Investors sent stocks modestly higher on Friday, embracing a sluggish GDP reading that was nonetheless better than expected, hoping that falling oil prices would help spur the economy. The major indexes all finished the week higher.
The 2.8 percent GDP growth in the second quarter, a revision from the 3 percent preliminary figure reported in July, is a far cry from the 4.5 percent growth in the first quarter. However, the figure was slightly better than the 2.7 percent expansion economists had forecast. That gave investors hope that this week's drop in oil prices could spark stronger economic growth for the current quarter.
Still, with the Republican National Convention starting tomorrow and traditionally slow trading in August, volume on the major markets remained extremely low -- it was the lightest trading day of the year on the New York Stock Exchange -- and any boost in stocks would be seen as tentative at best, analysts said.
"This is really anemic," said Chris Johnson, director of quantitative analysis at Schaeffer's Investment Research in Cincinnati. "That's letting a bit of volatility come into the market, but so far this week, it's been on the upside. So when everyone comes back in September, at least we'll be working in a slightly higher market."
The Dow Jones industrial average was up 21.60, or 0.2 percent, at 10,195.01. Broader stock indicators were modestly higher. The Standard & Poor's 500 index was up 2.68, or 0.2 percent, at 1,107.77, and the NASDAQ composite index gained 9.17, or 0.5 percent, to 1,862.09.
For the week, the Dow gained 0.8 percent, the S&P was up 0.9 percent and the NASDAQ rose 1.3 percent. It was the second straight week of gains for the NASDAQ and the third straight week higher for the Dow and S&P.
Oil prices once again dominated the week's trading, which was extremely light as most investors stayed out of the market until after the convention. After oil topped a record US$49 per barrel last week, falling prices enticed a few risk-tolerant bargain hunters back into the market. The October contract for light crude settled at US$43.18 per barrel, up US$0.08, on the New York Mercantile Exchange on Friday.
Economists said the second quarter GDP growth was hampered by energy costs, which the Commerce Department said kept many consumers from spending as much on goods and services. The GDP growth was also restrained by the nation's ballooning trade deficit, which showed that what money consumers were spending was heading to overseas companies.
Consumer belt tightening was echoed in the latest consumer sentiment index reading from the University of Michigan. The index stood at 95.9 in August, down from 96.7 in July. Oil prices were widely blamed for the drop in consumer sentiment, but investors hoped that this week's drop would become part of a larger trend that would entice consumers to open their wallets again.
Falling energy costs have also given corporate America reason to hope after a weaker second quarter. The Commerce Department reported that after-tax corporate profits fell US$11.3 billion in the second quarter, as compared to the first quarter. Profits were still up 17.9 percent year over year.
"It's such a mix of news today, and that really doesn't help us out," said Scott Wren, equity strategist for AG Edwards & Sons. "There's no clarity in terms of inflation, with the oil prices and GDP, and there's really not much clarity in terms of earnings growth."
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