more important economic data. A look at nationwide manufacturing conditions in July comes Wednesday with a report from the National Association of Purchasing Management. And the government Friday releases its read on July's job market. In it, unemployment is expected to tick up to a three-year high of 4.6 percent, from 4.5 percent in June, continuing an upward trend that began in November.
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