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Stocks finished higher with investors hoping that weaker Treasury yields may signal an end to Federal Reserve interest rate increases. The market also absorbed news of an upward revision to second-quarter GDP data that, while higher than the original estimate, was below expectations. Tech stocks rallied for a fifth session in a row, while the broader market ended little changed.

Today, the Dow Jones industrial average closed up 12.97 or 0.11% to 11,382.91, the Standard & Poor’s 500 index closed down 0.01 to 1,304.27, and the Nasdaq composite index closed up 13.43 or 0.62% to 2,185.73.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by 5 to 3 on volume of almost 1.28 billion shares. On the Nasdaq, advancers beat decliners 18 to 11 as roughly 1.67 billion shares changed hands.

Investors welcomed falling oil prices and a revised read on second-quarter GDP. However, they chose to tread cautiously and move forward slowly. Economic reports that are due soon shall give some direction to the markets. Of significance are the personal income and spending reports, in particular, the report’s inflation component which is expected to have risen at a 2.5% against the Fed’s target of 1-2%. The monthly employment report for August would also be closely watched. However, Federal Reserve official Jeffrey Lacker said that there is a risk of inflation becoming entrenched and that an unfolding economic slowdown might not be enough to bring inflation down quickly. He opines that the economic slowdown may not be enough to slow inflation.

The GDP growth for the second quarter was revised up to 2.9% and the key inflation component was revised a bit lower. This eased some recent worries about the economy slowing too fast and heading toward a recession. The revision is largely due to higher investments in nonresidential construction, more inventory building and higher exports, offset by lower investments in housing.

Shares of Apple Computer Inc. finished up $0.48 or 0.8% to $66.96 after the CEO of Google Inc. Eric Schmidt, was named to the Apple’s board. Shares of Google closed up $1.80 to $380.75. Before joining Google, Schmidt served as CEO at Novell Inc. and was also the CTO at Sun Microsystems Inc.

Shares of Costco Wholesale Corp. dropped $2.07 or 4.2% to close at $47.15, after warning that current-quarter earnings won’t meet forecasts because of weaker gross margins. The management said that a higher return rate on electronics devices, as well as markdowns of those devices, other merchandise and furniture contributed to the shortfall. This was unsettling to market as participants worried about a slowdown in consumer spending, amid the cooling in the housing market and ongoing high gas prices.

Shares of General Motors Corp. ended 0.7% lower at $29.25. The CEO Rick Wagoner said the automaker’s North American turnaround strategy is “working just great,” and that the company remains focused on cutting costs, investing in new products and improving its marketing strategies in the U.S.

On reports of earning warning, shares of Novell closed down $0.14 or 2% to $6.64. The company announced that fourth-quarter sales and earnings won’t meet estimates as a result of disappointing sales.

U.S. light crude oil for October delivery gained 32 cents to settle at $70.03 a barrel on the New York Mercantile Exchange. Supply concerns increased ahead of Thursday’s deadline for Iran to meet a U.N. demand that it halt uranium enrichment. On the other hand, the Energy Department reported that crude supplies rose 2.4 million barrels to 332.8 million for the latest week.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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