Closing Bell: Stocks Make Slight Gains on Upbeat Jobs, Retail News

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Stocks rose modestly Thursday after five straight declines, buoyed by upbeat news about jobs and retailers that helped the S&P 500 to break its longest losing streak of the year.

The Dow Jones industrial average (^DJI) rose 38 points, or 0.2 percent, to 15,311, the Standard & Poor's 500 index (^GPSC) edged up 3 points, or 0.2 percent, to 1,695 and the Nasdaq composite index (^IXIC) added 20 points, or 0.5 percent, to 3,781.

Though stocks finished higher, gains were held back by investor concern about the ongoing stalemate in Washington over the nation's budget and debt ceiling. Federal agency shutdowns could begin next Tuesday, when the fiscal year begins, threatening the nation's fledgling recovery -- unless Congress passes a stopgap bill.

Growth-sensitive retail stocks were among the best performers in the 10 industry groups that make up the S&P 500 index. The group got a lift from the troubled department store owner J.C. Penney (JCP), which said in a statement Thursday that it was pleased with its turnaround efforts. The company's stock rose 2.9 percent to $10.42.

In a promising sign for the labor market, the number of Americans filing new claims for jobless benefits fell last week to a near six-year low. Other data showed the U.S. government left its estimate for economic growth in the second quarter unchanged at 2.5 percent.

In other economic news, fewer Americans signed contracts to buy previously owned homes in August for the third straight month, as an index for pending sales of existing homes declined 1.6 percent. The drop could mean higher mortgage rates are starting to deter some buyers.

%VIRTUAL-article-sponsoredlinks%The U.S. government started another phase of selling off its General Motors stock after cutting its stake in the automaker to just over 7 percent. The Treasury Department said it still owns 101.3 million GM shares. To break even on the government's 2009 bailout of the company, the remaining shares would have to sell for nearly $140 each. GM (GM) shares ended Thursday's trading at $36.96.

In commodities news, benchmark U.S. crude gained 28 cents to $102.94 a barrel, while gold lost $11.80 to end at $1,324.10.

In IPO news, shares of cloud-computing company Covisint (COVS) soared 25.1 percent to $12.51 in its first day of trading on the Nasdaq, while shares of Premier Inc. (PINC) climbed more than 13 percent to $30.55. The Charlotte, N.C., company collects and analyzes clinical and financial data for health care facilities.

More Stocks in the News:
  • Nike (NKE) reported its first-quarter net income rose 38 percent, thanks to strong demand for Nike branded items, and revenue growth in every region except China. The report, which came after the close of trading, was Nike's first earnings report as a member of the blue-chip Dow Jones industrial average. Shares ended Thursday's session up 2.1 percent to $70.35.
  • Air Products & Chemicals (APD) chief executive John McGlade will retire next year and the industrial gas producer appointed three new independent directors, avoiding a fight over board membership with activist investor Bill Ackman. Air Products shares rose as much as 6.9 percent, but ended the day at $109.82, up 2.3 percent.
  • Bed Bath and Beyond (BBBY) rose 4.5 percent to $77.54 a day after it reported a jump in second-quarter profit as the U.S. housing market recovery spurred demand for its products.
  • Hertz Global (HTZ) shares dropped more than 16 percent to $21.63 after the car rental company cut its full-year forecast.
  • Eli Lilly & Co. (LLY) fell 3 percent to $51.03 after its experimental cancer drug failed to improve survival among breast cancer patients without their cancer worsening in a late-stage trial.
  • EBay (EBAY) said it would buy payments provider Braintree for about $800 million in cash to add to its PayPal business. Braintree will continue to operate as a separate service within PayPal led by Braintree chief executive Bill Ready, eBay said. EBay closed up 4.5 percent at $56.65.
  • Caesars Entertainment (CZR) fell 5.2 percent to $19.84 after the company said late Wednesday that it plans to sell up to 11.5 million of its shares in a public offering.
  • Cracker Barrel Old Country Store (CBRL) recommended that shareholders vote against a $20 special dividend urged by activist investor Biglari Holdings. The restaurant chain said paying the special dividend would cost more than $475 million and could hurt its balance sheet. It pays a 75-cent quarterly dividend. Shares added $1.53 to $103.90 in Thursday trading.
  • Shares of Jabil Circuit (JBL) tumbled 9.9 percent to $21.62 after the provider of electronics-manufacturing services gave a weaker-than-expected outlook for the current quarter, hurt by its BlackBerry business. The stock has traded in the 52-week range of $16.39 to $24.32.
What to Watch Friday:
  • The Commerce Department releases personal income and spending for August at 8:30 a.m. Eastern time.
  • The University of Michigan releases its final estimate for consumer sentiment in September at around 10 a.m.
  • Smartphone maker BlackBerry (BBRY) is due to report quarterly corporate earnings.
-Compiled from staff and wire reports.

If You Only Know 5 Things About Investing, Make It These
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Closing Bell: Stocks Make Slight Gains on Upbeat Jobs, Retail News

Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.

Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.

The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.

Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?

If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."

Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.

Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.

Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"

Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.

Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.

The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.

You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.

This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.

"Everything else is cream cheese."
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