Daily Market Reports | May 30 2009
By Andrew Nelson
The Dow finished 96 points or more than 1.1% higher, while the S&P 500 jumped almost 1.4% and the Nasdaq finished 1.3% higher.
The Dow crossed the gain line either north or south about 20 times today, making only one thing clear: investors had no idea where to go until the final half hour saw gauges sky-rocket well past intraday highs. A sliding US dollar helped push commodities ever higher, and a mixed plate of economic news was shrugged off as investors bought readily at the end of the month. Consumer sentiment improved, while manufacturing data surprised to the downside and the GDP read was only better than expected on the surface.
The late push capped an upbeat week for Wall Street, with the tech-laden Nasdaq rising 4.6% over the last 5 trading days. The S&P 500 rose 3.4% and the Dow gained 2.5% on the week. It was a similarly impressive result for the month, with the Dow up 3.8%, the S&P 500 5.2% higher and the Nasdaq 3.6% better. It was the first time stocks have risen for three consecutive months since October 2007.
Merck, Pfizer and Coca-Cola, were three of the best-performing stocks, not only on the Dow this month, but they were also among the leaders of the late-day burst as money managers looked to get clients into what have been winning stocks. Another big mover was Office Depot, which jumped more than 6% after JP Morgan upgraded the stock to Overweight.
A strong day for commodities also ensured a good day for the big Aussie miners. Rio Tinto picked up 2.7%, while the world’s biggest miner, BHP Billiton, jumped 2.8% in New York trade.
Stocks in Dell were also higher, despite the company reporting a drop in sales and earnings after the stock market closed Thursday. The company said a slowdown in PC sales pressured its bottom line.
In company news, shares of General Motors fell below US$1 for the first time since the Great Depression as the troubled auto-maker appeared set to enter bankruptcy on Monday, despite winning key concessions from the United Auto Workers.
The GDP release showed that the US economy contracted at a revised 5.7% annual rate in the first quarter, which was a little better than the originally estimated 6.1% contraction. That was some of the good news. However, the revision was slightly smaller than economists expected, which should have supported worries about consumer spending, but in the end, it didn’t.
That’s probably because consumer sentiment improved in May to its highest level since last September. All up, the Reuters/University of Michigan gauge of consumer sentiment rose to 68.7 in the final reading for May, higher than the 67.9 recorded mid-month and final April reading of 65.1. Expectations for the future are certainly improving, but worries about current conditions must still be lingering.
That takes us to the Chicago PMI, a key measure of mid-west manufacturing, which slipped to 34.9 from 40.1, below the consensus of 42. However, the read was probably taken with a grain of salt, as many manufacturing gauges have shown improvement of late. Despite the day’s late bravado, it’s worth keeping in mind there is still a building sense of trepidation about the timing of a recovery and whether stocks might be too highly valued considering the outlook for profits and dividends is less than rosy.
But stocks still surged, making the US Dollar the real victim of the GDP and manufacturing disappointments. The dollar continued to drop against its major rivals and the US Dollar Index, which measures the currency’s value against six overseas rivals, was down 1.4%. The US dollar was especially weak against so-called commodity currencies like the Australian dollar, which reached levels last seen in October, while the greenback was down more than 1.3% versus both the euro and the British pound and fell 1.4%.
No surprise, commodities, especially oil, rallied on the downward move in the world’s reserve currency. Oil prices closed above US$66 a barrel as the dollar declined. It was the highest closing price since November 4, when crude settled at US$70.53/bbl. The price of oil has nearly doubled from the lows of mid February on a weaker US dollar and bets energy demand will pick up as the economy recovers. The move capped crude’s biggest one month gain in more than 10 years.
But it wasn’t just oil that was enjoying the decline of the US dollar, with the broad Dow Jones-UBS Commodity Index gaining 1.5% on the day’s trade, while the CRB Commodities Index was up more than 14% on the month. Gold was one of the stars, surging US$15.20 an ounce to US$975.30, making it the best month for gold stocks in 10 years. Silver also continued with its recent run, adding another US58c to US$15.73 to push it to its biggest monthly gain in 22 years.
Base metals were also in rally mode in London, with the sliding dollar, end of week and end of month positioning helping to secure some impressive gains across the complex. But unlike the usual story, it wasn’t copper leading the charge this time around, but rather a team of some of the second-line metals were at the fore. Basemetals.com reports that lead and tin posted respective gains of 6.2% and 4%, while zinc rose 5.8% and nickel gained over 3% to hit a 7-1/2 month high.
Copper only added 1.4% to its price. Even aluminium was higher, although the gains were capped by news inventories had reached yet another fresh record high. Still the metal was up around 2%.
Back to the US, Treasury prices climbed and the yield on the 10-year Treasury note slid to 3.46% as the Fed’s purchase on Friday of agency bonds helped lure buyers back into longer-term government securities. Bonds had suffered right along with the greenback in May due to worries about the amount of debt the US government is taking on to stimulate the economy. As discussed in much greater detail in yesterday’s Overnight Report, the yield on the 10-year note had jumped to a 6-month high of 3.71% earlier this week, which fanned fears that higher borrowing costs, particularly mortgage rates, could hinder an economic recovery.
In Australia, the SPI was up 46 points at 3845, which can’t come as much of a surprise given the big day in commodities markets. The move sets a pretty good stage for local stocks to start on Monday where Wall Street finished off today.
