Stocks managed to post modest gains on Wednesday after three former Fed officials hinted that another stimulus program from the Fed was possible. This was a long way from being a firm commitment, but investors were quick to latch on to this as a reason to become slightly more constructive on stocks. After being down as much as much as 20 points during the day, the S&P 500 closed up 6 points or 0.5%. A strong showing by tech stocks helped Nasdaq to a 0.9% gain for the day. Mirroring the move in stocks, after being up in price earlier on Wednesday, bonds gave back the gains. The 10-year Treasury closed just about unchanged in price with its yield at 2.61%.
The economic news released on Wednesday was a mixed bag. ADP reported that the private sector created a better-than-expected 114,000 jobs last month, but outplacement firm Challenger, Gray and Christmas told a different story with a report that announced layoffs reached a 16-month high in July. The employment picture will become clearer with tomorrow’s report on initial jobless claims and Friday’s employment data from the government. The ISM non-manufacturing survey’s overall reading slipped to 52.7%, the lowest in 17 months. The activity index rose, indicating accelerating growth, but growth in employment and orders slowed.
INVESTMENT OUTLOOK… Friday brought a disappointing advance report on second-quarter GDP, showing only 1.3% growth and downward revisions to prior quarter estimates. This was followed Monday by a disappointing report on July manufacturing activity. Clearly, the rate of job creation remains the number one factor in how robust the second-half economic expansion will be, and to date the initial claims reports have not been the breakout data people are waiting for. Going forward, however, we expect U.S. firms to continue to generate positive sales and earnings, particularly if economic activity emerges from the current soft patch later this year.
Copyright © 2011 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.