Earnings Data Help Stocks Regain Ground After Drop - ABCNews

Some better-than-expected retail earnings reports and the latest reading on housing drew investors back into the stock market Tuesday after the previous day's big selloff. The major indexes rose about 1 percent, led by a surge in financial and technology companies.

The U.S. market was also taking some cues from overseas exchanges, which got a boost from encouraging news about the German economy. And bond prices retreated as investors' anxiety eased.

Investors have been battling mixed signals on the economy for several weeks; housing and manufacturing have been improving, but consumer spending is still sagging. On Monday, stocks fell by the biggest amount in six weeks as investors' growing fears that consumers won't spend enough to lift the economy into recovery caught up with them.

The earnings reports from retailers on Tuesday showed that American consumers are still shy about spending, but results weren't quite as bad as analysts expected and that helped calm some of investors' nerves.

Robert Pavlik, chief market strategist with Banyan Partners, argues that while the long-term outlook is positive, bulls could be in for some near-term pain. Pavlik uses average daily trading volume on the New York Stock Exchange as a leading market indicator.

Unfortunately, volume has been down for the past week and a half, which he said indicates that institutional investors have begun stepping back from stock purchases. "While we view market sell-offs as beneficial, the depth and duration of the Monday's selling pressure is impossible to forecast," Pavlik said in an email.

The big question facing investors now is how strong the economy's recovery will be. The market is trying to gauge how big of a drag consumers will be on the economy if unemployment remains elevated for some time, leaving consumers afraid of spending too freely.

The Dow Jones industrial average (DJI:^DJI - News) was up 82.60 points, or 0.90 percent, at 9,217.94. The Standard & Poor's 500 Index (^SPX - News) was up 9.94 points, or 1.01 percent, at 989.67. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 25.08 points, or 1.30 percent, at 1,955.92.