US Financial Market and Indices Trading Update

Posted on | September 24, 2009 |

Wall Street opened modestly higher today, as better-than-expected US labour market data encouraged investors to take advantage of yesterday’s stock market dip.

The Commerce Department reported that the number of Americans filing first-time unemployment benefits (initial jobless claims) unexpectedly fell by 21,000 last week to 530,000, suggesting that the embattled US labour market is slowly beginning to stabilise.

The four-week moving average for initial jobless claims, a less volatile gauge, fell to 553,500, the lowest since January 24.

In the meantime, the number of Americans continuing to claim for jobless benefits (continuing jobless claims) fell by a bigger-than-anticipated 123,000 to 6.138 million in the week ending September 12.

‘We’ve turned the corner,’ said Tom Wirth of Chemung Canal Trust Co. ‘The latest economic reports are telling us that we might see revenue growth in the fourth quarter. On top of that, interest-rates are so low that stocks seem to be the only game to play.’ [1]

Investor sentiment turned sour within the first half hour of trading, however, after an unexpected 2.7% decline in existing US home sales for August triggered another bout of profit taking.

The National Association of Realtors revealed that the annual pace of existing home sales stood at 5.1 million last month. This is compares with Bloomberg’s median estimate for a 2.1% rise to 5.35 million from the prior month’s 7.2% increase.

By around 3:30pm (London time), the Dow Jones Industrial Average was 49.5 points (-0.51%) below its previous close at 9699.05, while the broader S&P 500 was 9.73 points (-0.92%) lower at 1051.14, in line with Morgan Stanley’s revised year-end target.

Morgan Stanley today raised its year-end target for the S&P 500 to 1,050 from 900, citing better-than-expected earnings - but not higher multiples. ‘A higher multiple would justify a higher target, but we don’t see a compelling reason why equities should trade significantly richer in the current environment, despite low official interest rates,’ they said in a note to clients. [2]

The market is clearly struggling to find direction at the moment and likely to trade sideways for sometime until there is some justification to move higher. Analysts are likely to pay very close attention to top line revenue prospects in the upcoming third-quarter, as this will, in my view, justify whether there is any compelling upside left in the market.

There were a few companies that managed to buck the negative trend dominating US equity markets today. Citigroup edged 0.4% to $4.54 after the Wall Street Journal reported that the bank was planning to downsize its retail banking network.

Bank of American rose 0.2% to $4.53 and JPMorgan Chases added 0.7% to $45.37 while Wells Fargo declined 0.5% to $28.61 and Morgan Stanley slid 2.2% to $31.33.

Software company Red Hat was among the handful of best performers today, soaring 13% to $28.13 after unveiling better-than-expected quarterly results, as the rising popularity of its open-source Linux software attracted more companies that sought to cut costs in the recession. Bank of America/Merrill Lynch also upgraded the stock.

National Semiconductor also benefited from a ‘buy’ recommendation upgrade from Citigroup. Its shares opened 3.4% higher at $15.4, but soon fell to $14.80 on the back of negative stock market sentiment.

Elsewhere, October gold futures breached the $1000 level this afternoon, falling 1.5% lower to $997.3 an ounce. November crude oil (WTI) contracts slid 3.8% to $66.34 a barrel following a report showing an unexpected rise in inventories.

[1] Source: Bloomberg News (24 September 2009)
[2] Source: Wall Street Journal (24 September 2009)

By Anthony Grech, Research Analyst, IG Index.

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