Stocks bounce between small losses, gains
8/15/2012NEW YORK — Stocks are bouncing between small gains and losses on Wall Street following more signs that the U.S. economic recovery is advancing, albeit at a slow pace.
The Dow Jones industrial average was down two points at 13,170 just after noon today. The broader S&P 500 index rose two points to 1,406, while the Nasdaq composite rose 12 points to 3,029.
U.S. industrial production increased last month as factories made more cars, computers, and airplanes, according to the Federal Reserve.
It was a sign that manufacturing is recovering after a weak spring. Also, consumer prices were unchanged in July from June, as a small drop in energy costs offset slightly higher food prices. The consumer price index hasn’t changed since March, which means that inflation is in check.
Lower inflation gives the Federal Reserve more leeway to launch new programs intended to rekindle the economy. The Fed signaled at a meeting in late July that it is ready to act if growth and hiring stays weak.
Recent signs point to some economic improvement in July. Employers created the most jobs in five months, while consumers spent a little more at stores after three months of declines. Though they were better, the economic data showed a very weak recovery and that the U.S. economy is just trudging along.
“We’re in a period of very slow growth, though interest rates are low, and very little inflation,” said David Kotok, chief investment officer at Cumberland Advisors.
It’s left many investors wondering if the economy is fragile enough to create a sense of urgency among fiscal policy makers to act proactively. The slightly better outlook for the economy could prompt the Fed to hold off on taking action when its policy committee next meets in September.
The bond market is betting that the Fed is not likely to act. Investors have been selling low-risk U.S. government bonds, sending the yield on the benchmark 10-year Treasury note up to 1.81 percent today. That’s up from 1.73 percent Tuesday and 1.66 percent late Monday.
“Unless the U.S. economy goes into a swoon and there is no pick up in retail sales and deterioration in jobs growth or major shocks from Europe and China, the Fed will not take any action for now,” Mr. Kotok said.
In the last few weeks of the summer, trading volumes in the stock market have been low. Investors may also be holding off on taking aggressive positions ahead of a meeting of the U.S. Federal Reserve in Wyoming at the end of this month.
On Wednesday, the Dow traded within a range of just 53 points.
U.S. earnings were mixed.
Target rose $1.56 to $64.95 after the retailer increased its profit outlook for the year. Target is preparing its first expansion out of the U.S., into Canada.
Deere plummeted $5.51 to $74.62 after the agriculture machinery maker reported results that were well below Wall Street’s expectations. The company attributed its poor results to a slowing global economy and the effects of a prolonged U.S. drought. Deere also cut its revenue forecast for the year.
Staples dropped $2.43 to $11.03 after the office and school supplies store said its income dropped 32 percent following weak sales in North America and Europe. The results fell short of analysts’ expectations and the company cut its full-year earnings forecast.
Abercrombie & Fitch struggled to sell its preppy jeans and T-shirts in the previous quarter, but its results weren’t as bad as analysts had forecast. The teen fashion leader also laid out plans for updating its fashions. The stock soared 9 percent, or $2.80, to $35.13.