Investors are enjoying another global stock market rally. A bounce in Asia carried over into Europe and some better than expected jobless data helped fuel the rally in the U.S. A rising appetite for riskier assets pushed the U.S. dollar lower and that's powering big gains in the commodities. Meanwhile the earnings parade continues and some better than expected numbers only added fuel to the fire.
The leader in the Asian market rally was China. After falling 5% yesterday the Chinese Shanghai index rallied 1.69%. On Wednesday investors were worried that the Chinese government might try to cool a red-hot market that is up 100% from its October 2008 lows. Asian markets rebounded from intraday losses after a vice-governor of the central bank of China came out today and said they will stay committed to a loose monetary policy. The Hong Kong Hang Seng rallied 0.49%. The Japanese NIKKEI gained 0.5%.
Investors are ignoring rising unemployment data in Europe and focused on a better than expected economic sentiment gauge. The European Commission said an index of consumer and business leader sentiment rose from 73.2 in June to 76 in July. Economists were expecting a rise to 75. Yet the rising unemployment problem in Europe is naturally affecting retail sales, which declined for the 14th month in a row. The French CAC-40 rallied 2%. The English FTSE climbed 1.8% and the German DAX gained 1.7%.
Here at home the weekly initial jobless claims are being blamed as part of the reason stocks are stronger. Economists were expecting the weekly numbers to rise from 554,000 to 575,000. New claims actually jumped to 584,000. So why are investors happy about this? It's because the four-week moving average has continued to fall and the continuing claims number has dropped from 6.23 million to 6.2 million. Economists were expecting a rise to 6.3 million. The last few weeks the Labor Department has been claiming that their jobless numbers have been distorted by the unusual timing and size of layoffs in the auto industry. Furthermore last week the Labor Department said they expected this distortion to last another week or two. Yet today they're claiming this week's numbers are back to normal.
The second quarter earnings parade continues. Visa (V) and Mastercard (MA) were headliners today. Visa beat analysts estimates by 3 cents a share but two analyst firms downgraded the stock to a "neutral" following the report. MA delivered better than expected profits that were 25 cents ahead of the $2.42 estimate. MA's revenues also came in better than expected. Yet MA's management had some very sobering comments about the recovery. Basically they don't see one. MA's leadership said the global recovery won't really improve until 2010 and it will be very, very anemic. While they do see some "stabilization" they're not ready to call the recession over just yet. MA remains worried about the rising pace of unemployment in Europe. Is management merely trying to lower investor's expectations going forward or should we heed this as a real warning? These two companies should have a very clear picture of consumer spending and if they're worried about the recovery it may be dangerous to turn too bullish on the economy. The market has also been ignoring similar comments from Fedex and UPS, two more companies with their pulse on economic activity.
Motorola (MOT) also reported earnings and managed to beat analysts' expectations by 3 cents by laying off more workers last quarter. The company issued an earnings warning for its next quarter but the stock rallied anyway. ExxonMobil (XOM), a Dow-component, missed Wall Street's estimates by 18 cents. The company delivered a profit of .84 a share but revenues were better than expected. Investors were ignoring XOM's earnings miss and focusing on the rally in crude oil futures.
Yesterday the U.S. dollar spiked higher and sent crude oil to a $4.00 loss. Today the dollar is sliding and oil is bouncing by more than $3.00. Gold, silver, and copper are also on the rebound with copper nearing new highs for the year.
Currently the S&P 500 index is up 1.6% near 991, which is a nice breakout from its recent trading range but still under potential resistance at the 1,000 level. The NASDAQ Composite is up 1.1% but it's pulling back from its highs near 2,009 and trading near 1,990. The Dow Industrials are up 1.59% and breaking above the 9200 level. The small cap Russell 2000 index is up 1.99% and hovering near the 560 mark. The real test could be tomorrow as investors react to the second-quarter GDP report due out Friday morning.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index: