Stock Market: Falling Gas Prices Lift Consumer Confidence And Dow Soars

After spending summer in the doldrums, the Dow Jones Industrial Average (DJIA) moved closer to a record as September drew to an end. Investors were cheered as the Dow climbed to its second-highest close since the record high of January 2000. Gains also were seen across the board with the Standard & Poor’s 500 Index (S&P 500) and the Nasdaq making gains. Perhaps of most significance to the individual investor is the major rebound of the blue chips.

Unlike past rallies, which were spurred by technology stocks, this one showed strong performance from corporate giants like Merck & Company, McDonald’s Corporation and Caterpillar, Inc. Merck’s rise was spurred by a positive court outcome and Intel also surged following a favorable anti-trust ruling. MacDonald’s announced a 50 percent increase in annual dividends reflecting major sales gains. Pundits suggest that solid performance from the Dow stalwarts indicates that some of the bigger concerns about the economy may be receding. They believe that consumer confidence will hold and that household spending will keep the economy on track. Here’s a look at what was behind the market’s September upsurge.

Cheaper Oil
Oil prices fell sharply with Brent crude futures hitting their lowest mark in six months on September 26. The retail price of gasoline dropped by about 17 percent during the month of September to average $2.38 a gallon nationwide, according to the Energy Department. That’s about 50 cents lower than prices a year ago post-hurricanes Katrina and Rita.

Consumer Confidence
U.S. consumer confidence showed a major rebound after the nine-month low posted in August. The New York-based Conference Board’s Consumer Confidence Index rose to 104.5, up from 100.2 in August, and exceeded economists’ expectations. The data showed sentiments had improved for both consumers’ assessment of current conditions and their expectations for the near future. Consumers also told survey researchers that there were more jobs available and that they expected wages to increase in the coming months.

• New Home Sales Data
  A government report indicated that the purchase of new homes jumped in August to an annual rate of 1.05 million from a revised 1.009 million in July and helped buoy consumer confidence, too (Economists had predicted that sales would decrease to 1.04 million.) Weakness in the housing sector remains a concern with end-of- month data showing that prices of homes already built had dropped for the first time in 11 years.

Is this rebound sustainable?
As always, there’s a range of opinion on the prognosis for the Stock Market. On the bullish side, some analysts believe that concerns are definitely receding and that the economy will not be jinxed by a huge slump in the housing market. On the other hand, more cautious commentators, including the publishers of the Conference Board survey, suggest that there is little reason to expect a significant upswing in economic activity in the upcoming fourth quarter - despite the current buoyant mood among consumers. They caution investors that we are "not out of the woods" yet, and suggest that the cooling housing market and other factors may hurt consumer confidence in the months ahead.

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