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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Thursday, August 20, 2009
Summary
The major equity indexes chalked up their third
consecutive day of gains on Thursday with financial stocks leading the
parade upward after manufacturing data and a rebound in Chinese stocks
reassured Wall Street that the Apocalypse is not just around the corner.
The positive manufacturing data from the Federal Reserve Bank of
Philadelphia offset the market's disappointment that weekly jobless
claims increased for a second week. The Dow and the S&P 500, which suffered their worst
day in about seven weeks on Monday, received a lift from signs of
improvement in Mid-Atlantic manufacturing and China's stock market
reversing its 20 percent drop of the last two weeks. The S&P 500 is now
up about 49 percent from its 12-year closing low set on March 9. Financial stocks contributed the most to the market's
rise, with Citigroup up 8.5 percent at $4.48 after veteran bank analyst
Richard Bove said some investors are betting the stock's price will
triple in three years. AIG chalked up a gain of 21.3 percent to $32.30 after
newly appointed Chief Executive Robert Benmosche said the bailed-out
insurer may be able to repay its federal debts and boost value for
shareholders, according to Bloomberg. The earnings picture was mixed as H.J. Heinz and
Hormel Foods posted earnings that exceed Street expectations.
Heinz saw its share price end the day up 2 percent to $38.71, while
Hormel, gained 0.5 percent to close at $37.44. On the other side of the
coin, Sears Holding reported an unexpected loss, sending its stock down
11.9 percent to $65.00. Factory activity in the Mid-Atlantic region turned
positive in August, ending a 10-month run of contractions, due to an
increase in new orders, a survey by the Philadelphia Federal Reserve
Bank indicated. At the same time, initial claims for state unemployment
insurance benefits rose by 15,000 claims, according to the Labor
Department.
Crude Up On Optimism Oil prices just about hit a seven-week high on
Thursday, as optimism for economic recovery and rising fuel demand
outweighed the rise in first time jobless claims. U.S. crude for September
delivery, which expired at Thursday's close, settled 12 cents higher at
$72.54 a barrel. Crude prices earlier rose to $72.88, the highest level
since June 30. October Brent futures settled down $1.26 a barrel at
$73.33. Oil markets have been tracking stocks and the dollar, as well as
broad economic indicators, for signs a recession may soon end, which
could foreshadow rebounding fuel demand. The crude price increase
was also supported by a 4.5 percent surge in Chinese stocks Thursday,
with investors drawn to attractive valuations after a 20 percent plunge
in Chinese shares over the previous two weeks. Oil prices had already
jumped 4.7 percent on Wednesday, when data from the U.S. Energy
Information Administration showed an unexpected steep drop in U.S. crude
stocks last week. As yet, there are few
indications of recovering fuel demand. Freight traffic across North
America fell 17.9 percent in the week ended August 15 from the same 2008
week, a trade group said on Thursday in a weekly report. Oil markets were also
starting to focus on OPEC’s September 9 meeting, where the oligopoly was
expected to leave output targets unchanged. OPEC last year agreed to a
series of output cuts to help stem the sharp decline in oil prices. In addition, traders
focused on more efforts by financial regulators to stem violent oil
price swings. The United States Commodity Futures Trading Commission and
the United Kingdom's Financial Services Authority said they have agreed
on steps to strengthen cross border supervision of energy futures
markets. The measures could prompt more reporting on the aggregate
positions held by crude oil traders on both U.S. and British exchanges.
Economic News Remains Mixed Manufacturing in the U.S. region expanded in August
for the first time in 10 months but new filings for unemployment
benefits rose last week, an indication weak spending would constrain
recovery. The Philadelphia Federal Reserve Bank said on Thursday its
business activity index rebounded to 4.2 in August, the highest since
November 2007, from minus 7.5 in July. A reading above zero indicates
growth. While the Philadelphia Fed index was the latest
report to chart an improvement in manufacturing as producers rebuild
depleted inventories, a separate report from the Labor Department
underscored the fragile state of the jobs market. Specifically, initial applications for state
unemployment insurance rose 15,000 to a seasonally adjusted 576,000 last
week, tempering some of the optimism over an economy that is close or
starting to pull itself out of the worst slump in 70 years and pointed
to an anemic recovery. The Labor Department said the number of people
collecting long-term unemployment benefits edged up 2,000 to 6.24
million in the week ended August 8. However, the four-week moving
average declined 2,500 to 6.27 million. Though the pace of layoffs has slowed markedly from
early this year, unemployment remains high and continues to inflict big
dents in household incomes. There are fears that consumer spending will
be too tepid to drive the recovery The Philadelphia Fed's survey showed new orders rose
to 4.2 from minus 2.2 in July, also the highest since November 2007. The
employment index rose to minus 12.9 from minus 25.3 last month. That
survey, together with another this week showing manufacturing in New
York state grew this month for the first time since April 2008, bode
well for the factory sector. Manufacturing accounts for about 11.5
percent of U.S. economic activity. The upbeat factory report and a surge in Chinese
equities helped to shift attention away from the disappointing weekly
jobless data, with share prices rising for a third straight session.
Separately, the index of leading economic indicators, which is supposed
to forecast economic trends six to nine months ahead, rose for a fourth
straight month in July. While the economic data overall points to a pending
upturn from the recession that started in December 2007, doubts over the
strength of the recovery are causing companies to be cautious. The rise in new claims for unemployment benefits last
week was a likely indication that employers cut more jobs in August
after reducing payrolls by 247,000 last month. The insured unemployment rate, which measures the
percentage of the insured labor force who are jobless, was unchanged at
4.7 percent in the week to August 8, the Labor Department said. The
four-week moving average, considered a better measure if labor market
trends, nudged up 4,250 to 570,000 last week, advancing for a second
straight week. Dwindling incomes as unemployment continue to rise
are forcing many homeowners to default on their home loans. Late
payments on U.S. mortgages increased to a record high in the second
quarter, with almost one in eight homeowners delinquent or in the
process of foreclosure, the Mortgage Bankers Association said.
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MarketView for August 20
MarketView for Thursday, August 20
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