US Market Trading News

Posted on | October 1, 2009 |

Wall Street kicked off in negative territory again today, as investors fretted about the release of further disappointing economic data.

The strong rally we have been seeing since March occurred because the market was largely factoring in a ‘V’ shaped recovery.

However, some more recent data suggests that macroeconomic momentum is running out of steam and that has almost everyone praying that this is not the beginning of a double dip recession.

Naturally the market is reflecting these concerns, and to be quite frank, PE’s over the S&P’s long run average of 12x do not, at least for the time being, appear justified.

By 3.30pm (London time), the Dow Jones Industrial Average was trading 116.69 points (-1.2%) in the red at 9595.59, while the broader S&P 500 was 14.17 points (-1.34%) below its previous close at 1042.91. In the meantime, the Nasdaq was trading at 1692.24, representing a 26.75 point (-1.56%) decline.

The biggest disappointment came from jobless claims and ISM manufacturing data. An official government report released today has revealed that the number of Americans claiming first-time unemployment benefits (initial jobless claims) unexpectedly climbed by 17,000 to 551,000 in the week ending September 26. Bloomberg’s median estimates were pointing to a drop to 535,000.

The rise in initial jobless claims together with yesterday’s weak ADP report suggests that we’re also likely to see a retrenchment in tomorrow’s all important non-farm payrolls – and without any significant improvement in labour market conditions, consumer spending and corporate revenues are likely to remain depressed.

On an encouraging note, those continuing to claim unemployment benefits for more than a week (continuing jobless claims) fell by 70,000 to 6.090 million.

Also disappointing was this afternoon’s ISM manufacturing data, which revealed that US manufacturing activity expanded at a slower pace than anticipated last month; ISM manufacturing came in at 52.6 from 52.9 in August, trailing Bloomberg’s expectations for a rise to 54. Readings below 50 imply a contraction.

In the meantime, separate reports showed personal income and spending rising by a more-than-expected 0.2% and 1.3%, respectively. Construction spending and pending home sales for August also surprised to the upside, with the former coming in at a 0.8% gain versus expectations for a 0.1% increase, and latter surging 6.4% against a consensus for a 1% rise - so we’re still seeing progress, especially for the housing market and that remains encouraging.

Microsoft, the world’s biggest software company, fell 2.6% to $25.05 after Goldman Sachs removed it from its ‘conviction buy’ list; Goldman retained a ‘buy’ rating on the stock, however.

Mining company Alcoa bucked the negative trend dominating the sector, however, rising 3.2% to $13.54 after Deutsche Bank upgraded its stock from ‘hold’ to ‘buy’, citing a ‘more optimistic view on base, bulk and precious metals over the medium term.’ [1]

Vical Inc, the company that’s developing a vaccine for H1N1 (swine flu), rose nearly 2% this afternoon to $4.34, after receiving a $1.3 million contract from the US Navy to support manufacturing and clinical studies of the vaccine.

Cisco Systems also made the headlines, announcing that it has agreed to acquire Tandberg, a Norwegian video conferencing company, for $3 billion in cash. Cisco’s shares fell 1.4% to $23.22.

Banks were all in the red today, with Citigroup slumping 3.1% to $4.69 and Wells Fargo down 2.8% to $27.40. Bank of America’s shares fell 0.7% to $16.80, after announcing that its chief executive Ken Lewis was retiring.

[1] Source: Bloomberg News (1 October 2009)

By Anthony Grech, Research Analyst, IG Index.

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