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Blue chips edge up after upbeat economic data

Wall Street made a modest advance in light pre-holiday trading Wednesday, boosted by weakening oil prices and a gross domestic product report that showed the economy expanding at a faster pace than previously thought.
/ Source: The Associated Press

Wall Street managed a modest advance in light pre-holiday trading Wednesday, boosted by a gross domestic product report that showed the economy expanding at a faster pace than previously thought.

Stocks, which have made gains this week on hopes the economy has slowed enough to ward off further interest rate hikes, meandered and then turned higher during the session on thin volume ahead of Labor Day. The Commerce Department reported the economy as measured by GDP grew at a 2.9 percent annual rate in the second quarter, better than first estimated last month though still a decline from the first quarter.

Investors have been scrutinizing economic reports to determine whether the economy is slowing too much, a trend that could hurt both consumer and corporate spending. So a slight improvement in the GDP was a welcome sign for investors, who are now look to a job report on Friday for further direction.

“The GDP is exactly what we wanted to see, and the economy continues to expand and it limits inflation worries,” said Ryan Larson, senior equity trader at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher. “GDP numbers are still a lagging indicator, and the market pulled back because investors are still looking for concrete evidence the Fed is in pause mode.”

The markets got support for much of the session from oil prices that have dropped to three-month lows this week, although a barrel of crude eventually closed up 32 cents at $70.03 Wednesday on the New York Mercantile Exchange. Concerns about a strike in Nigeria wiped out an earlier decline that followed news of an increase in U.S. energy stockpiles.

At the close of trading, the Dow Jones industrial average rose 12.97, or 0.11 percent, to 11,382.91.

Broader stock indicators showed mixed results. The Standard & Poor’s 500 index was down 0.01, or nearly unchanged at less than 0.01 percent as it closed at 1,304.27. The Nasdaq composite index rose 13.43, or 0.62 percent, to 2,185.73.

The Dow and S&P 500 have been trading near their highest point in three months, while the Nasdaq is close to a seven-week high.

Advancing issues were well ahead of decliners on the New York Stock Exchange where volume came to 1.29 billion shares, compared with 1.39 billion traded Tuesday.

Wednesday’s session was very erratic, with the Dow changing direction several times. Analysts noted that the last week in August is generally a slow and unpredictable time for stocks. Volume is expected to bounce back after Labor Day.

“I’m not reading a lot into what’s happening this week because trading volume is light,” said Robert Street, a portfolio manager with Northern Trust’s Select Equity Fund. “It doesn’t take much trading to push the market a couple points in one direction or another.”

Bonds continued their advance, with the yield on the benchmark 10-year Treasury note at 4.76 percent, down from Tuesday’s 4.79 percent. The dollar rose against other major currencies, while gold prices rose.

Stephen Wood, a senior portfolio strategist with Russell Investment Group, said investors are growing optimistic that the Federal Reserve isn’t likely to raise interest rates. The Fed paused rates at its Aug. 8 meeting after 17 straight hikes since 2004.

“The 500-pound gorilla in most people’s investment thesis is, will the Fed go too far,” Wood said. “I think we’re in a slowdown, and not a recession, and if history is any indicator the next Fed move might even be a rate cut.”

While a rate cut is still far from most investors’ minds, recent reports on home sales and consumer confidence suggest policy-makers will keep rates unchanged. Minutes from the last Fed meeting, released Tuesday, indicated the pause in rate hikes would give the central bank time to determine whether it has contained inflation. But Fed officials did not rule out further credit tightening.

Wall Street is now looking toward the Labor Department’s nonfarm payroll report due Friday to get even further direction about the economy.

Costco Wholesale Corp. fell $2.52, or 5.1 percent, to $46.73 after the warehouse retailer warned its fourth-quarter results will miss Wall Street expectations.

Pier 1 Imports Inc. rose on news that the home furnishings retailer struck an agreement to sell its private-label credit card operations to JP Morgan Chase & Co. Pier 1 shares recently rose 34 cents, or 5.6 percent, to $6.40.

Energy stocks continued their decline as oil prices receded. Exxon Mobil Corp. fell $1, or 1.4 percent, to $68.41.

The Russell 2000 index of smaller companies rose 5.73, or 0.80 percent, to 720.58.

Overseas, Japan’s Nikkei stock average closed lower by 0.12 percent. At the close, Britain’s FTSE 100 rose 0.70 percent, Germany’s DAX index added 0.35 percent, and France’s CAC-40 was up 0.44 percent.