Optimism reigns but the economic data point otherwise
It was a pleasant day though for all North American markets with Dow gaining a whopping 11% to reach 9,065 at the close of days trading. Both S&P and NASDAQ also gained 10.8% and 9.5% to close at 940 and 1,649 respectively. Toronto also rallied with TSX up by a staggering 614 points to reach 9,152. TSX venture index however remained almost flat inching up 7.95 to close at 817.
So what triggered the gains? It was bargain hunting after several days of free fall together with an expectation of a generous rate cut that infused some buying to the market. Blue chips received the best push with Alcoa Inc. (NYSE: AA) up 19.25 percent, Verizon Communications Inc. (NYSE: VZ) up 14.63 percent, American Express (NYSE: AXP), up 10.4 percent and Boeing (NYSE: BA) up 15.5 percent leading the pack. All 30 stocks in the Dow soared with most recording gains close to greater than 10 percent.
Energy
The market shrugged off a fall in crude prices and oil stocks also gained sharply together with the broader market. Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) both gained over 13 percent to reach $74.86 and $70.02 respectively. ConocoPhillips (NYSE: COP) also gained 4.95% to $50.16.
Matters were no different in Toronto as the TSX energy sector rose 7.8 per cent with EnCana Corp. (TSX: ECA) adding $4.46 to $55.50 and Suncor Energy Inc. (TSX: SU) adding $2.22 to $25.40. Petro-Canada (TSX: PCA) also added $2.33 to close $26.43 while Canadian Oil Sands Trust (TSX: COS.UN) units gained $1.88 to $27.59.
Financials
Markets appear to have assumed that the credit freeze is easing and indeed long term commercial paper sales rose 10-fold with some support from the Fed. The Fed began buying commercial paper from companies to reduce rates, lure back investors and unlock the credit market following Lehman bankruptcy. The Treasury is also buying equity stakes in banks in an attempt to inject capital as a part of its Troubled Asset Relief Programme (TARP). According to Bloomberg nine of the US biggest banks are expected to receive $125 billion from the $700 billion, with several regional lenders also expressing interest to take part in the programme.
TARP ushered some hope for financials with JPMorgan Chase & Co. (NYSE: JPM), Citigroup (NYSE: C) and Bank of America (NYSE: BAC) gaining 10.6 percent, 14.3 percent and 12.1 percent respectively.
Banks gained in Canada as well with Bank of Montreal (TSX: BMO) closing $2.36 up at $43.36, TD Bank (TSX: TD) $2.79 up at $54.79 and CIBC (TSX: CM) $4.50 up at $53.50. Scotiabank (TSX: BNS) also gained $2.36 to $38.68.
Metals
The TSX gold sector gained 15 percent despite a $2.40 fall in the bullion to US$740.50 an ounce. Goldcorp Inc. (TSX: G) added $1.90 to $20.65 while Barrick Gold Corp. (TSX: ABX) gained $2.81 or 12.5 percent to reach $25.32. Newmont Mining (NYSE: NEM) however recorded the highest gain with $4.93 or 22.9% to close at $26.47.
Even base metal stocks registered gains and the TSX base metals index added 8.6 per cent. This was largely due to a 5.35 cents gain by copper to US$1.8585 a pound.
Teck Cominco Ltd. (TSX: TCK.B) rose 73 cents to $11.49 while Sherritt International (TSX: S) gained 87 cents to $4.070.
Economic data remain poor
Not an attempt to throw a wet blanket, but today’s gain is not exactly supported by the economic data. The US consumer confidence index fell to 38, down from a revised 61.4 in September and well below analysts' expectations of 52. This marks the lowest level for the index since the Conference Board began tracking consumer sentiment in 1967. The index was at 95.2 one year ago.
In another piece of bad news, the Standard & Poor's/Case-Shiller 20-city housing index fell 16.6 percent from August last year, the sharpest decline since its introduction in 2000. Much of the decline is attributed to falling residential real estate prices.
In other words, economic indicators offer little to cheer but the market somehow thought otherwise. No complaint of course as long as the buoyancy remains rather than turning south yet again.
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