Stocks regain ground from previous day's drop on better earnings data

ByABC News
August 18, 2009, 11:34 PM

NEW YORK -- Now investors seem to be saying, maybe things aren't so bad after all.

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

Investors were still wary about consumer spending and its impact on the economy but heard enough good news to fuel the comeback from Monday's 186-point slide in the Dow Jones industrials. Analysts said investors were putting things in perspective, believing the pullback was a bit overdone.

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.

"The outlook for the economy doesn't change every 24 hours," said Alan Skrainka, chief market strategist at Edward Jones. "The news is always mixed even after you've hit bottom."

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.

Meanwhile, the Commerce Department reported that construction of new homes and apartments fell more than expected last month, but construction of single-family homes actually rose 1% to the highest level since October 2008. It was the fifth straight monthly increase.