FYI | Nov 07 2009
By Andrew Nelson
The Dow finished 17.46 points, or 0.17% higher, the S&P 500 picked up 0.25% and the Nasdaq added 0.34%.
Who woulda’ thunk it? US employment has been the linchpin of the economic recovery for months now, or so we’ve been told. Analysts and economists the world over keep telling us so. And up until now, Wall Street has done its best to support this assertion, with buyers scattering and sellers taking charge just about every time there has been a significant dissapointment in the US employment outlook. Until today.
The highly anticipated monthly employment report from the US Labor Department showed US non-farm payrolls shed 190,000 jobs last month. A separate report and the unemployment rate had jumped to 10.2%, its highest level since 1983. Expectations were set for a loss of 175,000 jobs and an overall unemployment rate of 9.9% and these were missed by a mile.
Yet investors decided to side with the small print today, focusing in on the fact that the actual pace of month-to-month job losses is slowing. Job losses for earlier months were revised lower, while last month’s 219,000 jobs lost meant that this month’s 190,000 decline was actually an improvement, just not as big an improvement as was expected.
It was a choppy and unconvincing sessions, however, with the market falling at the open before briefly turning positive after investors got used to the disappointing headline employment number. For the rest of the day markets pretty much traded sideways, but sideways in mostly in positive territory.
For the week, both the Dow and the S&P 500 finished 3.2% higher, while the Nasdaq climbed 3.3%, making it the best week out of the last three. That said, most of this week’s rise was booked in a strong session yesterday that saw the Dow once again reclaiming 10,000 on the back of a series of better-than-expected economic reports.
A 6% surge from General Electric provided much of the support for the Dow, with a pair of analyst upgrades to Outperform. The upgrades were due to the expectation that there are some major asset sales coming from the American conglomerate, and a belief that the sales could see as much as US$25bn to $30bn hitting the balance sheet.
Another of the Dow’s big helpers was insurance blue-chip Travelers. Shares rose 2.5% after Goldman Sachs upgraded the insurer’s stock to Buy along with XL Capital. The string of helpful upgrades didn’t stop there, with on-line retailer Amazon running more than 4.5% after an upgrade to outperform as well.
Department store operator Macy’s moved up more than 5% after JP Morgan raised its rating on the stock to Overweight after yesterday’s retail-sales reports were, for the most part, better than expected. Analysts noted that there are some definite signs that discretionary spending is making a comeback, although how much of a comeback there can actually be when one in ten don’t have a job is something we’ll have to wait for to see.
Especially when profits could well suffer further from a reduced appetite for credit among Americans who are jobless or want to save more after suffering big losses in last year’s market slide. The Wall Street Journal reported to that the Federal Reserve said overall borrowing in the US fell at an annual rate of US$14.8bn in September, down 7.2% from a year ago. That is the biggest drop since July and much larger than the US$10bn rate economists were expecting.
Bailed out insurance behemoth AIG reported its second straight quarterly profit after seven quarters of losses. The result was better than expected, although all of the shine was taken off by news that the company’s main insurance businesses booked weaker revenue. The revenue miss is what investors fixed on, sending shares down 9.6% after the stock rallied yesterday ahead of the result.
State Street fell more than 3% after the company said it had set aside an additional US$250 million to cover losses from investors who lost money on risky mortgages. Fannie Mae reported an almost US$19bn quarterly loss on bad loans and also said it would need more help from the Treasury. Shares tumbled 10%.
Elsewhere in corporate reporting things were a little bit better. Starbucks shares jumped more than 7% after the barista beat earnings expectations. The coffee retailer also boosted its outlook for 2010 profit, after having cut costs and shuttered hundreds of stores in the last year. Chip maker Nvidia pushed higher after it also beat consensus.
The US dollar slipped a little lower against the yen and Aussie, while trading nearly flat against the euro after the surprise jump in the US jobless rate supported the view that the Federal Reserve will have to stick to its very accommodative monetary policy. The dollar index was virtually unchanged on the day.
The unemployment read had a much more prominent affect on crude, which fell nearly 3% on worries about the overall effect it will have petroleum demand. Crude oil futures for December delivery were down US$2.19, or 2.8%, at US$77.43 a barrel on the New York Mercantile Exchange. However, oil still ended the week up about 2% and has climbed more than 70% this year.
A steady greenback and a slightly higher stock market had little effect on gold prices, which finished at record levels after earlier passing $1,100 an ounce. By the end of trade, gold had picked up US$5.70 an ounce to $1,096.40.
Base metals went the same way as oil, with a turbulent day of trading seeing prices ending not far off intraday lows. The losses were moderate for copper, aluminium and tin, all down around half a percent, but nickel, zinc and lead all gave up between 2-3%.
European markets tumbled in afternoon trading, reversing early gains. Asian markets rallied yesterday on the back of Wall Street’s rally Thursday. Last night, Australian investors also held their nerve in the face of the US unemployment data, with the SPI overnight adding a meagre, but positive four points to 4605.
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