A surprise jump in consumer confidence Tuesday gave stocks a modest lift, but the gains were kept in check as investors remain cautious about the economy.
The upbeat report on consumer confidence in August gave traders a reprieve from a string of disappointing news on the economy, which has sent stocks slumping sharply since Aug. 9. The Dow Jones industrial average rose 34 points in afternoon trading but is still down 4 percent for the month.
“Market pessimism in the very near-term has hit a nadir,” said John Brady, a senior vice president at MF Global.
The small rise in confidence took the edge off the downbeat mood, however many traders are hesitant to make big moves before Friday’s key monthly report on employment, Brady said. Analysts expect that the unemployment rate inched higher last month.
Treasury prices also climbed, indicating there are plenty of investors still nervous about the health of the economy and seeking the relative safety of government bonds.
Retailers like Macy’s Inc. and Best Buy Co. were among the biggest beneficiaries of the better-than-expected consumer confidence report. Growing confidence could eventually lead to a jump in retail sales.
Reports throughout August have indicated economic growth is slowing, and consumer confidence doesn’t necessarily mean spending will rise significantly. Some investors worry the slowdown could continue throughout the second half of the year and lead the country back into recession. Stocks have been pummeled throughout the month because of uncertainty about the pace of the economic rebound.
A weaker report on manufacturing activity in the Midwest Tuesday was the latest report to follow the negative trend. The drop in the Chicago Purchasing Managers Index was similar to declines seen in other regional manufacturing reports earlier this month.
The Conference Board said its consumer confidence index rose to 53.5, from a revised 51 in July. Economists polled by Thomson Reuters expected a slight increase. While the jump in confidence did provide some relief for the market Tuesday, it still is far from indicating a strong economy. A reading above 90 indicates a healthy economy.
Traders are also awaiting the minutes from the Federal Reserve’s meeting earlier this month. The central bank decided at the meeting to reinvest money on its balance sheet in an effort to help keep interest rates low.
In afternoon trading, the Dow rose 34.32, or 0.3 percent, to 10,043.82. The Standard & Poor’s 500 index rose 2.83, or 0.3 percent, to 1,051.75, while the Nasdaq composite index rose 1.73, or 0.1 percent, to 2,121.70.
About two stocks rose for every one that fell on the New York Stock Exchange, where volume was 417.3 million shares. Volume is extremely light, which can exaggerate movements.
“The low volume (is a sign) there’s not a lot of belief on either side,” said John Merrill, chief investment officer at Tanglewood Wealth Management. The market “is treading water as people are looking for a discernible trend.”
The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.48 percent from 2.53 percent late Monday. It fell as low as 2.48 percent earlier in the day. The 10-year note yield is often used as a gauge to set interest rates on mortgages and other consumer loans.
Yields are hovering near where they were in early 2009 just before the stock market hit a 12-year low on worries about the recession.
Chicago PMI fell to 56.7 in August from 62.3 last month. The drop was slightly worse than economists forecast. The manufacturing sector has shown weakness during the third quarter after being among the strongest sectors early in the year.
Best Buy rose 26 cents to $31.72. Macy’s climbed 46 cents, or 2.4 percent, to $19.65.
Overseas, Japanese stocks were hammered as the yen hovers near a 15-year high against the dollar. Many Japanese companies like Sony, Panasonic and Toyota rely heavily on exports, so a stronger yen cuts into their profits. Japan’s Nikkei stock average tumbled to a 16-month low, falling 3.6 percent.
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