US Stock Market News

Posted on | October 5, 2009 |

US stocks opened modestly higher, snapping a four-day losing streak, as upbeat broker reports on the US banking sector and better-than-expected ISM non-manufacturing data lifted market morale.

US banks were in demand today, after Goldman Sachs upped its rating on several large US banks from ‘neutral’ to ‘attractive’.

The broker said that improved earnings, stronger balance sheets and bigger assets following a year’s acquisitions makes some of the big US banks appear relatively more attractive than smaller regional banks.

‘We believe this difference in earnings power hasn’t been fully reflected in share prices,’ Goldman reported today. ‘We estimate that normalized earnings for large banks are 39% higher than in 2007 despite the 36% decline in share prices.’ [1]

Goldman also upgraded Wells Fargo to ‘buy’ and added Capital One Financial to its ‘conviction buy’ list today. The broker said that Wells Fargo was ‘the big winner’ in tangible assets and predicted that Capital One will benefit from stronger consumer spending once unemployment growth slows.

Not surprisingly, shares of Wells Fargo advanced 5.9% to $27.82, while Capital One’s shares jumped 5.6% to $35.05. In the meantime, JPMorgan Chase and Bank of America gained 2.6% to $42.94 and 2.8% to $16.80, respectively.

Meanwhile, the Wall Street Journal suggests that Bank of America is planning to announce an emergency chief executive officer this week, if legal issues are to oust Ken Lewis before the year end. In addition, Reuters has reported that Goldman Sachs may lose out on a $1 billion payment if CIT Group were to file for Chapter 11 bankruptcy protection.

Citigroup’s shares rose 2.9% to $4.65 after Emerging Markets magazine reported that Prince Alwaleed bin Talal, a big investor in the bank, urged the US government to dispose of its stake in Citigroup as early as this year, in order to boost investor confidence.

Elsewhere, shares of Prudential Financial jumped 4.2% to $48.66 this afternoon, after Bloomberg News reported that the second-biggest US life insurer is mulling over the sale of its brokerage and fund management businesses in South Korea.

Also boding well for market sentiment today was the Institute for Supply Management‘s non-manufacturing index, which came in at 50.9 last month from 48.4 in August. This suggests the country’s services sector has started to expand.

By 3.30pm (London time), the Dow Jones Industrial Average was up by 29.32 points (+0.31%) to 9516.99, while the broader S&P 500 was 6.19 points (+0.60%) above its previous close at 1031.40. The Nadsaq was also in positive terrain, up 5.86 points (+0.35%) to 1668.35.

Brocade Communications Systems was in the limelight today, after the Wall Street Journal reported that the data storage equipment maker has put itself for sale. Brocade’s share price soared a staggering 19% to $9.10 following this news. The paper also said Oracle Corp and Hewlett-Packard were potential bidders for the company.

Yum Brands gained 4.4% to $34.6 today, after Credit Suisse told financial news provider Barron’s that the company should be trading at a premium to its rivals and that its share price could increase to $41 a share. That leaves a potential upside of 18%. The paper also flagged Avi Biopharma, stating that its muscular dystrophy drug, if successful, could send Avi’s shares soaring. Avi’s share price jumped 25% to $1.95.

Barron’s also said that continued growth in coal use across the globe could support Peabody Energy. It additionally suggests that Peabody’s shares could even double in the next few years. Peabody Energy climbed 2.7% to $36.19.

[1] Source: Bloomberg News (05 October 2009)

By Anthony Grech, Research Analyst, IG Index.

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