The economy's bumpy progress is giving the stock market more reason to pause, but the bulls are hanging on for the time being.
Stocks Thursday rode higher early on surprising GDP growth in France and Germany, but flip flopped for the rest of the day after U.S. July retail sales data showed a disappointing decline of 0.1 percent while economists expected a gain of 0.8 percent.
The Dow finished up 36 at 9398, while the S&P gained nearly 6 points to 1012. The dollar slumped and Treasurys saw buyers across the curve. Oil and metals were higher, but some ag commodities were lower with sugar trading near its 28-1/2 year high.
"I just think that the fundamentals are probably being outrun by pricing in the S&P right now. That does tend to happen when people feel there's an inflection point in the economy. But I think it's too early to tell that yet," said John O'Donoghue of Cowen.
"I think the ability to push indexes around is huge, and you have a lot that's going on...There's quite a few shorts out there, and they've been getting squeezed. You've got all that going on without a lot of fundamentals...It's not something I'm buying into right now," he said.
Investors favored stocks Thursday that are basically recovery plays, including materials, up 2.1 percent, financials up 2 percent and tech up 0.9 percent.
Friday's data includes the Consumer Price Index at 8:30 a.m. and industrial production at 9:15 a.m. Consumer sentiment is at 9:55 a.m. J.C. Penney and Abercrombie and Fitch report earnings ahead of the opening bell.
Brown Brothers Harriman currency strategist Win Thin said the dollar's action Wednesday and Thursday shows the idea circulating after Friday's jobs report that the dollar could be making a turn has not panned out. "On Friday, everybody got bullish on Fed tightening and now that's worn off. Cooler heads have prevailed," he said.
"We're still saying mid 2010 at the earliest for the Fed tightening."
Thin said he expects, however, that the dollar will start to firm before year end. "Hopefully at that point, the dollar will start to reassert itself," he said. The dollar fell a half percent against the euro Thursday to $1.4285.
The disappointing retail sales report Thursday shows the deep pull back by the U.S. consumer lingered in July.
"There's really nothing redeeming about it. It was ugly across the board. It looks like the only time in the last year they've (consumers) done anything is when they get government support," said Michael Feroli, J.P. Morgan economist. He said the headline number was lifted by car sales under the "cash for clunkers" program.
Feroli said he is not changing his third quarter growth forecast, but the latest retail number takes his tracking of third quarter consumption down. "We were at 2. We're now at 1.2," he said. Feroli points out that while industrial production is picking up, the consumer is stuck in a long slump. Retail sales contracted for a fifth month, the longest period of decline on record.
For CPI, he expects a gain of 0.1 percent. "Energy prices should be down. Food should be kind of flattish," he said.
As retail sales were reported, the biggest U.S. retailer Wal-Mart was also in the news Thursday with quarterly earnings. While Wal-Mart beat analysts' estimates, its sales missed targets and its same store sales fell 1.2 percent in the quarter. Wal-Mart earned $3.44 billion and had sales of $100.08 billion.
Catherine Wolfe, vice president and retail analyst at Allianz Global Investors, said Wal-Mart was a bit disappointing in terms of its comp sales.
"I tend to look at this on a two-year stacked basis. If you look at retail reporting out of Q2, some are showing sequential gains and some are showing sequential downticks. Where you're seeing gains came more in the discretionary area," said Wolfe. "It seems to me the consumer no doubt is going to continue to take a very cautious spending approach. I look at at Wal-Mart and I think it should be the most protected in a recession...They're showing comps that are negative right now. There could be noise because of stimulus (checks) last year."
"What it says to me is we're looking at an environment where we should not expect the consumer to be out of the malaise they're in right now," said Wolfe.
For Wal-Mart, she said it did show a positive pickup in store traffic. She does not own Wal-Mart but says she could change her view on it. She expects to see improvement in two areas. One, Wal-Mart said it was hit by a 1.5 percent decline in food prices in the second quarter , compared to last year. That cut its sales. Wal-mart is also spending money on IT and back office staff.
"In general, if the company could use those tail winds as they cycle against next year then maybe the street's numbers are a little low," she said.