The Market’s Pep Pill
A report out on consumer spending is giving the
market a euphoric shot in the arm and blue chips are rallying on solid gains
from drug companies.
The Dow is up 163 at 10564, the Nasdaq is up 33.61 at
2051.41, and the S&P 500 is up 16.02 at 1220.54.
The Commerce Department said personal consumption
rose .4%. The report was slightly-stronger-than expected and markets are
taking off on the news.
Health-care stocks have been outperformed the
majority of stocks on the S&P 500 in the latest earnings season
sweepstakes. For while the average company on the S&P reported a decline
in quarterly profits, companies such as Merck
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Squibb
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and 10% each.
Merck is up 3.3% and Bristol Meyers Squibb
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is up 4.45%. Both stocks, along with Pfizer
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the leaders on today’s S&P 500.
Broad, steady increases in most of the major sectors
is adding breadth to today’s rally. Forest and paper products
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is up 2.85%, networkers
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is up 2.69%, and chemicals
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PowerRating) is the only down sector at this point, off 3.59%.
But a short-term palliative, consumer spending, may
not do the trick for longer-term stocks price growth.
More news from the government that the economy
remains weak is boosting bonds as traders place bets that interest rates
will have to fall further — and bond prices rise — if the Federal Reserve
is to keep the US from slipping into recession.
The National Association of Purchasing Managers fell,
demonstrating extreme weakness in the economy’s manufacturing sector. With a
reading of 38, this is the 10th consecutive month the NAPM has come in below
50, the level associated with a contracting economy, and highlighted the
deteriorated state of manufacturing. The backlog-of-orders part of the
report also declined to 32.3%, showing a reduction in demand, a negative for
near to intermediate-term prospects for a quick manufacturing recovery.
The Fed watches consumer confidence closely. In a
separate report from the Conference Board, consumer confidence unexpectedly
fell. This implies that consumers will spend less in coming months, a point
that makes sense in light of massive corporate layoffs this year. Consumer
spending has been one of the pillars of strength in the economy, and retail one
of the strongest sectors in 2001. With consumer spending figures likely to
decline in coming reports, this ups the odds that the Fed will continue to
ease interest rates, but decreases the chance we will see euphoric,
consumer-spending rallies such as today’s.