Daily Market Reports | Aug 08 2009
By Andrew Nelson
The Dow ran 114 points or 1.23% higher, while the S&P 500 jumped 1.34% to 1010 and the Nasdaq added 1.37%.
After two days of declines there was always going to be a lot of focus on today’s July non-farm payroll data and it didn’t disappoint. The report not only showed a smaller-than-expected drop in payrolls, but also a much hoped for tick down in the unemployment rate. The response from investors was swift. Stocks rallied throughout the day, taking the market to its highest levels since last November.
It was the first time in 15 months that US unemployment moved lower, with employers cutting 247,000 jobs. This was far fewer than the 320,000 or so that was expected. The unemployment rate, which is generated by a separate survey, fell to 9.4% in July from 9.5% in June. Good news given most were expecting a rise to 9.6%.
It was the lowest level of job losses since last August, back before the collapse of Lehman Brothers and the beginning of the “current financial crisis”. But could the last few months, and especially the last few weeks see the word “current” taken out of the preceding phrase? Maybe soon we’ll be calling it the “2008-09 financial crisis” or “The big scare”.
Leading indicators have been pricing in a recovery for a while now, with the biggest of lagging indicators, unemployment, now also showing signs of recovery. But let’s not get too carried away. While an improvement in unemployment is all well and good, all we are talking about is a slowing in job losses, not job gains. And with there still being a close to 10% jobless rate in the world’s biggest and most consumer driven economy, the good times surely must still be a way off.
There is still a steady stream of talk positing that the market’s recent gains simply mean that we a moving closer and closer to a major correction. Sceptics are worried that the financial industry, though clearly not as close to death as it was a year ago, still hasn’t solved all of the credit-related troubles that got us into this mess in the first place. And remember, we’re still waiting for some significant good news from the US housing market.
But there are rumbles. The Dow Jones US Home Construction Index was up 5.5% on Friday, boosted by Beazer Homes reporting a third-quarter loss that was less than expected. Goldman Sachs also helped out by adding D.R. Horton to its “conviction buy” list.
The days’ data boosted stocks pretty much across the board, with retailers leading the charge, and this despite the sector yesterday reporting an 11th straight month of sales declines. The RLX, a key S&P retail index was up 3.4% on the day. Financials were also looking good, with the KBW Banks index up 3.6 %. Dow major and sector flagship JPMorgan Chase ran up 3.8% on active trade.
All up, 24 of 30 Dow components closed higher, with other stand outs including IBM, Boeing, United Technologies and Chevron.
The tail end of reporting season also provided a bit more good news after AIG reported its first quarterly profit in nearly two years. Yet the troubled insurer is still struggling in the aftermath of its near-collapse last year when the current financial crisis was just starting to hot up. Remember, the company still owes US taxpayers US$87.6bn. But good news is good news and on a day when the jobs reports convinced even more fence sitters that the economy is turning a corner, the response to AIG’s report was anything but muted. The stock, which nearly doubled in the run-up to the profit report over the course of the week, gained another 19% on today’s trade.
Cash for Clunkers got another boost after the Senate last night approved US$2bn in extra funding for the popular program, which gives consumers up to US$4500 if they turn in old gas guzzlers and buy new more fuel-efficient models. President Obama signed the paperwork today that extends the sales stimulus program out until at least Labor Day.
And in a sign that things may be retuning to a little bit more traditional footing, the US dollar ran higher with the stock market. The US dollar index was up1.1%, with the greenback stronger on the Yen, euro and Aussie. Signs that the US economy may soon be on the mend has been the underlying theme to every rally the market has posted over the last few months, but of late, the greenback has run the other way. Maybe we’re seeing a return of the belief that US dollar strength is a bet on the US economy and its ability to start attracting foreign investment.
Adding to that is the fact that risk appetite is beginning to re-emerge and the dollar gaining about 2.2% versus the yen is a good sign of that. The Japanese currency has for some time been the biggest loser when investors take on more risk in higher-yielding assets. The yen carry trade has for some time been a good way for traders to borrow money at low interest rates (remember the Japanese interest rate is almost at zero), and then invest the money overseas. In his column today, CNBC’s Bob Pisani points out that both borrowing in Yen, and investing in what are seen as riskier asset classes, like Aussie stocks and bonds, surged today.
But Pisiani warns that there could be some false signals here, as the US Fed has not yet raised rates, which would be the biggest help to the US dollar. Then again, the Fed funds rate is pricing a 100% chance that the Fed will again be raising rates by next year.
The stronger dollar was little help to oil prices, with September crude falling US$1.01 to settle at US$70.93 a barrel on the New York Mercantile Exchange. Gold also suffered, dropping $9.30 to $954.40/oz.
But base metals were stronger and since materials are dollar denominated, strength in the dollar is normally a negative for the complex. Yet it now seems the market may be realising that a globally strengthening economy, lead by what seems to be a quickly recovering US, is a positive for both materials and the dollar. Copper was back above US$6,100, Aluminium prices climbed back above US$2,000, while zinc. Lead and tin were also up after slow starts.
Closer to home, the SPI was intent on joining the party, up 41 points, or almost 1%.