Stocks tried once again to push higher after a series of encouraging economic reports but disappointing earnings from two retailers dragged on the market.
The government reported that retail sales jumped 2.7 percentin August, more than the 2 percent expected and their fastest pace in three-and-half years. Sales got a boost from the "Cash for Clunkers" program and higher gasoline prices. Core prices also rose but economists said the next few months will tell the real story.
"Clearly, welcome news but we need more data to see if this is sustainable or just noise," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. "[N]ote that much bigger core gains in Jan/Feb were reversed, and the income and credit constraints on consumers remain intense."
Earnings from retailers showed that its still a tough environment out there as consumers cut back and competition gets fierce.
Electronics retailer Best Buy missed its targetfor the current quarter as store sales lagged but raised its outlook for the full year, citing stabilizing customer traffic. Its shares fell.
Shares of Kroger also skidded after the grocery chain reported its profit fell and slashed its full-year earningsforecast as price cuts, a response to Wal-Mart's push into the grocery business, cut into margins.
"It's a little bit of conflicting things going on. Best Buy misses the quarter but raises guidance, suggesting things are getting better the second half of the year. Then Kroger comes out and lays an egg," Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets, told Reuters. "It's still a minefield out there," he said.
Businesses continued to pare inventories, which fell 1 percent in July to their lowest level since March 2006. Sales ticked up 0.1 percent.
In the morning's other economic news, producer prices climbed 1.7 percent last month, double the expected rate, as gasoline prices rose at their fastest clip in a decade. And the New York Fed branch reported its "Empire State" manufacturing index hit its highest level in two years.
Outside of retail, the big buzz in the market is that Citigroup has proposed a plan for the government to unload some of its 34-percent stake in the company. But shares tumbled amid published reports that Citi is also considering a $5 billion secondary offering.
Well-known banking analyst Meredith Whitney said on CNBC this morning that the economy remains weak and will face a big test next monthwhen the government starts to wind down its support programs.
Bank of America shares rose despite news that a federal judge has rejected a $33 million settlement between the bank and the SEC over Merrill Lynch bonuses and that executives may face charges — and a trial — over their handling of the merger.
An interesting approach overseas: The UK plans to make banks draw up "living wills" that would allow them to be dismantled easily, the Financial Times Reported.
Shares of Capital One skidded, even after the credit-card provider repoorted that defaults on card payments fellin August.
And both MasterCard and Visa reported processed volume declined less in July and August than in the second quarter, supporting the fact that the industry is stabilizing.
In tech land, Intel said it is shaking up its management team, setting up a three-way race for CEO, according to the Wall Street Journal.
And Yahoo shares climbed after the Internet portal sold its stake in China's top e-commerce company Alibaba.com.
After the bell, results are due out from software maker Adobe Systems .
President Barack Obama's speech on the financial landscape Monday didn't alarm Wall Street, with stocks making modest gains. Obama, in an interview with CNBC Monday evening, stressed that new oversight and "circuit breakers" for the financial markets are needed.
There are concerns that the markets have already forgotten some of the lessons of the crisis. Rochdale Securities Bank Analyst Dick Bove told "Squawk Box Asia" that investors only need to look to yields on junk bonds to see that "greed" has returned to the markets.
This is a quadruple witching week, meaning four key expirations — stock index futures and options, and stock futures and options — which is likely to put some volatility into the market. So far today, the CBOE volatility index is holding below 24.
Still to come:
TUESDAY: Earnings from Adobe after the bell
WEDNESDAY: Weekly mortgage applications; CPI; current account; industrial production; weekly crude inventories; earnings from Oracle
THURSDAY: Housing starts; weekly jobless claims; Philly Fed; Earnings from FedEx
FRIDAY: Quadruple witching
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