The mere discussion of more economic stimulus from the Federal Reserve was enough to send stocks higher Tuesday. The Dow Jones industrial average rose by 20 points, its third day of gains.
Minutes from the Fed's latest policy meeting Aug. 9 showed that officials of the central bank discussed a variety of options to bolster the economy, including buying more Treasury bonds. In the end, they decided to keep interest rates low until at least mid-2013.
The news that more aggressive action was being considered gave investors a reason to buy stocks. "They want to see stimulus, and they hope stocks will go higher," said Joseph Saluzzi, co-head of stock trading at Themis Trading.
The Fed has purchased Treasury bonds twice in the past as a way to keep long-term interest rates low. The Fed's first bond-buying program was in 2008, at the height of the financial crisis. The second, announced last August, helped to push the Dow up by 28 percent through April 29. Lower interest rates on bonds give investors an incentive to move money out of bonds and into stocks and other assets.
Stocks were mixed for much of the day Tuesday after an index of consumer confidence plunged in August to the lowest level since April 2009. Trading volume was also lighter than normal because many investors are on vacation.
The Dow rose by 20.70 points, or 0.2 percent, on Tuesday to close at 11,559.95. The index was down by as many as 109 points five minutes after the consumer confidence report came out at 10 a.m. Trading was mixed for most of the day before the Dow turned higher in the last hour. The index has risen for three straight days straight and for six out of the last seven.
The Standard & Poor's 500 rose by 2.84 points, or 0.2 percent, to 1,212.92. The Nasdaq composite index rose by 14, or 0.6 percent, to 2,576.11.
Companies that rely most heavily on consumer spending had some of the biggest losses. Retailers Kohl's and Lowe's each fell by 2.2 percent. Best Buy fell by 0.8 percent.
The sharp fall in the measure of how U.S. consumers feel about the economy could mean weaker sales for retailers and makers of consumer goods such as clothes and shoes. Retailers are in the midst of the critical back-to-school shopping season, which can account for as much as 25 percent of their annual revenue.
Trading volume, or the number of shares bought and sold, was lower than usual. About 3.97 billion shares changed hands on the New York Stock Exchange, almost a third less than on Aug. 8, when stocks plunged on massive volume after the U.S. government's credit rating was downgraded.
Low volume is worrisome because it suggests that relatively few investors are driving the stock market's gains or losses. That creates the risk for bigger price swings, said Stephen J. Carl, principal and head of equity trading at Williams Capital Group. A lack of volume also indicates that some investors don't believe that stocks are worth buying right now.