Stocks Gain 3% for Month but Rally Fades
Stocks ended slightly higher Friday as the dollar fell and traders grappled with disappointing GDP and existing-home sales reports, playing the market in a tight range.
Trading volume was light as there was another element to battle: The weather. A "wicked snowicane," as Accuweather describes it, referring to the rare spiraling air masses in this storm, has dumped over a foot of snowin some parts of the Northeast, flooding in others and battering winds across the board.
The Dow Jones Industrial Average logged a solid gain for February, up about 3 percent, but the momentum petered out in this final week of the month. Investors pulled the reins as confidence in the recovery has begun to falter, with disappointing readings on consumer confidence, home sales, jobless claims and GDP.
Today's GDP report showed the economy grew at a 5.9 percent rate in the fourth quarter, higher than the initial estimate of 5.7-percent growth. But much of that was due to a paredown of inventories, not underlying spending, prompting concerns about the all-important consumer.
"The GDP data further validate that the economic recovery is exclusive to businesses, and not consumers," said Todd Schoenberger, managing director at LandColt Trading in San Antonio, Texas. "The ripple effect in the immediate future will result in lower top-line figures for consumer-related industries."
That's going to leave a mark because consumer spending accounts for two-thirds of economic activity.
Indeed, investors have begun to back off of consumer stocks, favoring instead financials and health-care stocks.
In today's action, financials and industrials were some of the biggest gainers, with JPMorgan and 3M leading the Dow.
Health-care stocks were also among today's winners, with Cigna up more than 1 percent, as the takeaway from this week's health-care summit seemed to be that any reform would be modest.
Consumer names were some of the biggest decliners, including Coke and Kraft .
AIG reported an $8.9 billion quarterly loss and said it may need additional government support.
General Electric ticked higher as the conglomerate began to prune its finance arm, the division that weighed on the whole company during the credit crisis. The company, also the parent of CNBC, said it's in talks to sell a rougly 20-percent stake in Turkey's Garanti Bank and reached an agreement to sell its Hong Kong consumer-finance arm to Standard Chartered Bank.
The dollar fell against the euroas traders pared some of their short positions against the euro.
Oil and gold were little changed for the week, settling at $79.66 a barrel and $1,118.90 an ounce, respectively.
In other economic news today, existing-home sales fell 7.2 percentto a 5.05 million rate; economists had been expecting a 0.9 percent increase.
And consumer sentiment weakened in February; a gauge from Reuters and the University of Michigan dropped to 73.6 from 74.4 in January and below the 74 expected.
The week has been filled with a dismal series of reports on housing, unemployment, consumer confidence and bank lending, raising fears in some quarters that the threat of a double-dip recession continues to loom.
One encouraging data point this morning: The Chicago Purchasing Managers' Index ticked up to 62.6in February from 61.5 last month, beating the consensus, which pegged that number at 60.5.
Computer-security firm McAfee said it plans to acquire three or four companies each year to drive growth. CEO David DeWalt made the remarks in an interview with Reuters Television.
Dr. Pepper Snapple saw its shares take a hit after Goldman Sachs downgraded the firm to "neutral" from "buy" on sentiment that a windfall will fade from the planned purchase by Coca-Cola of its chief bottler Coca-Cola Enterprises.
Trading volume was extremely thin: Just 7.9 billion shares changed hands on the three major exchanges, nearly 2 billion less than last year's daily average. Advancers outpaced decliners, roughly 3 to 2.
Berkshire Hathaway Class A shares rose about 1 percent ahead of earnings from the company, due out on Saturday.
The consumer recovery may be faltering but some traders point out the business recovery is still on. Click on the video at left to see how they're trading it.
The earnings calendar will be light next week, but a lot to watch on the economic calendar, including readings on consumer spending, auto sales, retail sales and the big event — the February jobs report on Friday.
Right now, economists expect to see that just 30,000 jobs were lost from nonfarm payrolls this month, according to a survey by Reuters.
Plus, the House may approve the jobs bill next week, Speaker Nancy Pelosi said, clearing the path for President Obama to sign it into law.
And, there will be a parade of Fed speakers that may offer further insight on the central bank's exit strategy — and what it means for the market.
On the Calendar:
SATURDAY: Earnings from Berkshire Hathaway
MONDAY: Personal income/spending; construction spending; ISM manufacturing; Australia rate decision; Earnings from Dish network
TUESDAY: Obama town hall; auto sales; Fed's Kocherlakota speaks; Earnings from AutoZone, Staples
WEDNESDAY: Weekly mortgage applications; Challenger, ADP jobs reports; Fed's Fisher, Lockhart speak; ISM services; weekly crude inventories; Fed's beige book; earnings from BJ's and Costco
THURSDAY: Citi's Pandit testifies at COP hearing; retailers report chain-store sales; BOE, ECB rate decisions; weekly jobless claims; pending-home sales; factory orders; Fed's Bullard, Evans speak; Earnings from Anheuser-Busch and Marvell Tech
FRIDAY: February jobs report; consumer credit
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