Stocks Set to Climb

Wall Street finished in the black again yesterday, this time putting together a much stronger showing than the previous session.  The Dow Jones Industrial Average, after lagging behind the other indexes for most of the week, closed Thursday with the largest overall and percentage gains (0.42 percent, 44.51 points).  The NASDAQ (0.40 percent, 9.51 points) and S&P 500 (0.40 percent, 4.63 points) followed closely behind.

The outlook for trading today seems bright; analysts expect strong retail figures to encourage investment.  Judging by other gains around the globe, if markets continue their upward momentum the Dow Jones could potentially reach the 10,700 point mark by day’s end.

There is rarely any single factor responsible for market movement in a given day, but in the United States retail sales data is certainly the most prominent.  According to Bloomberg News, sales figures for February 2010 jumped unexpectedly as consumers increased their consumption for the fourth time in five months.

The rise in sales was only slight, 0.3 percent, but it still registers as a positive sign for our consumer-driven economy.  Unfortunately there are some negatives to take away from the Commerce Department’s data.  First, auto sales slid and continued to dampen overall economic growth.  Since automobiles are virtually the only consumer goods actually produced anywhere within our economy, as opposed to imports, a decline in auto sales can drag back gains made elsewhere. 

Second, the Commerce Department revised down its retail sales data for the months of January and December.  January 2010 now shows just a 0.1 percent increase over the previous month.  Despite massive discounts at retailers all across the nation, we are still only managing meager gains.  If we hope to “spend our way out” of this recession, we are going to need growth far exceeding one-third of one percent.  Slight gains may be good for stock markets, but they mean nothing to the economy overall.

In other news, the European Union is essentially set on saving Greece from its ballooning debt crisis.  Unfortunately the 16-nation euro bloc is not certain how to go about doing so. 

The nations had initially assumed that loans would be extended to Athens in order to cover its charges.  Now, according to Bloomberg, there is a chance that the euro zone will opt to fund Greece’s debt through the sale of euro-backed bonds.  Loan financing would be quicker and easier than a bond sale, all 27 E.U. nations would have to agree to the bond program, but a bond sale would pay for itself.  If a government offers a loan to Greece, at some small rate of interest, it is essentially a sunk government cost.  If that government is able to raise the necessary funding through the sale of bonds to nations, corporations and individuals, it is able to raise capital privately without adding to its own budget.

One way or the other the European Union will come to Athens’ aide.  The most important aspect of the entire process is whether or not the bailout establishes international protocol for future cases of government default (such as the very real possibility of a Greece-like default by the United States).