By  on July 27, 2009

Retail stocks headed into the final week of the fiscal second quarter on a high note.

Despite a 0.3 percent drop on Friday, the S&P Retail Index finished last week with a 4.7 percent gain, coming to rest at 351.39 following a 2.7 percent gain on Thursday. The upswing gave the index a 13.5 percent increase over the last two weeks and translated into the fourth week of advances in the past five. For the year, it’s up 25.8 percent.

The retail index once again outperformed the three major indices, all of which enjoyed strong gains. A 4 percent increase for the Dow Jones Industrial Average gave it an 11.6 percent gain for the two-week period, its best performance since 2000, two years before the resetting of the retail index. After scaling the 9,000 mark on Thursday, the Dow came within 8 points of sinking below it on Friday but rallied in the afternoon to close at 9,093.24.

The S&P 500 was up 4.1 percent for the week, to 979.26, and the Nasdaq Composite was ahead 4.2 percent to 1,965.96. The two-week gains came to 11.4 percent and 12 percent, respectively.

Stocks were buoyed throughout the week by second-quarter profit results from technology firms. While profits were uneven and often down, they generally exceeded expectations and often were accompanied by more upbeat guidance for future quarters, convincing investors, including those focused on the retail sector, that the equity markets still had considerable upside potential.

Their optimism will be tested this week, when apparel and beauty firms, including Coach Inc., Jones Apparel Group Inc. and Revlon Inc., begin reporting quarterly earnings results and The Conference Board chimes in on Tuesday with its monthly report on consumer confidence.

Retailers begin reporting their results for the May-to-July quarter next month. As has been the case in the tech sector, upside surprises are expected to be derived from cost controls rather than revenue expansion.

Of the 175 firms whose stocks are tracked by WWD, 150 enjoyed increases in their shares last week, four were unchanged and 21 experienced declines.

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