Retailers reported their strongest monthly sales growth in a decade Thursday boosting expectations of an economic recovery and helping stocks reverse an early slide. 

The Dow average, in the red shortly after the opening bell, staged a steady comeback as the session neared its close, helped largely by the retailers’ promising sales numbers.  The blue-chip average, down 53 points in the early going, closed up 30 points at 10,927.  The Nasdaq Composite index edged up 0.2% and the broader Standard & Poor’s 500 index gained 0.3%.  Although the advance was not outstanding, it nevertheless helped markets end a two-day losing run.  Volume on the NYSE was a moderate 1.049 billion shares, with advancers ahead of decliners by an 8 to 7 margin.   

One reason why markets did not react too enthusiastically to the sales results was perhaps the Easter shift and easy year-ago comparisons.  Nevertheless, what stood out was, as many market participants noted, the increased apparel purchases, which are viewed as discretionary buys and so signs of a more confident buying public.

It was retailers’ day but financials did not fare badly. Shares in American Express (NYSE:AXP), JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS) all ended the session with gains.

Surprising analysts, many stores reported double-digit sales growth, helped mainly by an early Easter holiday.  Feeling confident after reporting improved top-line results, many retailers raised their profit forecasts, including Target (NYSE:TGT), whose comparable sales surged 10.3%, and TJ Max (NYSE:TJX), which reported a 12% jump in same-store sales. American Eagle (NYSE:AEO) reported a 15% sales gain and backed its outlook, while Aeropostale (NYSE:ARO), riding high on a 19% jump in same-store sales, raised its first-quarter earnings outlook. 

S&P500 industry sector action proved mixed with seven sectors closing the day in the green. Consumer services and telecommunications led the gainers (+0.8%), followed by financials (+0.7%), oil and gas (+0.5%), industrials (+0.3%), consumer goods (+0.1%). Declines were posted in the following: utilities (-0.6%), health care (-0.3%) and technology (-0.01%).

While Greek worries continued to vex traders, soothing words from the European Central Bank President Jean-Claude Trichet offered some support.  Trichet noted, “I would say that taking all the information I have, a default is not an issue for Greece.” Rates of Greek bonds rose to 7.5%, taking the cost of insuring against a default to record levels.

The series of this week’s Treasury auctions came to a close yesterday, with a $13 billion sale of 30-years attracting a yield of 4.77%, reflective of solid demand.  Meanwhile, the outgoing Fed Vice Chairman Kohn noted that the recovery would be slow, with the labor market still “extremely weak” and housing a “negative.” Nevertheless, he noted strengthening in consumer spending and export growth

Next week such big names as Advanced Micro Devices (NYSE:AMD), General Electric (NYSE:GE), Google (NASDAQ:GOOG), Intel (NASDAQ:INTC), and JP Morgan (NYSE:JPM) are slated to report their earnings numbers. 

Zacks Investment Research