A 2.5 percent gain in crude oil, signs of economic stimulus by Chinese policymakers, the finishing touches of a third bailout for Greece and a whooping $37.2 billion acquisition by investment guru Warren Buffett were exactly the headlines investors needed for stocks to rally today.
Major indices gained, and fashion apparel and retail stocks went along for the ride.
The Dow Jones Industrial Average added 1.4 percent, or 241 points, to close at 17,615 while the S&P 500 rose 1.3 percent to 2,104. The S&P Retailing Industry Group Index increased 0.6 percent at the bell to finish at 1,229.
Some notable gainers in the retail and fashion apparel segments were Avon Products with a 8.3 percent gain to $6.64, Stage Stores Inc. with a 7.7 percent gain to $17.95 and Ascena Retail Group Inc. with a 4.6 percent gain to $12.99
Earlier in the day, the Shangahai Index closed up 4.9 percent to 3,928 while the Hang Seng shed 0.1 percent to close at 24,521 following weak economic data in China, but hope of new stimulus moves. In Europe, the FTSE gained 0.3 percent to finish at 6,736 while th DAX added 1 percent to close the day at 11,605.
Buffett’s Berkshire Hathaway gobbled up Precision Castparts Corp. for $235 a share, which bolstered confidence on two fronts. Firstly, investors viewed the deal as a plus that mega-ticket mergers and acquisitions are doable in the current market. And secondly, U.S. manufacturing is not a dead horse. For consumer spending, strength in the manufacturing sector is good news because these types of jobs tend to pay higher wages, which results in higher household spending.
But when it comes to investors, there’s a fine line between employment trends and the impact on stocks. Today’s gains, for example, followed a sharp decline last week in share prices as a robust jobs report had Wall Street concerned over a rate hike in September. An interest rate increase by the Federal Reserve means higher costs for companies, which drives down their stock values.
IHS chief economist Nariman Behravesh said in a research note that if the “Fed was looking for further reasons to begin raising interest rates in September, it found plenty in the July report – decent payroll gains, an increase (albeit small) in the labor force, a bounce in manufacturing jobs, and growth in wages (albeit still tepid).”
“That said, a labor force participation rate that remains at a 38-year low and wage gains that could be signaling more slack in the labor market don’t make a September rate hike a slam dunk,” Behravesh said.
Currently, about half of the economists polled see a rate hike at the next Fed meeting in September.