Austerity in Spain and Stimulus in China Push Markets Higher

We're back to speculation euphoria just a few days before the end of the third quarter. Investors have bid up the Dow Jones Industrial Average (INDEX: ^DJI) by 0.6% and the S&P 500 (INDEX: ^GSPC) by 1.02% on hopes that Spain and China will boost markets.

Spain detailed its planned budget cuts, which hopefully will bring the country's deficit in order. In China, investors are speculating that the government will again use stimulus to keep its economy growing, although there don't seem to be any concrete details at this point.

Domestically, the U.S. Department of Commerce's final estimate of GDP growth in the second quarter was revised down to 1.3% from 1.7%. The drought in the Midwest was blamed for some of the decline. But on the positive side, initial jobless claims fell to 359,000, which was down 26,000 from a week ago and also lower than estimated.

AT&T (NYS: T) and Wal-Mart were the only two Dow components that were in the red near the end of trading. The "risk off" trade of the last week has turned around, and these relatively safe stocks aren't as attractive to investors if economic activity increases.

Banking stocks are up big today on Spain speculation. Bank of America (NYS: BAC) and JPMorgan Chase (NYS: JPM) have climbed 2.4% and 1.5%, respectively, on hope that austerity in Spain will help reduce the risk in their portfolios.

The speculation over Spain and China will only hold up if it leads to real growth, and I still have a speculative eye on those two countries. As for the U.S., unemployment and GDP continue to slowly improve, even if it isn't at the rate that everyone hoped.Â

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