Economic Optimism Lifts Stocks, ETFs

A low inflation reading and a bright economic outlook have left traders bullish and some ETFs higher.

After Tuesday's optimistic speech by Federal Reserve Chairman Ben Bernanke, in which he declared the recession "likely over," the Fed reported Wednesday that industrial production outpaced analysts’ expectations. In August, manufacturers of food, cars, clothing and machinery boosted production by 0.8%, according to the Fed. (Analysts had expected a 0.6% increase.)

Separately, traders welcomed a Labor Department report showing the Consumer Price Index rose 0.4% in August. The bump in the index, a bit higher than economists’ expectations, came largely from a rise in gasoline prices. Excluding food and energy prices, which tend to shift more wildly month to month, the core index rose 0.1%, alluding to an environment of low inflation.

Stocks rallied behind the news. The Dow Jones Industrial Average finished up 108 points, closing at 9792, capping its third straight session in the black. (The Dow has gained 186 points since Friday's close.) The technology-rich Nasdaq gained 31 points to 2133, and the S&P 500 climbed 16 points to 1069.

Still, the uptick in oil prices is disheartening for some oil ETF investors. Because ETFs track oil through the purchase of derivatives, higher spot oil prices, which have risen 54% this year, have caused some oil ETFs to underperform.

The U.S. Oil Fund (USO) is among the hardest hit. Since the Fund invests only in near-term futures, which in recent months have fetched a discount compared to those tracking longer-term oil prices, it’s risen just 8% -- a small fraction of the commodity's gain.

Although some oil ETFs have performed better, The Wall Street Journal’s John Jannarone recommends taking a look at petroleum explorers, such as Anadarko Petroleum (APC). Despite the risks, he says, the company has kept up with oil-price rises this year and even pays a dividend.

Other commodity prices have ascended in recent days on hopes of a broader economic recovery. Spot gold prices, which traded near $1,017 today, jumped to the highest level in 18 months.

In addition, energy prices rose with the broader market and after the Energy Department said crude inventories fell by 4.7 million barrels last week. By 4:05 p.m., oil traded up $1.40 on the day at $72.33 a barrel.

For a detailed rundown on Wednesday’s trading session see our markets story.

The Direxion Daily Financial Bull 3X Shares (FAS) climbed 9.30%, while Ultra Real Estate ProShares (URE) rose 7.97%.

The Direxion Daily Financial Bear 3X Shares ETF (FAZ) lost 9.26%, while the UltraShort Real Estate ProShares ETF (SRS) fell 8.15%.

Earnings and Conference Calls

AT&T, Best Buy, CKE Restaurants, Denny’s, Dupont, FedEx, General Electric, Sprint Nextel, Steven Madden

Economic Data

8:30 a.m. Building Permits

8:30 a.m. Housing Starts

8:30 a.m. Initial Claims

8:30 a.m. Continuing Claims

10:00 a.m. Philadelphia Fed