3 Reasons Markets Were Up After the Commerce Department Reported Jump in Consumer Spending

Markets closed up on Wall Street today: Dow +2.26%, S&P +2.83%, Nasdaq +3.32%, Oil +2.38%, Gold -0.47%.

On the commodities front, Oil (NYSE:USO) climbed to $87.40 a barrel. Precious metals were down, with Gold (NYSE:GLD) falling slightly to $1,788.80 an ounce and Silver (NYSE:SLV) falling 0.40% to $40.84 an ounce.

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Today’s markets were up because:

1) Greek banks. News that Alpha Bank would acquire Eurobank had European stocks rallying, including and especially those of other Greek banks, as the announced merger boosted hopes that European banks would consolidate in order to help them weather the debt crisis. European Union and Greek officials have been pressing lenders to form stronger groups for many months now.

2) Consumer spending. While the news has already been somewhat dampened by the fact that consumer confidence declined sharply in August, consumer spending in July was reported today by the Commerce Department as having risen 0.8%, its fastest rate since February, after declining in June. The recovery of the auto sales played a large part in heightened spending, as did the cost of air conditioning in a July that exceeded average temperature levels in most states. Given that consumer spending accounts for roughly 70% of the U.S. economy, news that it grew so rapidly in July, a month when unemployment declined, paints a good picture of economic growth, though that growth may have been temporarily thwarted in late July and early August as lawmakers fought over a debt deal, S&P downgraded the U.S., and markets experienced a lengthy and drastic sell-off.

3) Capital goods. Some of today’s best performers were capital goods stocks, with many outperforming the Dow, the S&P, and the Nasdaq. Leading gains were Dresser-Rand (NYSE:DRC) and USG Corp. (NYSE:USG), climbing roughly 13% each, while heavy-hitters Deere & Co. (NYSE:DE), Caterpillar (NYSE:CAT), and Cummins (NYSE:CMI) all made gains of over 3% during regular trading. Overall, the capital goods sector climbed 3.40%, making it the best-performing sector of the day.

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