Stocks picked up where they left off after the three-day weekend as the S&P 500 hit another record high, boosted by expectations by that the European Central Bank would cut interest rates. For the day, the broad-based S&P finished up 0.6% at 1,912, while the Dow Jones Industrial Average (^DJI 0.56%) gained 69 points or 0.4%, and the Nasdaq jumped 1.2%.
European Central Bank President Mario Draghi said at a conference on Sunday that "pre-emptive action" may be needed to head off deflation, a statement many analysts interpreted to mean the bank would lower interest rates or take some kind of stimulative action. While the European economy has moved past the days of recession and bailouts, the continent is still lagging significantly behind North America, and investors are ready to cheer any moves designed to spur faster growth. At home, economic data also reassured the market as durable goods orders for April grew much faster than expected, up 0.8% against estimates of -1.3%, and March's figure was revised up 70 basis points to 3.6%. The numbers are a leading indicator of manufacturing production and are a natural result of an improving labor market and consumer confidence, which also rose today. The Conference Board's Index hit 83.0 up from 81.7 in April, and better than estimates at 82.7, treading near a post-recession high. In today's report, the number of Americans who said finding jobs is easier rose to a six-year high.
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Turning to individual stocks, Barnes & Noble (BKS) shares finished 10% higher after a Barron's article said the stock could double, arguing that the bookseller would be worth more in a corporate breakup. The author, Andrew Bary, points out that the bookseller has one of the lowest valuations in retail, and would be even cheaper if the company separated the unprofitable Nook unit as its college bookstore and retail segment remain profitable. A dividend or stock buyback could also help lift the stock, he said. While splitting up the company could create more value, Barnes & Noble sales continue to slide and analysts expect losses this year and next. The retailer has more problems than just the Nook as consumers continue to flee to online channels, and the chain has been forced to close many stores in recent years. As a long-term bet, the stock seems risky at best.
Elsewhere, another struggling retailer was bouncing back today, as Aeropostale (AROPQ) shares finished up 15% after plummeting 25% on Friday on a dismal earnings report. Today, the teen fashion retailer said it had secured a $150 million credit facility from Sycamore Partners, its private equity investor, which is essentially a lifeline for the retailer as it has just $24 million in cash on its balance sheet, following a quarter when the company posted an operating loss of $83 million. Similar to Barnes & Noble's situation, the loan buys Aeropostale some time, but the greater challenge of returning the company to profitability while industry headwinds persist remains. Consumer tastes have shifted and Aeropostale will need to adapt in order to survive.
