Wall Street made modest gains at the start of trading today, as rising commodity prices lifted resource shares.

Mining companies were in demand, as US Dollar weakness helped boost underlying commodity prices; three-month copper futures were up by 2.3% to $6,335 a metric ton, October Gold futures were 1.4% higher at $1018.2 per ounce and October crude oil rose 2.5% to $71.47 a barrel today.

An official report from China also contributed to crude oil gains; the report revealed that the country’s net crude imports surged 18% to 17.92 million metric tons in August, the second highest on record.

Rising metal prices and a broker upgrade helped US Steel Corp’s shares rise 2.9% to $49.40; Bank of America upped its recommendation on US Steel from ‘underperform’ to ‘neutral’ today, stating that the company ’should return’ to profitability in 2010.’ [1]

Shares of Freeport-McMoran Copper & Gold jumped 2.4% to $71.74 a share, Newmont Mining climbed 2.3% to $45.45 and Alcoa advanced 1.6% to $14.16. In the meantime, energy majors Chevron and Exxon Mobil edged 0.50% higher to $72.41 and 0.4% to $69.86 today.

Banks were also in favour, with Citigroup up 4.3% to $4.62, Bank of America 2.1% higher at $17.63 and Wells Fargo 2.2% above its previous close at $28.90.

Interestingly, the Government of Singapore Investment Corporation (GIC) today announced that it has pocketed a £1.6 billion profit after disposing half of its 9% stake in Citigroup – could this move suggest that the country’s sovereign wealth fund is bearish about the outlook for the bank?

‘A stake below 5% reflects GIC’s goals and desire to be a portfolio investor,’ the sovereign wealth fund said. ‘GIC will continue its investment in Citigroup as we are confident of its long-term prospects.’ [2]

In the meantime, the US regulator is said to be planning to sue Bank of America over charges that it misled investors about bonuses when it acquired Merrill Lynch. Separately, Bank of America said it intends to pay the government $425 million to cut its reliance on federal support.

Some investors still believe that there is value in the stock market, despite the six-month rally. Nick Purves, a fund manager for Schroder Income Fund, told Reuters that there are still a number of potentially undervalued companies.

‘We can find a good number of companies where we think the share price today does not reflect the long-run profit potential of the companies concerned,’ Mr Purves said. ‘Typically a company should be priced at about 12 or 13 times its normal earnings, so if we can find something on six or seven, then we get quite excited because over time there could be 100% upside.’ Mr Purves flagged Royal Bank of Scotland, Legal & General and also said that some telecom and pharmaceutical companies fit his category.

By 3.45pm (London time), the Dow Jones Industrial Average was 6.5 points (+0.07%) higher at 9785.36, while the broader S&P 500 was 3.51 points (+0.33%) above its previous close at 1068.17.

Ford was also in the spotlight today; its share price rose 2.8% to $7.02 this afternoon after Reuters reported that the car maker was planning to construct a third car manufacturing plant in China. Ford is said to believe that sales could soon outpace its existing capacity.

Elsewhere, Dell’s shares slid 1.4% to $15.80 this afternoon after Credit Suisse downgraded the computer maker to ‘neutral’ and recommended buying Hewlett-Packard and Apple. [3] In the meantime, Hewlett-Packard today announced that it was awarded with a contract that could be worth up to £70 million from Northern Ireland’s Department of Health. HP’s share price climbed 1.3% to $46.95, while Apple fell 0.3% to $183.43.

In economic news, the US house price index rose by 0.3% in July, marginally lower than anticipated, while the Richmond Fed manufacturing index remained unchanged at 14, suggesting that manufacturing in the region has continued to expand.

Finally, it is important to note that the outcome of the Federal Reserve’s two-day monetary policy meeting will be released tomorrow. A decision on interest rates and further updates on financial stimulus measures will be discussed.

[1] Source: Bloomberg News (22 September 2009)
[2] Source: Financial Times (22 September 2009)
[3] Source: Bloomberg News (22 September 2009)

By Anthony Grech, Research Analyst, IG Index.

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