Daily Market Reports | Oct 20 2009
 By Greg Peel
The Dow rose 96 points or 1.0% while the S&P climbed 0.9% to 1097 and the Nasdaq gained 0.9%.
Apple posted a strong result after the closing bell, as did Texas Instruments, but I’ll get to that in a moment.
Wall Street’s regular session was yet another of me leading you leading me. Some positive earnings results, including equipment maker Eaton, publisher Gannett and toy maker Hasbro set an early positive tone, and sent the US dollar downward once more. Further comments from the New York Fed regarding the “testing” of the reversal of repurchase agreements also weakened the greenback. This “testing” is a precursor to a Fed exit strategy for monetary stimulus, which might have been positive for the dollar, except that the Fed stated that in no way could these tests be taken to imply an interest rate rise was near. So the US dollar dropped instead, to a new 14-month closing low of 75.37.
As the US dollar dropped, commodity prices soared once more. Gold jumped back US$13.10 to US$1062.10/oz. In London, aluminium, nickel and tin jumped 2% and copper, lead and zinc rose over 3%.
Oil jumped US$1.08 to US$79.61/bbl.
Commodity price increases across the board sent the prices of gold, material and energy stocks higher on Wall Street. As stocks rose, the dollar continued to weaken. Oil traders were buying on the back of the weaker dollar and strong earnings results. In London, one trader told Basemetals.com “It is being governed by the weight of money. It is not going up on demand; rather it is money flows”.
Stocks rally, the US dollar drops, commodity prices rise, stocks rally, the US dollar drops…
Volume on the NYSE was decidedly light last night, adding to volatility. But implied volatility as measured by demand for option protection is now at a two-year low. The VIX dropped to 21.35 last night, and is clearly headed towards “complacency” territory. A lack of options demand and a VIX under 20 is often a precursor to a market top.
That was the story of the day-session. After the bell, tech leaders Apple and Texas Instruments reported their quarterly results.
Apple has a reputation for “sand-bagging”, which means deliberately understating earnings guidance so to always look good at result time. But an earnings per share of US$1.82 still blew away Wall Street’s US$1.42 estimate, and revenue of US$9.87bn easily beat the expectation of US$9.42bn. What’s more, sales of 7.4m iPhones were much greater than expected, and iPod sales were also through the roof. It was a brilliant result, at least as measured against expectation, and Apple shares are up 7% in the after-market. On that basis, Apple shares should hit an all-time high tonight.
In Apple’s shadow was Texas Instruments, which posted an EPS of US42c to US39c expectation and US$2.88bn revenue to US$2.82bn. Its shares are up 2%.
It should not, nevertheless, come at a huge surprise that US tech stocks are performing well. Apart from the obvious attraction of the game-changing iPhone, tech is a huge export sector that is benefiting from the weaker US dollar. Last night the Nasdaq traded right to its previous 52-week high of 2180 before backing off to close at 2176. One presumes tonight will see a new high, all things being equal.
Similarly the Dow crossed over the 10,100 mark before shrinking back to 10,092, and the S&P 500 just pipped 1100 before closing at 1097.
The Aussie dollar has gained close to another cent since Friday, marking US$0.9280. The SPI Overnight was up 43 points or 0.9%.
Lost in the wash last night was the monthly US housing industry sentiment index release from the National Association of Home Builders. After three months of gains, last month’s reading was 19, and analysts expected a rise to 20 in October. But instead the index fell to 18, with concern about the November expiry of first home-owner tax credit stimulus cited as the sticking point. The NAHB is lobbying the government to extend this stimulus package for fear the apparent recovery in US housing will reverse.
Once again the gap between Wall Street and Main Street is clearer. Tonight sees the release of September housing starts, which will make interesting reading, but with Apple leading the way maybe this result will also be lost in the wash. Tonight also sees the earnings result for Caterpillar – a bellwether of global economic growth. Wall Street is obviously expecting good things, given Cat shares were up 6% last night.
Also reporting tonight are Coke, DuPont, Pfizer and UTX.
And on a personal note, Happy Anniversary to all my colleagues and peers present on the floors of the ASX and SFE on this day 22 years ago. It was the day in 1987 – which also happened to be a Tuesday – the stock market opened 25% lower and we all thought the world would end. Fortunately it didn’t, so we were all back to experience a similar feeling around this time last year.
[Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]
