Stocks Finish with Gains

More data are coming Friday, including updates on Chicago PMI, consumer sentiment, and personal income

Stocks finished Thursday with gains in yet another session characterized by light trading and sparse news. Investors seemed to have little reaction to reports on gross domestic product and jobless claims ahead of the holiday weekend.

On Thursday, the Dow Jones industrial average added 40.42 points, or 0.43%, to 9,374.21. The broader Standard & Poor's 500 index gained 6.05 points, or 0.61%, to 1,002.84. The Nasdaq composite index gained 18.05 points, or 1.01%, to 1,800.18.

Outperforming sectors included retailers and rails while gold producers came under some pressure amid profit-taking. Techs and small caps generally outperformed.

"Overall, most traders are already on vacation ahead of the Labor Day holiday," notes Rick MacDonald, senior economist of economic research outfit MMS International. "We would hesitate to read much into recent market action. Instead, we will have to wait until early September to get a better read on the underlying tone." MacDonald expects that bulls who are focused on "improving fundamentals" and bears concerned over "valuation" are equally matched.

Several economic updates were released Thursday. U.S. second-quarter gross domestic growth was revised higher to 3.1% from 2.4% previously. As expected, there was a big upward revision in consumption from an increase of 3.3% to 3.8%. Business fixed investment was revised up to an 8% rate of growth from 6.9%. MMS has revised its third quarter GDP growth expectation to 5.5%.

Initial claims rose 4,000 to the 390,000 level in the week ended Aug. 23. Claims have been below the 400,000 level in four out of the past five survey weeks. Continuing claims rose 26,000 to 3.65 million in the week ended Aug. 16. While the stability in initial claims is encouraging, stubbornly elevated levels of continuing claims suggest that hiring remains lackluster, says MMS.

"A seasonal pullback would provide an opportunity for the market to work off the overbought conditions, potentially setting the stage for a fall rally," says Francois Trahan, Bear Stearns strategist, adding that declining bond yields and oil prices could help usher in a period of higher stock valuations.

More data are due Friday and could provide some direction, though trading should continue to be light. MMS looks for the August Chicago-PMI to fall to 54.5 from 55.9. A modest decline would still suggest that this region's manufacturing activity continues to improve.

The final reading for the University of Michigan's August survey on consumer sentiment should show an improvement to 91.5 from a preliminary level of 90.2 and July's level of 90.9, says MMS.

July personal income should increase 0.3%, while consumption should show a rise of 0.8%, figures MMS. As for income, the dominant wages and salaries component is expected to increase only 0.2% as another round of weak employment statistics suggests the upside is limited.

No major earnings reports are anticipated for Friday.

Treasury Market

Treasuries rose in price on short-covering, despite the upward revision of second-quarter GDP. The rise comes one day before Federal Reserve chief Alan Greenspan's speech to central bankers at Jackson Hole, Wyo. Positioning ahead of the keynote speaking event of the week dictated the firmer tone, supported by reports that Greenspan's remarks could be bond-friendly tomorrow even if he acknowledges a brightening economic picture, says MMS.

The bond market will close early Friday, at 2:00 p.m. ET, in advance of the Labor Day holiday.

World Markets European markets finished mixed. London's Financial Times-Stock Exchange 100 index finished down 8.4 points, or 0.20%, at 4,198.00, amid data that U.K. consumer confidence unexpectedly fell in August. A blackout in London could take some time to fix. While electronic trading may have been disrupted, market watchers expect that things should be back to normal for Friday's session.

In Paris, the CAC 40 finished up 42.93 points, or 1.31% at 3,322.95. Germany's DAX index was up 9.59 points, or 0.28%, at 3,492.67, helped by data that German machinery orders rose 10% in July. Asian markets finished mixed. Tokyo stocks ended lower amid profit taking mounted ahead of Friday's Japanese industrial production data for July and U.S. economic data including GDP and unemployment. The Nikkei 225 index lost 83.77 points, or 0.81%, to finish at 10,225.22. In Hong Kong, the Hang Seng index added 81.57 points, or 0.76%, to close at 10,760.12.

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