Stocks Rebound on Retail Results

U.S. stocks closed higher Tuesday as price drops in the preceding session and better-than-expected earnings reports from retailers Home Depot (HD) and Target (TGT), and Saks (SKS) led to bargain hunting on Wall Street.

Tuesday's rebound actually began overseas, where news of a rise in German investor confidence supported buying.

Financial, basic materials, and industrial stocks were strong. Healthcare issues were soft on political uncertainties.

On Tuesday, the 30-stock Dow Jones industrial average finished with a gain of 82.60 points, or 0.90%, at 9,217.94. The broad Standard & Poor's 500-stock index added 9.94 points, or 1.01%, to 989.67. The tech-heavy Nasdaq composite index climbed 25.08 points, or 1.30%, to 1,955.92.

Treasuries and the dollar index retreated as stocks rose. Gold and oil futures climbed.

The global recession seems to have bottomed, but the pace of recovery remains uncertain, according to Standard & Poor's MarketScope. Traders have bet on a strong recovery.

Home Depot posted second-quarter earnings per share (EPS) of $0.66, vs. $0.71 one year earlier, on an 8.5% same-store sales drop and a 9.1% total sales drop. Wall Street analysts were expecting EPS of $0.59. Home Depot raised its fiscal 2010 EPS guidance; it now sees EPS from continuing operations to be flat to up 7% from last year; on an adjusted basis, it now sees EPS from continuing operations down 15%-20%.

Target reported better-than-expected second-quarter EPS of $0.79, vs. $0.82, on 6.2% lower same-store sales and 2.7% lower total sales, partially offset by the contribution from new store expansion. Wall Street was looking for EPS of $0.66.

Saks posted a narrower-than-expected $0.39 second-quarter loss per share, vs. a $0.24 loss, on 16% lower same-store sales and 15% lower net sales. Wall Street was looking for a $0.52 loss.

Agilent Technologies (A) posted third-quarter non-GAAP EPS of $0.15, vs. $0.53, on a 27% revenue decline. Wall Street was looking for EPS of $0.11. Agilent sees fourth-quarter non-GAAP EPS of $0.20-$0.25.

Cardinal Health (CAH) posts $0.86 vs. $0.96 Q4 non-GAAP EPS from continuing operations as weaker-than-expected results from its Clinical and Medical Products segment offset a 10% revenue rise. Wall Street was looking for EPS of $0.85-$0.86.

Pali Research upgraded its rating on shares of Goldman Sachs Group (GS) to buy from neutral and set a $210 target price.

The Federal Reserve dropped Pacific Investment Management and Goldman Sachs Group (GS) from the list of firms helping the central bank purchase as much as $1.25 trillion of mortgage securities this year, according to a Bloomberg News report. The move was disclosed in a statement posted on the New York Fed's Web page. Wellington Management and BlackRock, the other two managers hired as part of the unprecedented program that started in January, are being retained, according to the statement. The change comes amid concern that the Fed's asset managers may use inside information garnered from their roles in their other businesses. Representative Patrick Murphy, a Pennsylvania Democrat, sought reports to Congress on the potential conflicts earlier this year. Commercial lender CIT Group (CIT) said Monday in a regulatory filing it lost $1.68 billion in the second quarter, and again warned it might have to file for bankruptcy protection if it fails to restructure its business.

In economic news Tuesday, the U.S. producer price index (PPI) fell 0.9% in July, while the core rate dipped 0.1%. June's 1.8% jump in the headline and the 0.5% rise in the core were not revised. Price weakness was broadbased. Energy prices declined 2.4% after gains of 6.6% and 2.9% in June and May, respectively. Gas prices fell 10.2%. Food prices fell 1.5% after a 1.1% surge in June. Passenger car prices dropped 1.7% after three straight monthly gains. Capital goods prices dipped 0.2%.

U.S. housing starts fell 1.0% to a 0.581 million-unit annual rate in July, from an upwardly revised 0.587 million pace in June (from 0.582 million). May's 0.562 million pace was revised down to 0.551 million. Permits fell 1.8% to 0.560 million, from a revised 0.570 million in June (from 0.563 million).

The International Council of Shopping Centers (ICSC) and Goldman Sachs chain store index fell 0.9% in the week ended Aug. 15 after being unchanged the week before. Sales on a year-over-year basis fell 0.6% after rising 0.4% the week before. "Consumers remained cautious with their spending," said Michael P. Niemira, ICSC chief economist.

Bloomberg News reports the German ZEW Center for European Economic Research said its index of investor and analyst expectations rose to a higher than expected 56.1 level in August from 39.5 in July, the largest gain in 3 years. Germany's economy expanded 0.3% in Q2, a report showed last week, bringing an end to the worst slump since World War II sooner than forecasters had expected.

Bloomberg News reports the U.K.'s annual inflation rate unexpectedly held at 1.8 in July as the cost of computer games, DVDs and alcohol rose, a sign the economy is staving off deflation as the recession eases. The annual gain in consumer prices was the same as in June, which was the lowest level since September 2007, the Office for National Statistics said.

Before it's here, it's on the Bloomberg Terminal.