Daily Market Reports | May 09 2009
By Andrew Nelson
The Dow finished 164 points or 2% stronger, while the S&P500 picked up 2.4% and the Nasdaq finished 1.3% higher.
Stocks rose on Friday after the government’s bank stress tests released last night kept hopes alive that the worst is over for the financial sector. On top of that, reports of less-than-expected April job cuts also supported the belief that the economic slump is easing. The news saw financial stocks lead the market higher, while a shares of energy companies rallied on the steady advance in oil prices.
Stocks shot out of the gate, with investors buying on the back of a government report out before the bell that showed that US employers cut fewer jobs than expected last month. All up, 539,000 jobs were cut from payrolls in April, the US Labor Department reported. While this is definitely not a sign of strength, the number still surprised economists who were looking for job cuts of around 600,000. For the record, employers cut a revised 699,000 jobs from their payrolls in March, which certainly shows this month was an improvement given it was the best read since last October.
However, it still brings the total numbers of jobs lost to 5.7 million since January 2008. The unemployment rate, which comes from a separate survey, rose to 8.9%, as expected, from 8.5% in March. To keep things in perspective, this was the worst reading since September 1983, so all in all, today’s reading was just a continuation of the “less bad” school of thought. And if you take a few steps back from the coal front and think about it, the worst unemployment level in 26 years, whether the decline is slowing or not, isn’t really a sign of recovery.
No doubt also helping the market, possibly to an equal or even greater extent, was the US government’s release (finally) of the results of its much discussed, debated, feared and anticipated stress tests after the market closed on Thursday. We did a bang-up job in discussing this in yesterday’s Overnight Report, so suffice to say that 10 of the 19 banks tested will still need to raise almost US$75 billion in anticipation of a deeper recession. While not great news, looking at the market, and the banking sector in specific, the result was obviously short of the worst case that investors had feared.
JPMorgan Chase, American Express and Goldman Sachs were among the banks that won’t need to raise any additional money and no prize for guessing that these were some of the biggest gainers in the blue-chip end sector. Also of note were Wells Fargo and Morgan Stanley, both of whom sold shares to raise capital under the government’s orders, however, shares of both companies were up on the day.
Elsewhere in the sector, Bank of America and Citigroup were also up strongly despite being among the banks that need to raise the most money. Bank of America needs to raise US$34 billion, the largest amount of any of the banks with a capital hole, while Citigroup needs to raise US$5.5 billion, but then this turned out to be less than some analysts had feared.
Many of the regional banks that were told to raise more capital were also on the advance. Fifth Third Bancorp, which needs US$1.1 billion, surged 58%, while Regions Financial, which is facing a US$2.5 billion capital gap, was up 23% and SunTrust Banks, which needs to raise US$2.2 billion, was up more than 10%. By the end of trade, the KBW Bank, or BKX sector index added 5.7% on the day and is more than 30% stronger for the week.
And then there’s oil, with both the energy majors and the underlying crude price continuing to push higher along with the broader equities market and it’s underlying belief that the economic situation is moderating. Chevron jumped more than 4% and Exxon Mobil rose by more than 2% as front-month crude-oil futures topped US$58 a barrel.
In fact, crude ended floor trading on a six-month high, settling up US$1.92 a barrel at US$58.63, helped by a continuation in the weakening trend for the greenback against other major currencies and boosted by the hope for more demand brought about by the employment data.
In company news, Fannie Mae reported a loss of US$23.2 billion in the first quarter, with the mortgage finance company also saying it needs an additional US$19bn from the government. After the close Thursday, AIG reported a quarterly loss of 97 cents per share, with analysts thinking it would report a loss of only 6 cents per share. Still, the stock inched higher.
But the question that must be asked by one and all is: where do it go from here?
Friday’s rally showed sure signs of yet more short-covering in bank stocks. Any concept of “sell the fact” was blown away and yet again those assuming this rally to have already run too far were caught out. But the last few days have seen strong volume, indicating a groundswell of those fearing they might be missing out on the start of the next bull market. Mutual fund buying has been noted. Non-believers have looked at the returns they are not generating by sitting on the sidelines and have decided best to get in lest unitholders revolt. This is the stuff of peaks, but momentum suggests this rally has not peaked just yet.
In currency trading, the US dollar fell versus the euro and the yen, while the Aussie picked up more than 2c. Gold was stronger, up US$4.80/oz.
The run in equities also saw Treasury prices rise, lowering the yield on the benchmark 10-year note to 3.28% from 3.32% Thursday. Treasury prices and yields move in opposite directions.
Base metals were also pretty unexciting, giving back some of their earlier gains in late LME trading. Basemetals.com reports that end-of-week book-squaring, profit-taking and corrective selling were but a logical response to the week’s advances, which were beginning to look overdone. Importantly, all of the metals in the complex, barring copper and steel, booked inventory increases today, which brings the total LME stockpile to a new all-time high. A good reminder that despite signs of a bottoming out of the economic downturn, current demand still remains sluggish.
In Australia, the SPI once again tracked the action on Wall Street, rising 44 points to 3989 and providing a pretty good signal that Sydney might have another good day on Monday.
