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Stocks closed near flat on the day, but higher on the month with the market managing to overcome a long list of economic, energy price and political worries during August. Investors welcomed upbeat reports on the economy and inflation but played it cautious after the recent rally and ahead of tomorrow’s monthly employment report.

Today, the Dow Jones industrial average closed down 1.76 or 0.02% to 11,381.15, the broader Standard & Poor’s 500 index closed down 0.45 or 0.03% to 1,303.82, and the Nasdaq composite index closed down 1.98 or 0.09% to 2,183.75. For the month, the Dow rose 1.7%, the S&P 500 advanced 2.1% and the Nasdaq Composite gained 4.4%. In comparison, your Model Portfolio gained 12.51% for the month – outperforming the market by nearly 200%.

Market breadth was positive. On the New York Stock Exchange, winners beat losers 19 to 13 on volume of 1.32 billion shares. On the Nasdaq, advancers topped decliners by 15 to 14 as 1.73 billion shares changed hands.

In an afternoon speech, the Fed Chief Ben Bernanke said that the strong increase in productivity seen over the past decade is likely to continue for some time. His speech was cautiously optimistic in that the longer-term rate of productivity growth could remain at roughly 2.5% per year. However, he did not address interest rate policy, and stocks showed little reaction.

Under economic news, July personal income rose 0.5%, while personal spending rose 0.8%. This shows that consumer spending is holding up, even amid a cooling in the housing market and still expensive oil and gas prices. As spending fuels two-thirds of economic growth, the report is encouraging for the economy. The PCE index rose 0.1% against the expected 0.2%. Core U.S. consumer prices rose a less-than-expected 0.1% against the expected 0.2%. Overall inflation increased by 0.3%, reflecting higher energy prices.

The Chicago PMI, fell to 57.1 in August from 57.9 in July, against the expected 57.0. A reading above 50 indicates expansion. The employment component of the index rose to 55.1 in August from 50.5 in July. Prices paid slipped to 75.2 in August from 86.8 in July. New orders edged down to 59.6 in August from 60.0 in July.

In July, factory orders fell 0.6%, against the expected drop of 0.8%. New orders at U.S. factories fell by a smaller-than-expected 0.6% against the expected 1% decline. Total unfilled orders for durable goods, rose 1.3& and durable goods inventories rose 1.0%.

A number of retailers reported August sales at stores open a year or more, and the results were mixed. Many U.S. chain store operators failed to get a hoped-for back-to-school sales boost. Among the laggards, Gap Inc posted a 7% decline in August same-store sales. Analysts had expected it to post a 3.4% decline for the month.

Wal-Mart Stores Inc. reported August same-store sales at the high end of its own expectations, helped by solid back-to-school purchases, and forecast same store sales would increase by 1% to 3% next month. This propelled the stock to close up $0.12 or 2.7% to $44.74. Same store sales rose 2.7% against the expected 2.5%. Total sales reached $25.97 billion, up 12.5% from last year.

In merger news, Goldcorp said it was buying rival Glamis Gold for $8.6 billion in stock. Shares of Goldcorp Inc closed down $2.84 or 8.6% to $27.63, after this announcement. On the other hand, stock of Glamis closed up $7.32 or 20% to $46.18. The fact that the offer was for a 33% premium was not welcomed by investors. Goldcorp, which has operations in the Americas and Australia, would also gain about 26 million ounces of annual silver production.

Valassis Communications, a marketing company, filed a lawsuit to end its $1.3 billion merger with Advo, a direct-mail marketer, owing to what it said was management’s misinformation about the company’s finances. This lead shares of Advo to close down $7.99 or 25% to $28.81, and that of Valassis to close down $1.22 or 95 to $19.79.

U.S. light crude oil for October delivery fell 23 cents to $70.26 a barrel on the New York Mercantile Exchange. News of an increase in natural gas supplies helped ease energy supply worries for the moment.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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