MarketView for May 3

Summary 

Wall Street kicked off a new month with a solid rally that sent share prices higher and placed the major equity indexes solidly in the black on Monday as the most current economic data indicated that the economy's recovery remained on track, while details of a European financial rescue package for Greece provided a measure of relief. Consumer spending, which accounts for about two-thirds of all economic activity, rose in March for a sixth straight month.

The Nasdaq fared better than the other two indexes, helped by a more than 2 percent gain in Apple after the company said sales of its iPad since the tablet computer's April launch passed the 1 million milestone faster than expected. Apple shares closed at $267.59.

The manufacturing sector grew in April at its fastest pace in almost six years, according to an industry report. At the same time the government reported an unexpected rise in construction spending for the month of March, marking it the first advance for that indicator since October. The manufacturing data helped send the price of Caterpillar’s shares up 2.7 percent, to close at $69.94, while 3M was up 1.5 percent at $89.98.

Over the weekend, the EU agreed to a 110 billion euro ($146.5 billion) package for Greece, the largest ever financial bailout of a country. The agreement also provided relief to Wall Street and the currency markets as concerns were eased over whether Germany would secure parliamentary approval to release the money by a mid-May deadline.

Sentiment was also buoyed by an announcement by UAL, the parent of United Airlines, which indicated that had agreed to acquire Continental Airlines for $3.2 billion in stock a deal that creates the world's largest airline. UAL closed up 1.9 percent to $22.01, while Continental Airlines chalked up a gain of 1.9 percent, to close at $22.77.

BP was among the most heavily traded stocks, falling 5.8 percent to $49.15. The company is on the hook to pay for the cleanup and compensation claims for a catastrophic oil spill threatening the Gulf shore and said it was working to stem the undersea leak.

Billionaire investor Warren Buffett on Sunday stood by his feisty defense of a controversial mortgage transaction marketed by Goldman Sachs that is at the center of government fraud charges against the bank. Buffet said the investment bank's behavior does not warrant public fury. Goldman Sachs shares were up 3.4 percent at $150.11.

Economic New is All Good

Manufacturing, construction and consumer spending data on Monday all bode well for the economic recovery, with factories' activity growing at the fastest pace in nearly six years. The Institute for Supply Management (ISM) said its index of national manufacturing activity rose to 60.4 in April from 59.6 in March. Consumer spending rose in March for a sixth straight month, while construction spending was also higher. Treasury debt prices were lower while the dollar extended gains against the yen and euro after the ISM manufacturing data. In a separate report, the Commerce Department said consumer spending rose 0.6 percent after rising by an upwardly revised 0.5 percent in February, previously reported as a 0.3 percent gain.

Another report indicated that construction spending also rose unexpectedly in March, for the first advance of that indicator since October. The 0.2 percent rise was the largest gain since October and followed a revised 2.1 percent drop in February, previously reported as a 1.3 percent fall.

The consumer spending data was reflected in the first-quarter gross domestic product report that was published on Friday. Government data indicated that spending grew at a 3.6 percent rate in the January-March period, driving the overall economy's 3.2 percent growth pace during the period.

The Commerce Department's income report showed spending adjusted for inflation increased 0.5 percent in March after a similar gain the prior month. Personal income rose 0.3 percent following a 0.1 percent gain in February. Real disposable income increased 0.2 percent in March after being flat the prior month. With consumers increasingly tapping their savings to fund consumption, savings fell to an annual rate of $303.9 billion, the lowest level since September 2008.

The saving rate of consumers fell to 2.7 percent, also the lowest level since September 2008. The report indicated that the personal consumption expenditures price index, excluding food and energy, rose 1.3 percent in the 12 months ending in March. The index, which is a key inflation gauge monitored by the Federal Reserve, increased 1.3 percent in February.

Separately, U.S. small and medium-sized businesses are increasing borrowing and keeping up with repayments on existing loans, PayNet said. The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, rose 4 percent in March, the first year-on-year gain since October 2007, two months before the recession began.

BP Being Hit For Its Role in Spill

British Petroleum’s shares continue under pressure on Monday as the oil spill in the Gulf of Mexico continued to grow and the Justice Department said it was taking part in an investigation of the disaster. The American Depositary Receipts of BP's shares fell 3.76 percent to $50.19, bringing their drop since the close of trading on April 23, to 19.3 percent.

U.S. Attorney General Eric Holder's comments that the Justice Department was involved in the probe raised the specter of criminal liability for BP in the oil spill spreading toward the Gulf Coast, after an explosion at a rig drilling its oil well on April 20.

BP's losses are on top of a drop of around 13 percent since the accident, equating to a drop of around $20 billion in BP's market capitalization. BP has not put an estimate on the likely costs of the spill, which follows the explosion and sinking of a drilling rig operated by Swiss-based driller Transocean.

President Obama visited Louisiana over the weekend and laid the cost of the clean up firmly on BP.

The company said last week it and partners in the well, including Anadarko Petroleum were paying $6 million/day in clean-up efforts, but admitted costs would rise sharply when the oil hit land, as would damages claims.