Daily Market Reports | Mar 18 2009
By Greg Peel
The Dow jumped 178 points or 2.5% while the S&P gained 3.2% and the Nasdaq 4.1%.
It is becoming more clear every day that the Dow is now a poor analogue for the broad market. The discrepancy in movement is representative of a wider financial sector rising 5% while movements in the Dow’s couple of beaten-down bank stocks don’t register. Similar disparities occur in other sectors. Healthcare now represents about 17% of the S&P 500 on capitalisation but the Dow contains only two healthcare stocks (Merck, Pfizer) or maybe three if you count J&J.
The Nasdaq is simply tech-laden and so reacts strongly to any news in that particular space. Last night one broker claimed Cisco would announce a first quarter profit and consequently the Nasdaq took off. Apple released new software for its iPhone and that provided a kick as well at the consumer level.
The Paddy’s Day rally was given a flying start when it was revealed US housing starts leapt 22% in February after having fallen 38% over the previous three months. Apartment construction surged a remarkable 82%. Building stocks took off on the news.
Housing starts up, profits being made, excitement in retail – has the GFC just been a bad dream?
There is certainly a sudden newfound confidence on Wall Street. Last night traders held their breath as 2pm approached, knowing that the last two hours is usually when the sellers make their move. The sellers indeed appeared but they were not significant in number. When it didn’t look like the market would tank, traders bought it instead, sending the indices up to close on their highs.
The housing number was a fillip for the oil price, sending crude up another US$1.27 to US$48.62/bbl. Base metals were not convinced however, particularly given a big short-covering rally on Monday. Copper fell 2% while aluminium and lead held up.
The exuberance saw another flight out of gold, sending the metal down US$9.20 to US$915/oz despite further weakness in the US dollar. The Aussie ticked up to US$0.6614.
So is it all over? Well, one swallow does not a summer make. Wary traders pointed to the traditional volatility of housing numbers based on the weather. The spring is a popular time to build as the snow melts. And while 22% in February looks terrific, bear in mind that housing starts are still down 47% from a year ago and 74% from their 2006 peak.
There is nevertheless a building sense that the worst may have past and that the numbers will only look a bit more positive from here. Ben Bernanke is now suggesting the US could begin dragging itself out of recession toward the end of 2009 given all the money being thrown at it, and traders know that stock markets typically turn six months before economies do. However, we are about to enter the first quarter reporting season and that might bring a few home truths.
For the moment however, we’ll take it. Pass the Guinness.
The SPI Overnight added only a subdued 27 points or 0.8% following yesterday’s big surge on Bridge Street.
