Daily Market Reports | Jun 03 2009
By Greg Peel
The Dow closed 19 points higher or 0.2% while the S&P added 0.2% to 944 and the Nasdaq rose 0.4%.
Having surpassed its previous 2009 high of 934, the S&P 500 edged higher to 944 last night. The Nasdaq is well into positive 2009 territory while the Dow, at 8740, is yet to reach its January high mark of 9034. This is not something investors should care much about given the Dow is simply a price average and has been weighed down by low-priced financial stocks and, of course, GM. GM is now out of the index, as is Citigroup, as the keepers of the average try to realign to once again reflect America’s “biggest” companies.
The S&P’s breach on Monday (and its breach of its 200-day moving average) was nevertheless enough to send the Aussie ASX 200 into fresh 2009 blue sky yesterday. It closed at 3955 with a little help from some positive local data, surpassing the earlier May high of 3941 and reasserting the index’s upward trend line since the 2008 low point in November.
The Dow was up 66 points at one stage last night but it was mostly a sideways drift of a session as those looking to take profits after Monday’s big surge were met by the constant stream of late-to-the-game buyers who fear missing out on the greatest bull run in the history of mankind which, incidentally, ain’t gonna happen anytime soon. That doesn’t mean there isn’t still upside in this confident market and traders now see 1000 in the S&P 500 as a realistic short term target.
Firing up the buyers last night was the release of April pending home sales. Contracts signed to buy homes increased by 3.2% in March and economists were looking for another 2% increase in April. There was a bit of a shock when the number came out at 6.7%. This represents a 3.2% increase over April 2008.
This result clearly bodes well for the more concrete existing home sales number for May, but economists were quick to question the real strength behind the number. While there was a reasonable proportion of first time buyers in the market – Americans have been offered similar government assistance to their Aussie counterparts – the bulk of contracts signed were by investment buyers.
It should be a good sign that property investors feel safe to go back in the water, but the reality is economists fear most will simply prove to be “flippers” – people with cash in their pockets looking to pick up a distressed, foreclosure sale property or two for a quick turnaround when conditions improve. Thus while the investors are providing some short term stability, they are not really reducing inventory in the longer term and will thus likely prolong true recovery.
When you think about it, that’s all government stimulus packages and resultant massive deficits are achieving as well.
The other good news last night came from some surprising car sales numbers. Analysts were expecting about 9 million cars to be sold in the month but the number was a million more. Moreover, Ford sales were only down 20% last month and GM 30% while Honda and Toyota both saw 40% drops. Are American consumers waving the Star and Stripes and taking protectionism into their own hands?
In other news, Chrysler may be out of bankruptcy as early as Friday in the fastest turnaround since Battering Rams ‘R’ Us. But a government orchestrated bankruptcy is not much different to a fixed football match. Stand by for GM to be trading freely again very soon.
An easing off of the risk hungry euphoria of Monday saw the 10-year bond yield drift back to 3.62%, while oil slipped US48c to US$68.16/bbl and base metals prices were slightly lower in London.
The US dollar nevertheless continued its slide, falling 0.72 on its index to 78.44. The Little Aussie Skyrocket, boosted by no rate cut from the RBA, jumped more than another cent to US$0.8209. Gold went back to paying attention to the greenback, and rose US$6.40 to US$981.60/oz.
Material stocks thus stalled on Wall Street last night while other laggard sectors were snapped up. Bank stocks have merely been drifting over the last week and not participating in the latest surge given they had already posted strong gains earlier in the game. Morgan Stanley, JP Morgan and American Express all made smallish capital placements last night which sent the banking index down 1.5%, aided by the index-based exit from Citigroup. Banks are currently raising more capital specifically to pay back their TARP injections.
Australian banks have similarly missed out recently in the latest commodity-based, inflation-fuelled surge. While banks like a steep yield curve as it implies better lending margins, inflation is a threat because it raises the spectre of higher interest rates and thus less demand for credit.
The SPI Overnight rose 16 points or 0.4%.
