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Goldman Sachs Profits Nudge US Stocks Higher

Better than expected earnings by the investment firm Goldman Sachs helped push U.S. stocks slightly higher on Tuesday. But mixed economic data kept the market in check. The second quarter results for the nation's largest surviving securities firm easily surpassed expectations. But larger than expected increases in wholesale prices are stoking worries about inflation.

Analysts predicted that Goldman Sachs would post earnings of more than $2 billion in the second quarter. Instead, the U.S. investment firm reported a profit of $3.4 billion.

Although the impressive results drew cheers from investors, a government report showing a nearly 2 percent jump in the producer price index, which measures the average change in price for domestic goods, tempered enthusiasm on Wall Street.

Financial historian and author Charles Geisst says big profits for a firm that took in $10 billion in government bailout funds last year might upset taxpayers. "No one likes obscene profits in times like this. But on the other hand, Americans do like money," Geisst said. "And they admire firms that take a risk in order to get a profit."

The investment firm is among the first to pay back its government loans. It also managed to set aside more than $6 billion for employee bonuses.

Geisst says Goldman Sachs succeeded by making profits the old fashioned way - by taking risks and buying and selling volatile commodities like oil. "The taxpayer looks at this and thinks, 'We are getting back to normal,' which is not the case right now; it's a matter of risk taking," he explains. "Extreme risk produces extreme profit and vice versa. But this gives a consumer some heart at the same time."

U.S. Treasury Secretary Timothy Geithner has warned that a full economic recovery will take time. But on Tuesday, he told Arab business leaders in Dubai that the global recession is showing signs of easing.

"The rate of decline in economic activity has slowed, business and consumer confidence has started to improve, the housing markets are showing some signs of stability, the cost of borrowing, the cost of credit, has fallen significantly," Geithner states.

Despite an improving economic forecast, many large banks, including Citigroup and Bank of America, are still struggling.

On Tuesday, President Barack Obama sounded a note of caution, saying that unemployment will likely continue to rise before the job market improves. Last month's jobs report showed that nearly one in ten American workers are unemployed.