Upbeat Reports Bode Well for US Equities

Posted on | October 8, 2009 |

US equity markets started the trading day in positive territory following a number of upbeat reports.

There was a confluence of reports that helped Wall Street higher at its open today. At first we had better-than-expected weekly jobless claims figures followed by a drop in wholesale inventories.

Then we saw Alcoa and PepsiCo deliver third-quarter earnings that were ahead of consensus expectations. Rising metal prices also gave investors an excuse to continue buying into equities today.

By 3:30pm (London time), the Dow Jones Industrial Average was 55.62 points (+0.57%) higher at 9781.20, while the broader S&P 500 was 7.17 points (+0.68%) above its previous close at 1064.75.

Investors cheered after US macroeconomic data continued to provide the market with evidence of a recovery today.

The US Labour Department unveiled a bigger-than-expected 33,000 drop in the number of Americans claiming first-time jobless benefits (initial jobless claims) over the week ending October 3.

This brought the tally down to 521,000, a 10-month low. In the meantime, the total number of Americans claiming unemployment benefits for more than a week (continuing jobless claims) slumped by 72,000 to 6.04 million.

US wholesale inventories were also encouraging, dropping for a 12th consecutive month in August; inventories at wholesalers decreased 1.3% following a revised 1.6% drop the month before. Bloomberg expected inventories to drop by only 1%. This report may suggest that orders have picked up on the back of increased sales.

Steel giant ArcelorMittal climbed 3.4% to $25.56 this afternoon and Century Aluminium surged 9.8% to $10.61 after Alcoa, the largest US aluminium producer, kicked off the US third-quarter earnings season with an unexpected profit, thanks to aggressive cost cutting and higher aluminium prices.

The company, which posted losses in the previous three quarters, unveiled a profit equivalent to 4 cents a share in the third-quarter, beating Bloomberg’s median analyst estimate for a loss of 9 cents a share. Alcoa climbed 3.2% to $14.66.

Barrick Gold and Freeport McMoRan Copper & Gold jumped 1.3% to $39.79 and 2.2% to $74.7 respectively after the price of October gold futures climbed for a third day to touch a new record high of $1057.1 per troy ounce.

PepsiCo added 0.9% to $61.69 after reporting a third-quarter adjusted profit of $1.08 a share, beating Bloomberg’s average analyst estimate of $1.03 a share. Its share price fell 1.5% to $60.25, nevertheless.

ABB Ltd, a global provider of power and automation technologies, added 3.9% to $20.54 percent after managing to refinance a credit line. The company was raised from ‘neutral’ to ‘buy’ at UBS, which cited ‘resilient pricing in power products.’ [1]

Across the Atlantic, the Bank of England and European Central Bank kept interest rates unchanged at 0.5% and 1% respectively, as widely anticipated. In a speech following the ECB decision, Jean Claude Trichet signalled that he does not plan to raise interest rates anytime soon.

[1] Source: Bloomberg (8 October 2009)

By Anthony Grech, Research Analyst, IG Index.

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