Daily Market Reports | Apr 18 2009
By Andrew Nelson
The Dow ended up 6 points or 0.1%, while the S&P 500 picked up 0.5% and the Nasdaq ended up 0.1% higher at the end of trade.
Wall Street has yet again defied the bears, with a mixed day turning positive in the afternoon and markets ending higher for the sixth straight week. It continued to be a case of less bad news than good, with investors seemingly relieved that earnings reports and economic data continue to come in better than expected.
For weeks investors have been worried that the reality of first-quarter earnings releases would scuttle what some had termed the recent sucker rally. But after months of merciless beatings, the bulk of recent corporate and economic data of late seem to support a growing bullish argument that the economy and financial system are starting to take some baby steps forward. This persistence of optimism has seen the broad market benchmark S&P 500 now gain more than 26% in the past six weeks, the best stretch for the market since May 2007.
Gains for the Dow would have been even higher if not for a final flurry of selling in the last 15 minutes of trade that saw 55 points wiped off the board in some end of week profit taking. While present, the last ditch selling wasn’t quite as pronounced on either the S&P 500 or Nasdaq.
For much of the session, investors embraced better-than-expected earnings from General Electric and Google, even though in better times the releases would likely not be enough to engender near as much enthusiasm.
After the close Thursday, Google posted quarterly earnings that rose from a year ago and topped estimates on revenue that rose from a year ago. The numbers released were still shy of forecasts. Shares nonetheless rose almost 1% on the day, but the company’s warning that the economic environment remains tough sent a ripple of selling through the tech sector.
On the Dow, big shot General Electric reported weaker quarterly earnings, but the result beat estimates despite weaker quarterly sales that missed forecasts. Weakness in the company’s finance unit countered mixed results at other divisions. First-quarter net income fell 35% on continued woes at its financial operations. Meanwhile, Chairman and Chief Executive Jeff Immelt said estimated stress-test results indicate the conglomerate won’t need to raise additional capital. After slipping post the release, shares rallied and finished the session 1% higher.
Next week will be another key week for corporate reporting, with 13 Dow components due to report along with 140 S&P 500 companies. Among components of both indexes reporting next week are Caterpillar, United Technologies, DuPont and Microsoft.
In other company news, General Motors fell 4.1% after the troubled auto maker announced more details on its restructuring program. GM said it is planning to cut more workers and expects three bids for its Hummer brand by the end of next week. It added there is a potential buyer for one of its factories in France.
But the upside continued to outweigh the down, making it an especially tough day for bank bears, most of whom had been shorting the sector at a furious pace leading into what was expected to be a run of reporting that would provide proof there is little substance to the recent spike in optimism. The argument has been that credit conditions really haven’t improved, while earnings quality is still pretty flimsy and most of the upside is simply coming from one off gains.
It’s the relatives that matter to the growing crowd of optimists, who cite tier one capital and tangible common equity are showing signs of improvement across the sector, while mortgage refinancings continue to surprise to the upside. These factors, coupled with the generally positive tone, have seen the sector continue to gain ground pretty much across the board, especially following upside surprises from JP Morgan, Goldman Sachs, and Wells Fargo earlier this week and last.
Today, regional Bank BB&T reported a weaker quarterly profit that nonetheless topped analysts’ expectations. The company also said loan losses are lessening. In response shares gained 11%.
It wasn’t all upside though, with shares in Citi falling 9% after it booked its first profit in 18 months on strength in its investment banking division. But after paying out preferred dividends, results amounted to a per-share loss of 18c. That said, the result was still much better than the 34c per share loss that was expected and the stock has still nearly quadrupled from bear-market lows.
Bank stocks have again posted gains for the week, making this is the 6th consecutive weekly gain for the Bank Index, which is up 108% since the bottom in early March.
On the economic front, the University of Michigan’s preliminary consumer-confidence gauge for April showed improvement from March and exceeded expectations.
Both US Treasury and gold prices fell, the latter more than US$7.
Oil prices, which have sagged lately, staged a modest comeback. US light crude oil for May delivery rose US35c to settle at $50.33 a barrel on the New York Mercantile Exchange, pushing above the psychologically important US$50 per barrel level. Buyers took heart from news today that Venezuela may insist on setting a price band for oil when OPEC meets in late May. However, for the week oil is down about 4%, hurt by data showing a 19-year high in US stockpiles.
In currency trading, the US dollar gained versus the euro and fell against the yen and gave up a little bit of ground on the Aussie as well.
Base metals turned higher on the LME Friday, with tin and nickel hitting new three-month peaks and lead surging higher. The complex once again drew support from technical and fund buying as well as growing positive sentiment from the continuation of China’s latest surge in demand, which is a story that continues to build.
On the local front, the SPI pushed 27 points higher to 3794, supporting hopes the local market may well track Wall Street’s positive Friday.
