MarketView for April 1

 

 

 

Summary 

 

Share prices were higher once again on Thursday, with both the Dow Jones industrial average and the S&P 500 closing at 18-month highs. The rise was primarily due to the latest round of upbeat economic data. The only real down note was a pummeling of Research In Motion following some downbeat results the day before.

 

Anxiety about Friday's March payrolls report held gains in check. The stock market will be closed for Good Friday when the March unemployment report is released, and some investors opted to book profits before the long Easter weekend, derailing an earlier 1 percent run-up.

 

An index of manufacturing activity in March rose to its highest level in over 5-1/2 years, the Institute for Supply Management said. Meanwhile, a Labor Department report indicated that initial weekly claims for jobless benefits fell more than expected.

 

Energy, materials and major manufacturers were key drivers behind the rise in both the Dow Jones industrial average and the S&P 500 as Thursday's data suggested improving global demand for commodities.

 

Among the large manufacturers, Alcoa rose 3.2 percent to close at $14.70, while Caterpillar was up 1.8 percent, closing at $63.99. However, the Nasdaq felt the impact of RIM falling 7.4 percent to $68.48. The stock was the Nasdaq's top drag, a day after it posted quarterly results that lagged expectations. However, RIM's results helped investors trim some of their technology bets after the Nasdaq rallied to 19-month closing highs in March. Shares of network equipment maker Cisco Systems fell 0.8 percent to close at $25.83, making the stock the Dow's top drag.

 

In the energy sector, crude oil futures rose to an 18-month intraday high above $85 a barrel after the latest economic data offered up signs that the economy is improving. The rise in oil prices sent the shares of energy companies higher, with Exxon Mobil closing up 0.9 percent at $67.61, as rival Chevron added 1.1 percent to close at $76.69.

 

Other standouts on the commodities front were mining and steel companies. Shares of gold producer Newmont Mining were up 3.9 percent to close at $52.91 as gold futures hit a two-week high. Shares of U.S. Steel rose 3.4 percent to close at $65.70.

 

Apple edged up 0.4 percent to hit a fresh lifetime closing high of $235.97 on the eve of the release of its hotly anticipated portable computer, the iPad. Earlier, Apple's stock also hit a record intraday high at $238.73.

 

For the week, the Dow gained 0.7 percent; the S&P 500 was up 1 percent, and the Nasdaq chalked up a gain of 0.3 percent.

 

Economic Data Indicates Recovery Is On Track

 

The number of workers filing new claims for unemployment insurance fell last week and factory activity in March hit its highest level in more than 5-1/2 years, strengthening hopes for continued economic growth without government support. Thursday's data came a day before the release of the government's closely watched employment report for March, which is expected to show nonfarm payrolls grew for only the second time since the economy fell into recession in December 2007. Initial claims for state unemployment benefits fell by 6,000 claims to 439,000 in the week ended March 27, the Labor Department said.

 

Manufacturing has led the economy out of its deepest recession since the 1930s, but the labor market has lagged. Job growth is essential to maintain expansion when the impetus from a rebuilding of inventories disappears later this year.

 

The four-week moving average of new claims, considered a better measure of underlying labor market trends, fell 6,750 to 447,250, the lowest level since September 2008, when the financial crisis exploded. The data, which mirrored market expectations, offered few clear hints on Friday's job figures because the week covered is not part of the survey period for the March employment report.

 

Separately, the Institute for Supply Management said its index of factory activity rose to a reading of 59.6, the highest since July 2004, from 56.5 in February. A reading above 50 indicates expansion in manufacturing.

 

Treasury Secretary Timothy Geithner took a cautious view on the labor market a day ahead of the payrolls report. He told NBC's "Today" show that while the economy was going to start creating jobs again, the unemployment rate would remain high for some time. It has held at 9.7 percent for two months.

 

"The unemployment rate is still terribly high, and it's going to stay unacceptably high for a long period of time," Geithner said.

 

The number of people still receiving jobless benefits after an initial week of aid fell in the week ended March 20 -- the latest week for which this data is available -- to its lowest level since December 2008. However, the number of people on extended employment benefits rose.

 

And even amid hopes that employers added jobs in March, planned job cuts at U.S. firms rose last month, outplacement consultants Challenger, Gray & Christmas Inc said. Planned layoffs for the first quarter, however, were down sharply from a year ago.

 

While manufacturing is thriving, the economy is still feeling pressure from continued weakness in the construction sector. Construction spending fell for a fourth straight month in February to the slowest rate in nearly 7-1/2 years as activity softened in every major sector from homebuilding to public construction projects, a Commerce Department report indicated.

 

Factory Output Rises Globally

 

Factories in the United States, Europe and Asia increased production last month as the world’s economies begin to exit from the recession. The U.S. manufacturing sector grew at its fastest pace in more than five years last month and activity in Europe moved higher as a cheaper euro aided exports. In the United Kingdom, manufacturing expanded at its fastest pace since 1994, while China's vast industrial complex also grew in March.

 

In the United States, the Institute for Supply Management's manufacturing index grew for an eighth straight month, with the sector expanding at its fastest pace since July 2004. Although the index's employment component slipped slightly, the data was still considered bullish ahead of Friday's government payrolls report.

 

Manufacturing in the euro zone grew faster than previously thought, with Markit's Purchasing Managers' Index (PMI) for the region coming in at 56.6 in March from 54.2 the month before. In Germany, the 16-country euro zone's largest economy, manufacturing activity grew at a rate not seen in almost 10 years. France, the second largest, saw its manufacturing sector expand at a pace not seen since November 2006.

 

Across the channel, British manufacturing activity grew last month at its fastest rate since October 1994, when the economy was also recovering from a deep recession, but firms continued to cut jobs in a bid to reduce costs.

 

China, the world's largest emerging market, saw its official purchasing managers index rise in March, exceeding expectations and pointing to brisk first-quarter growth for the world's third largest economy.

 

The headline PMI from a parallel HSBC/Markit survey rose to 57.0, the third-highest level in the six-year history of the survey, from 55.8 in February. A reading above 50 means activity is expanding.

 

Strong demand from China is aiding its neighbors, particularly since Asia's major Western export markets have been far slower to recover. South Korea reported March exports rose 35.1 percent from a year earlier, exceeding an expected 32.9 percent increase.

 

Japan has also seen a steady recovery of exports, driven largely by sales to China, and the Bank of Japan's "tankan" survey Thursday showed morale among big manufacturers, the main beneficiaries of the export rise, at its highest level since September 2008.

 

While China is back on course for the high single-digit percentage growth it saw before the crisis, there are still doubts about the strength of a European recovery. German retail sales fell more than expected in February, suggesting private consumption will drag on an export-led recovery that has benefited from a weaker euro.

 

The European Central bank is not expected to raise rates from record lows until early 2011, while economists think the Bank of England will not nudge rate higher until late 2010.