US stocks surge despite gloomy consumer data
"Retail sales have faltered during past recoveries without undermining them, as
occurred after the 1990-91 recession. But the latest report reinforces concerns about
the period between Thanksgiving and the new year, which generates roughly 70 per
cent of US retailers' profits. Adding to that concern, the University of Michigan said its
index of consumer sentiment fell for the fifth successive month in October, to a
nine-year low of 80.4.."
Friday October 11, 7:05 pm ET
FT.com
biz.yahoo.com
By Peronet Despeignes in Washington and Deborah Hargreaves in London
US retail sales fell last month at their fastest pace this year as consumer confidence
sank to a nine-year low, according to reports released on Friday.
Normally, such news would have dealt a severe body blow to faith in the US economy.
But after weeks of downbeat reports on the economy and from retailers, investors were
apparently braced for the worst, and US markets surged early on.
The S&P 500 ended the day up
more than 3.9 per cent, extending its
biggest two-day rally since the
aftermath of the October 1987
market crash.
The Dow Jones Industrial Average
and Nasdaq Composite were both up
by more than 4 per cent. In Europe,
shares had their biggest one-day
rise since July, with London's FTSE
100 and Germany's Dax index rising
by more than 5 per cent.
But it was unclear how much of the
rally was due to short covering, to
positive news from General Electric
and IBM and hopes economic
conditions would not get much worse - or how long it would all last. The scope and size
of the rally hinted at a possible bottom, but some analysts warned it could prove as
fleeting as the many false dawns of the past year.
"A lot of investors would regard this rally as a consolation prize and will use it to limit
some of their losses which have been considerable," said Michael O'Sullivan, strategist
at Commerzbank.
In the US, the Commerce Department said retail sales fell last month by a seasonally
adjusted 1.2 per cent, the first drop since May and the biggest since November 2001.
Car sales led the retreat: excluding them, sales rose 0.1 per cent. However, the decline
was broad-based, affecting restaurants, bars, groceries, furniture, electronics and
clothes. Among 13 main categories, only three showed gains.
Retail sales have faltered during past recoveries without undermining them, as
occurred after the 1990-91 recession. But the latest report reinforces concerns about
the period between Thanksgiving and the new year, which generates roughly 70 per
cent of US retailers' profits. Adding to that concern, the University of Michigan said its
index of consumer sentiment fell for the fifth successive month in October, to a
nine-year low of 80.4.
Optimists argue persistent income growth, low borrowing costs and a fledgling rebound
in profits will support growth in investment, employment and spending. Pessimists fear
borrowing costs, near 40-year lows, won't fall much further and that the stock market
rout of the past few weeks, rising energy prices and fears of war and terrorism, will
eventually sap the wherewithal and confidence of US consumers.
Reflecting great uncertainty over the outlook, the US stock market's volatility over the
past two months has been the highest of any 60-day period since the 1997-98 global
financial crisis.
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