US equity markets opened higher today, as yesterday’s biggest one-day loss in two months encouraged investors to re-enter the market in search of value.

A reassuring note from Moody’s Investor Service may have also helped bolster sentiment at the start of trading, but the release of weak housing data later in the afternoon suppressed earlier gains.

Credit rating agency Moody’s Investor Service reported that the United States’ triple-A credit rating ‘remains solid’, saying the economy is resilient enough to recover from the downturn. The credit rating agency said, however, that the country’s rating would be at risk for a downgrade only if the government were ‘unable to bring down its public debt back to a downward trajectory’ or ‘if the United States’ ability to raise a large amount of debt at a low cost were to be put at risk.’ [1]

The statement from Moody’s boded well, but the release of mixed US macroeconomic data weighed on the market; the Richmond Fed manufacturing index indicated that the industry continued to expand this month, coming in at a reading of 6, beating Bloomberg’s median analyst estimate for a rise to 5 from 4 the month before.

US home resales data (existing home sales) were nowhere near as good as anticipated however, leaving a big dent in confidence. The report unveiled a 2.4% rise in resales for May, which was lower than Bloomberg’s median estimate for a 3% increase and follows a downwardly revised 2.4% gain the month before. April resales originally showed a 2.9% rise.

A separate report, meanwhile, revealed that the US house price index fell 0.1% in April. Although that was marginally better than Bloomberg’s expectations for a 0.4% drop, the revisions for February may have left investors feeling slightly disappointed. The 1.1% decline originally reported for February was revised to show a steeper 1.4% drop.

By 3.30pm (London time), the Dow Jones Industrial Average had pared earlier gains, falling 25.7 points (-0.31%) to 8313.31, while the S&P 500 was down by 1.03 points (-0.12%) to 892.01. The Nasdaq was also heading south, down 8.7 points (-0.61%) to 1417.9.

Commodity stocks, which had garnered some support during pre-market trading, sagged following the publication of this afternoon’s macroeconomic reports. Alcoa, the largest US aluminium producer, declined 2.3% to $9.79 a share and Century Aluminium was down by almost 6% to $5.15. Freeport-McMoRan Copper & Gold and Newmont Mining bucked the negative trend, rising almost 2% to $46.07 and 0.75% to $40.16 respectively.

The majority of US banks were higher today, with Bank of America advancing 1.5% to $12.12 and Wells Fargo up 1.4% to $22.83. Citigroup underperformed the sector, nevertheless, losing 1.7% to $2.96.

Elsewhere, memory-chip designer Rambus plunged 13.6% to $15.40 after reducing its second-quarter revenue forecast, citing weak demand for consumer electronics as the main reason. The company estimates that second-quarter revenues will come in between $26.7 million and $30 million. It also expects litigation costs to rise more than expected, predicting that they are likely to come in between $15 million and $17 million as opposed to an earlier estimate of $12 million to $16 million.

Microchip maker Intel, meanwhile, rose 0.4% to $15.74 after Bloomberg reported that the company had won a contract to supply microchips to Nokia.

News Corp also made the headlines this afternoon, after saying that it is planning to make around two thirds of its MySpace workers redundant in an effort to bolster profitability. Its share price reacted positively to the announcement, rising 0.8% to $9.12.

Plane maker Boeing was among the biggest casualties today, tumbling 8.5% to $42.9 after reporting that it will postpone the release of its long-delayed 787 Dreamliner again, owing to structural problems in the planes bodywork.

In the meantime, the Energy Department is expected to announce that it is lending money to Ford Motors, Nissan Motors and Tesla Motors from a $25 billion fund to develop fuel-efficient vehicles.

Ford has asked to receive $5 billion in loans by 2011, but it was unclear how much money the automaker would receive as of yet. Nissan, meanwhile, has applied, but the amount is not yet known, while Telsa has sought $450 million. Shares in Ford Motors advanced 2.6% to $5.52.

It is important to note that the Federal Open Market Committee begins its two-day meeting on interest-rate policy today. Investors will be keeping an eye on any changes to the central bank’s $300 billion Treasury bond purchasing plan and the economic outlook.

[1] Source: Reuters News (23 June 2009)

By Anthony Grech, Research Analyst, IG Index.

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