US Equity Markets Lower After North Korea Missile Testing

Posted on | May 26, 2009 |

US equity markets opened lower this afternoon as a report over fresh missile tests by North Korea added to market tensions. But the negative sentiment that dominated Wall Street at the open didn’t last long.

Stock market confidence took a blow at the start of trading after North Korea fired two more short-range missiles off its east coast today and accused America of plotting against its government. ‘Our army and people are fully ready for battle… against any reckless US attempt for a pre-emptive attack,’ the reclusive country’s state-run news agency said. [1]

Political tensions are perilously escalating amidst a very fragile stage in the stock market cycle – we are at a juncture where investors are questioning whether the global economic outlook is too optimistic and, consequently, whether the equity market rally that began in March has been overdone.

However, by mid-afternoon, a rally had broken out on the S&P and Dow Jones Industrial Average after the release of better-than-expected US consumer confidence and manufacturing data quashed most of those fears.

The Conference Board’s consumer confidence index surged to a reading of 54.9 this month - the highest level since September and substantially better than Bloomberg’s median forecasts for a rise to 42.6 from a revised 40.8 the month before. In addition, the gauge of expectations for the following six months jumped to a reading of 72.3, the highest level since December 2007.

Meanwhile, a separate report from the Federal Reserve Bank of Richmond indicated that manufacturing activity in the region has started to expand. The index for May came in at a reading of four, topping Bloomberg’s expectations for a rise to -6 from -9 in April. Readings below zero indicate that the sector is contracting.

By 3.30pm (London time) the Dow Jones Industrial Average had advanced 135.64 points (+1.64%) to 8412.96, while the S&P 500 had jumped 14.36 points (+1.62%) to 901.36. The Nasdaq, meanwhile, had surged 34.34 points (+2.52%) to 1397.51.

‘We’re seeing signs of improvement in consumer confidence,’ said David Heupel of Thrivent Financial. ‘Investors are looking for early cycle plays, like technology, betting on an economic recovery.’ [2]

Apple was among the best performing technology shares today, surging 5.4% to $129.13 after Morgan Stanley upgraded the iPhone maker from ‘equal weight’ to ‘over weight’ saying the company is emerging as the clear leader in the battle over mobile internet and will see iPhone-driven earnings growth over the next two years. [3]

Banks were also back in demand, with Citigroup up 3.5% to $3.80 and Wells Fargo 2.55% higher at $24.93. JPMorgan Chase, meanwhile, advanced 3.8% to $35.72 after Bloomberg News said the bank stands to reap a $29 billion windfall thanks to an accounting rule that allows it to transform the bad loans it purchased from Washington Mutual into income.

Wells Fargo, Bank of America and PNC Financial Services Group are among the banks that are poised to benefit from takeovers, the financial news provider reported today.

[1] Source: Washington Post (26 May 2009)
[2] Source: Bloomberg News (26 May 2009)
[3] Source: Reuters News (26 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

Comments