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Shrugging off the latest batch of euro-zone jitters, the Dow inched higher and the Nasdaq Composite rallied 1% on Tuesday as traders allowed their attention to shift back onto the domestic economy amid upbeat data on retail sales, inflation and manufacturing.
The Dow Jones Industrial Average gained 17.18 points, or 0.14%, to 12096.16, the Standard & Poor's 500 added 6.03 points, or 0.48%, to 1257.81 and the Nasdaq Composite climbed 28.98 points, or 1.09%, to 2686.20.
Worries about Europe's sovereign debt debacle were on track to torpedo U.S. markets yet again on Tuesday as the premarkets tumbled in response to the latest signs that policymakers are struggling to end the crisis.
However, sentiment turned around as a trio of economic indicators reminded Wall Street that the economic situation at home isn't nearly as bleak as on the other side of the Atlantic.
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“The economic news definitely helps because it smacks us back into reality. Everyone is watching what’s going on over there and I think sometimes we lose sight over what’s happening here,” senior managing director at Meridian Equity Partners.
Even though the markets lost ground in the day's final minutes, the mini rally left Wall Street in the green for the third time in the past four sessions and erased some of Monday's 75-point decline on the Dow.
Bullish Domestic Data Trigger Buying
With the holiday shopping season looming, the Commerce Department said retail sales climbed 0.5% in October, beating forecasts for a rise of 0.3%. Excluding autos, retail sales jumped 0.6% -- the strongest performance in seven months. Electronics and appliance store sales registered their biggest rise in almost two years, soaring 3.7%.
Economic sentiment was also boosted by the New York Fed's Empire State manufacturing index, which rose to 0.61 in November, up from -8.48 in October. That marked the first positive print on this regional indicator since May.
The Commerce Department also said U.S. producer prices shrank by 0.3% last month, cooler than the 0.1% estimate from economists and well off September's 0.8% rise. Excluding food and energy, PPI was unchanged, compared with estimates for a rise of 0.1%.
The earnings front was more mixed as shares of Wal-Mart (WMT) slumped more than 2% as the world’s largest retailer reported slightly weaker-than-expected third-quarter earnings of 97 cents a share. For the all-important holiday shopping season, Wal-Mart projected EPS of $1.42 to $1.48, compared with estimates for $1.45.
Home Depot's (HD) stock also slipped a bit after it beat the Street with third-quarter earnings of 60 cents a share on revenue of $17.33 billion. The results led the home improvement retailer to boost its dividend by 16%.
While U.S. stocks closed solidly in the green, they once again saw heavy volatility -- the blue chips swung in a wide range of about 165 points -- and low trading volume, an indicator of low conviction in the market moves.
“Yes, the tone is better today and they’re drifting higher; I just don’t think anyone believes it when they go up and I’m not sure they even believe it when it goes down anymore,” Ted Weisberg, veteran NYSE trader and founder of Seaport Securities, told FOX Business. “I think people are spooked. It’s risk on, risk off. It’s good headline news today, it’s bad headline news tomorrow.”
For signs of the crisis of confidence in Europe, look no further than the rising yield needed to draw investors to Italy, the euro-zone’s third-largest economy. The yield on the Italian 10-year bond once again crept above the 7% mark, a psychologically-important level that previously shut Greece and Ireland out of the bond market. Traders have feared that Italy, which is too big to bail out, will ultimately be unable to tap the capital markets and be forced to default, triggering a significantly deeper crisis.
European policymakers have been scrambling to build a pair of rescue funds aimed at shoring up investor confidence and preventing troubled euro-zone nations from defaulting (bringing European banks with them).
However, talks to increase the lending capacity of the European Financial Stability Facility, a $600 billion rescue fund, have yielded no real progress due to major disagreements, The Wall Street Journal reported. Likewise, efforts to speed up the adoption of the European Stability Mechanism, a permanent bailout fund, to mid-2012 is also unlikely to happen, the paper reported.
While European policymakers race to create credible solutions, the euro-zone is brushing up against a double-dip recession. New data released on Tuesday show euro-zone gross domestic product inched up just 0.2%, down from 1.4% the year before. That growth matched expectations, but also underscores fears the euro-zone may already be in the midst of a double-dip recession.
With that backdrop in mind, the closely-watched euro dropped 0.73% to $1.3528. The yield on the 10-year bond of France also crept closer to 4%, hitting its highest level since May.
In further a sign of the euro-zone jitters, the cost to insure European sovereign debt hit fresh record highs on Tuesday, highlighted by big increases for the bonds of Italy, Spain and France.
After sinking earlier in the day, the commodities complex settled higher. Crude oil rose $1.23 a barrel, or 1.25%, to $99.37 -- the highest close since July 26. Gold added $3.90 a troy ounce, or 0.22%, to $1,781.70.
Dick’s Sporting Goods (DKS) beat the Street by posting a non-GAAP profit of 32 cents a share, compared with estimates for just 26 cents. Total sales jumped 9.3% to $1.18 billion, narrowly surpassing forecasts from analysts. The sporting goods retailer also raised its full-year EPS view and revealed plans to pay a dividend for the first time.
The U.K.’s FTSE 100 slipped 0.03% to 5517.44, Germany’s DAX slumped 0.87% to 5933.14 and France’s CAC 40 tumbled 1.92% to 3049.13.
In Asia, Japan’s Nikkei 225 lost 0.72% to 8541.93 and Hong Kong’s Hang Seng slid 0.82% to 19348.40.