Hot Wall Street Caps Best July in 20 Years

Traders are using good news about the economy to give the stock market its best July in 20 years.

Stocks have tacked on moderate gains after the government said the economy shrank at a slower pace than expected in the April-June quarter.

Investors have been placing big bets this month that the longest recession since World War II is finally receding. The Dow has finished the month with an 8.4 percent gain - its strongest July since 1989, when it gained 9 percent. It's the blue chips' best performance of any month since October 2002.

According to preliminary calculations, the Dow is up 17 to 9,171. The Standard & Poor's 500 index is up just shy of a point to 987 and the Nasdaq is down 5 to 2,978.

The government said the nation's gross domestic product, a measure of the economy's total output, slowed at a rate of 1 percent during the quarter. That was better than the 1.5 percent drop expected by analysts.

The report is the strongest sign yet that the recession is winding down. However, the Commerce Department revised the first-quarter GDP figure much lower, saying economic activity tumbled 6.4 percent. That is the worst quarterly reading in nearly 30 years.

The report also found that consumers cut their spending in the second quarter, a troubling sign as consumer spending accounts for more than two-thirds of all U.S. economic activity.

"Investors have been trying to trade on any bit of good news, but it's not good," Steven Stahler, president of the Stahler Group in Baton Rouge, La. said of the report.

But there has been other good news in July. Stocks are up 13 percent since July 13 when investors bet correctly that Goldman Sachs Group Inc. would report enormous earnings. Since then, other profit reports have brought hope that the recession's end may be nearing. AT&T Inc., chip maker Intel Corp. and heavy equipment maker Caterpillar Inc. all posted results that outran expectations.

Three out of four companies in the S&P 500 index that reported second-quarter results so far have topped analysts' expectations, according to Thomson Reuters. About 300 of the 500 companies have reported.

The GDP report has given investors pause after they extended a three-week rally on Thursday after welcoming a batch of strong earnings reports. Thursday's gains pushed all the major indexes to their highest closes since last fall.

But Thursday's earnings reports showed some companies are still struggling amid the recession, though the problems aren't as deep as investors were expecting heading into earnings season. The market was also boosted by a surprise drop in the number of people continuing to seek unemployment benefits.