New 2009 highs reached for major market indices on positive economic data. The Dow ($INDU) added 56.61 points to a level of 9,683.41. The S&P 500 ($SPX) rose 3.29 points to 1,052.63. The Nasdaq ($COMPQ) tacked on 10.86 points to 2,102.64. Volume picked up on the session with the NYSE trading 1.50 billion shares and the Naz turning over 2.40 billion shares. Market breadth was positive on the session by a 21-to-9 and 16-to-11 margin on the Big Board and Naz respectively.

The economy was definitely the focus Tuesday, although earnings from Best Buy (BBY) and Kroger (KR) were disappointing. Fed Chairman Bernanke helped the bulls cause on the session, making optimistic comments about the economy and industrial stocks outperformed the broader market with Alcoa (AA), DuPont (DD) and Caterpillar (CAT) all seeing nice gains.

Economic news was heavy this morning, but the data was viewed bullishly by traders. The only report that was even moderately bearish was the producer price index. The PPI rose 1.7 percent, more than double what economists were expecting. The core rate saw a more moderate gain, up 0.2 percent, just a tenth above expectations. Inflation pressures are still not the focus of traders, but will be once the economy sails safely away from the recession.

As far as Mr. Bernanke sees it, the economy is technically out of the recession. However, he noted that it might not feel like it is over and that the recovery would be slow with the jobs market lagging. The manufacturing sector has been a leader in the recovery with recent data showing marked improvement.

The Empire State Mfg. Survey rose to 18.88 in September, up from 12.08 in August and easily surpassing expectations for a figure close to 14. A reading above zero is considered expansionary. This data will be followed up by a report from the Philadelphia region, along with the industrial production report for August due out tomorrow. Both reports are expected to show improvement with industrial production set to rise for the second consecutive month following eight consecutive months of declines.

Retail stocks underperformed Tuesday with the Retail HOLDRs (RTH) off 0.66 percent. BBY shares fell 5.17 percent with KR down 7.56 percent. Both retailers reported earnings that missed expectations with BBY earnings down 23 percent and KR earnings off 8 percent. KR noted that consumers are cost conscience and this is keeping its pricing low, leading to a cut in the company's full year outlook. BBY did state that the consumer is showing life and the electronics retailer raised its outlook as a result.

Retail sales in August rose more than expected, up 2.7 compared with a loss of 0.1 percent in July. Auto sales led the way, but non-auto sales rose 1.1 percent during the month. Retail sales overall and excluding autos easily surpassed expectations though the year on year rate for these two components sit at -5.3 percent and -6.2 percent respectively.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site