FYI | Aug 01 2009
By Andrew Nelson
The Dow finished 17 points, or 0.2% higher at 9171, while the S&P 500 was up 0.73% at just past 987, but the Nasdaq couldn’t keep pace, ending 0.3% lower after a big day yesterday.
Stocks shot out of the gate on Wall Street this morning, riding a wave of renewed optimism after the US GDP read came in better than forecast. It looked, at least for a while, like yesterday’s run that recharged the stalled rally was going to keep pushing onward.
The GDP report had been hanging over investor’s heads like Damocles’ sword all week, then wham, “better than expected” and you could probably hear the sigh of relief in across the river in New Jersey.
It was the best July in decades and both the Dow and S&P 500 finished at fresh 2009 highs, just above the more than 9-month highs hit yesterday.
But after a quick dart higher in the first half hour, the enthusiasm waned. Sure, the data showed the US economy had shrunk less than expected in the second quarter, fuelling hopes the recession may be slowing, but the report also showed US consumers kept a tight grip on their wallets, raising a lot of questions about the speed of any recovery. In fact, the Dow spent most of the day bouncing in a 50 point range just in positive territory.
Then a late run made it look for all money that we’d see another one of those breathtaking last hour bounces. With a half hour left, the Dow was closing in on intraday highs, but indecision struck, and with little in the way of really good reporting to buoy investor’s hopes, the gauge was back down to minus before a last 10 minute push yo-yo’d it to a positive close.
Still, for the month the Dow was around 8.8% higher, booking its best July since 1989, when it gained 9%. The S&P 500 was up 7.5% on the month, its best July since 1988, when it gained 8.8%. And the Nasdaq, even after booking a down day after closing at a 10-month high yesterday, still added 8% over the month, its best July since 1997, when it gained 10.5%.
Looking a little at the numbers from Washington last night: US GDP shrank at a 1% annual rate in the April-through-June period. Most on the street were expecting to something in the neighbourhood of 1.2 to 1.5%. Much of the upside was due to an improving decline in exports as the result of higher consumer prices and more government spending.
From the Mid West: The Chicago PMI, a regional read on manufacturing, rose to 43.4 in July from 39.9 in June and while the report didn’t impress anyone greatly, at least it didn’t disappoint.
Then back to Washington for the latest on the cash-for-clunkers program: the US House of Representatives voted to add US$2bn to the cash-for-clunkers program, which was running low on funds. The plan is thought to have already started to help lift auto sales. The Senate is set to vote on the bill Monday.
Little surprise that the one American car-maker that isn’t in a JV with Washington, Ford, ended more than 8% higher.
On just about any other day, such a triple-shot of good news would have sent just about anyone on a buying spree. But that little caveat with the GDP report about consumer spending and a bit of wariness after yesterday’s big run ensured almost no-one got carried away. And those that did, well the last hour sorted them out.
There was little help for the hopelessly optimistic coming from the corporate front. Lat Thursday Walt Disney reported weaker earnings that nonetheless topped estimates, but weaker revenue that missed estimates and shares of the Dow component dropped nearly 4% in response. Las Vegas Sands also picked a bad day to tell investors the recession had cut into profits at its casinos and hotels. Revenue that missed estimates and a number of analysts downgraded the stock, seeing shares dump 16% in very active trading.
But not everyone was punished for missing their targets. Dow major Chevron booked a 71% drop in second-quarter profit due lower demand for fuel during this global economic slowdown. 87c per share was the final EPS number, but the market wanted to see 97c. Still, shares pushed 2% higher, probably helped by a 3.7% rally in crude-oil.
The price of oil topped US$69 a barrel for the first time in a month, reversing weekly losses. While the GDP read and a buoyant equities market surely helped, so did a weaker US dollar. In the end, September crude futures were up US$2.51 to end at US$69.45 a barrel.
The US dollar was weaker against the Aussie, yen and the euro once again, which also lead to a jump in gold prices and a lift in US Treasury prices. Gold ran hot, tacking on more than US$20 to $953.50, while Treasury prices also rallied, lowering the yield on the benchmark 10-year note to 3.48% from 3.60% late Thursday.
For the most part, the base metals complex rode the strong market/weak greenback train, remaining firm throughout the course of trading in London. Tin was the only stand-out on the downside, with the metal booking a 7.4% peak-to-trough intra-day decline on the back of some heavy end of month valuation activity. Copper, lead, nickel and zinc were 2-3% higher.
All up it was a very strong month for base metals, with the type of price gains not seen in a long time making sure almost all contracts ended at or around new 2009 highs. It should continue to be good news from here for at least a little while yet, with basemetals.com reporting that a bullish sentiment is still prevailing.
Early signs were not as good in Sydney, with the SPI down 2 points at 4205.
