Wall Street’s ascent remained intact today, as an unexpected expansion in Germany’s services and France’s manufacturing industries lifted investor morale.

A surge in existing US home sales fuelled optimism, giving US equity markets the ammunition to move to levels last seen between October and November 2008. By around 3:30pm, the Dow Jones Industrial Average had shot up by 141.70 points (+1.5%) to 9487.9, while the broader S&P 500 had rallied 17.01 points (+1.65%) to 1024.04.

Investors continued to plough cash into equities today as a number of macroeconomic indicators from Europe and the United States continued to support the global economic recovery story; an index measuring activity across Germany’s services industry rose to a reading of 54.1 in August from 48.1 the month before, while a separate report unveiled that France’s manufacturing index increased to 50.2 from 48.1 in July.

A separate report released in the US, meanwhile, revealed that existing US home sales surged by a record 7.2% in July, bringing the annual rate to a two-year high of 5.24 million.

Heavy-weight resource shares benefited from today’s data, as the price of underlying oil and metals rose in order to factor in a rebound in global demand.

The price of October Brent crude futures climbed 1.3% to $74.3 a barrel and October Light Sweet crude advanced 1.4% to $73.94 a barrel this afternoon. Copper, nickel, lead, gold, platinum and palladium were all trading higher this afternoon as well.

Shares in oil giants Chevron and Exxon Mobil both climbed 1.8% to $69.83 and $69.79 respectively. ConocoPhillips advanced 2% to $44.15, Schlumberger added 4.1% to $55.99 while miner Freeport-McMoRan Copper & Gold jumped 3% to $64.1 and Newmont Mining gained 2.4% to $41 a share.

Financial shares extended gains as well today, with Citigroup gaining 4.5% to $4.68, Bank of America up 1.8% to $17.44 and AIG 3.9% higher at $33.55 after being dismissed of a $1 billion lawsuit. Confidence in AIG’s new chief executive may have also contributed to gains in the company.

Elsewhere, clothing retailer Gap, which released its earnings report last night, appreciated 2.9% to $19.38 after unveiling quarterly profits that were marginally ahead of expectations.

In the meantime, J.M. Smucker jumped 4.2% to $54.05 after beating consensus estimates on the back of stronger sales. The company also said that its full-year profits would come in at the upper end of market estimates.

Salesforce.com was among the outstanding performers today, soaring 14.6% to $52.92 after revealing better-than-expected quarterly sales and profits. The company also upped its full-year guidance.

The Federal Reserve Chairman also contributed to market optimism today; in a speech at Kansas City Fed’s annual symposium, Ben Bernanke said the global economy is beginning to emerge from the recession; ‘After contracting sharply over the past year, economic activity appears to be levelling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good.’[1]

The VIX, a volatility barometer that is also known as the fear index, was trading 3.4% lower at 24.24, as a result of today’s upbeat developments.

It is important to note that there was some concern about the popular US ‘cash for clunkers’ auto trade-in programme, which is scheduled to end on August 24. This may spur some concern in the coming weeks as it was one of key programmes that helped bring some stability to auto sales.

[1] Source: Bloomberg News (21 August 2009)

By Anthony Grech, Research Analyst, IG Index.

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