Stocks and Bonds: Strong Retail Sales Numbers Push Shares Higher

Analysts also said that fear about Europe’s debt crisis had faded somewhat in the last few days.

Both the Dow Jones industrial average and the Nasdaq composite index are higher than they were at the end of 2010. But the broader Standard Poor’s 500-stock index was still in negative territory, down 2.63 percent for the year.

On Friday , the S. P. 500 rose 20.92 points, or 1.74 percent, to 1,224.58; it gained 5.98 percent for the week. The Dow Jones industrials gained 166.36 points, or 1.45 percent, to 11,644.49, and the Nasdaq rose 47.61 points, or 1.82 percent, to 2,667.85. The weekly gains on the Dow and the Nasdaq were 4.88 percent and 7.6 percent, respectively.

Interest rates continued to rise. The yield on a 10-year Treasury note rose to 2.25 percent, from 2.18 percent late Thursday.

Analysts said the retail sales numbers had beaten expectations. Sales rose 1.1 percent in September from August, and 7.9 percent from the previous year — the fastest clip since February, according to the Commerce Department. The rate of growth between July and August was also revised upward to 0.3 percent, after having been initially reported as flat. Total retail sales were $395.5 billion.

Every category of retailers reported higher sales from a year ago except for electronics and appliance stores, whose sales remained flat. Automobiles were particularly strong, with sales rising 3.6 percent from August, and 8.5 percent from September 2010.

The report was another sign that the economy may be in better shape than many economists thought, said Dan Greenhaus, the chief global strategist at BTIG. The recent rise in stock prices reflects the change in the prevailing outlook, he added.

“When the stock market collapsed, you were uncool if you were weren’t saying that the U.S. was going into recession,” he said.

In a surprise, however, preliminary figures for the Reuters/University of Michigan consumer sentiment index showed a drop to 57.5 for October from 59.4 in September. Analysts expected confidence to rise. Instead, sentiment in every category dropped.

Consumer sentiment has been hovering near the levels reached during the recent recession, which economists take as a troubling sign that the perception of a weak economy could end up becoming a self-fulfilling prophecy.

But Russell Price, a senior economist at Ameriprise Financial, said that attitudes could get out of line with how people were actually acting during turning points in the economy. “If people are confident enough to go out and spend $30,000 on a new automobile, it shows they are pretty confident in their own financial situation,” he said.

European markets were also higher Friday, as the Group of 20 finance ministers began a two-day meeting to discuss their approach to the European debt crisis. The benchmark Euro Stoxx 50 was up 1.2 percent. The FTSE 100 in London gained 1.17 percent, while the DAX in Frankfurt rose 0.89 percent.

Optimism about a European rescue plan also continued to push up the price of the euro against the dollar. The euro traded at $1.3876, up 0.92 percent.

The urgency of the G-20 talks was underlined when the Fitch Ratings agency said Friday that it would review its ratings for some of Europe’s most globally interconnected banks. This week the European Commission proposed requiring the Continent’s largest banks to bolster their protection against losses. There has also been discussion of the International Monetary Fund helping to increase the power of Europe’s rescue plan.

The euro zone is entering a critical countdown, with investors in financial markets expecting European officials at a summit meeting on Oct. 23 and leaders of the Group of 20 on Nov. 3 to endorse specific plans to confront the crisis. For now at least, investors have taken heart at perceived progress in Europe. The VIX, which measures volatility in the market, has dropped to its lowest levels since it spiked on Aug. 4. Popularly known as the fear index, the VIX ended at 28.24, down from a peak of over 45 in early October.

Analysts stressed the fragility of investors’ confidence, and some voiced concern that optimism about the prospect of a plan could fade when its specifics were hammered out.

“We’ve been here before,” said Nariman Behravesh of IHS Global Insight. “It’s pretty tenuous right now.”

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