Encouraging economic data and Federal Reserve Chairman Ben Bernanke’s view that the recession was “very likely over” sent stocks higher for a second straight day.  A better-than-expected rise in retail sales, helped in part by the government’s cash-for-clunkers program and higher gasoline prices, eased concerns that consumers were spending with restraint. 

Speaking at a Brookings Institution conference, Bernanke, however, added a note of caution, saying, “Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time.”

This morning’s stock futures indicate Wall Street would open with gains, helped by increased M&A activity, optimistic guidance from companies, and words from Warren Buffett that Berkshire Hathaway (NYSE:BRK.A) is “buying stocks right as we speak.”

Yesterday, the 30-stock Dow Jones industrial average gained 57 points, or 0.6%, to 9,683.41, its highest point since October 6.  The broad Standard & Poor’s 500 index edged up 0.3% to close at 1,052.63, its highest level in almost a year.  The tech-heavy NASDAQ advanced 10.86 points, or 0.52%, to 2,102.64.  NYSE volume picked up to 1.5 billion shares yesterday from 1.2 billion on Monday, with advancing shares outpacing decliners by a seven-to-three margin.  Treasury prices declined, with the 10-year off 6/32 as its yield rose to 3.447% on increased risk demands.

Best Buy (NYSE:BBY), the country’s largest home-electronic chain, and Kroger (NYSE:KR) painted a mixed picture.  Best Buy reported a 22% plunge in quarterly earnings and its shares shed more than 5% to $38.32.  However, the company lifted its FY10 earnings outlook to a range of $2.70 to $3.00 per share and said it sees full-year revenue of $48 billion to $49 billion.  Kroger shares dived 7.5% after the company reported weaker-than-expected earnings and cut its outlook.  Health care shares declined 0.8% as President Obama reiterated his commitment to medical care reform, sending shares of Coventry Health Care (NYSE:CVH) down 7.1%, and United Health Group (NYSE:UNH) down 3.7%.   

Eight of the ten S&P500 industry groups moved higher on the day.  Basic material (+2.5%) and industrial (+1.1%) sector shares led the advance on improved recovery prospects and higher commodity prices.  The gains in the Dow Average were led by materials and industrial companies like Alcoa (NYSE:AA) and Caterpillar (NYSE:CAT) as the index gained for the seventh time in eight days.  Alcoa (NYSE:AA) shares jumped 8.1% and were the leading gainers on the DJIA; AK Steel (NYSE:AKS) shares advanced 5.7%, and US Steel (NYSE:X) shares gained 4.8%.  Among industrial recovery stocks, Textron (NYSE:TXT) shares gained 6.6%, Caterpillar (NYSE:CAT) rose 6%, Deere (NYSE:DE) advanced 4.4% and General Electric (NYSE:GE) added 4.2%. Oil and gas shares rose 0.9% as weekly crude inventory numbers are expected to show a 2.4 million decline last week.

However, the dollar failed to capitalize on the positive US economic news and sank to fresh yearly lows against a basket of currencies, due to its role as a funding currency given the fall in the benchmark US 3-month Libor rate to its lowest on record and the Fed’s well-publicized promise to keep interest rates low.

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