Second-quarter U.S. GDP came in better than expected and it set the stage for stocks to finish the month at its highs. July 2009 is going to close with big wins for the bulls. The S&P 500 index is on pace for its best July since 1997. The Dow Industrials were up more than 8% for the month before the opening bell making it the best July since 1989. The NASDAQ composite is up over 8% for the month and up five months in a row making it the longest winning streak since August 2003. The U.S. dollar is taking a big hit today, falling to its worst levels for the year, which is fueling a rally in the commodity space.
Asian markets were strong. There seemed to be no fear ahead of the U.S. GDP report. The Chinese Shanghai soared 2.7%, its second big gain in a row. The Shanghai is up 15% for the month of July and up more than 100% from its October 2008 lows. The Hong Kong Hang Seng gained 1.6% and marked its fifth monthly gain in a row. Better than expected earnings from Sony helped the Japanese NIKKEI deliver a 1.8% rally on Friday. The NIKKEI added 4% for the week, posted its fifth monthly gain in a row, and closed at ten-month highs.
European markets finally succumbed to a little bit of profit taking after a strong week. Investors were reacting to deflationary news in the latest consumer price index. The EU's statistics office said consumer prices fell 0.6% in July, which is the second decline in a row. There is some speculation that the drop was due to lower oil prices but details on the report won't be out for a couple more weeks. Plus, investors had to swallow more bad news with rising unemployment for the euro zone. Unemployment hit a ten-year high at 14.89 million workers. Spain had the highest June unemployment at 18.1%. The French CAC-40 lost 0.2% for the session. The German DAX lost 0.5%. The English FTSE gave up 0.5% but closed with a 9% gain for the month.
The big report today was the second-quarter U.S. GDP number. Economists were expecting a drop of 1.5%. The headline number came in at -1.0% but this good news was hampered by a downward revision for the first quarter. The Commerce Department said first quarter GDP was revised from -5.5% to -6.4%, the worst reading in 27 years. Another troubling sign was consumer spending. Consumers savings rate rose to 5.2%, the highest level in a decade, as nervous consumers spent less. The Q1 GDP report showed a 0.6% gain in consumer spending that was reversed to a 1.2% decline in the second quarter. Consumer spending accounts for about 70% of our country's GDP making this reversal in spending worrisome.
One positive signal that came out of the GDP report was a massive drop in inventories. Businesses lowered inventory spending by $141.1 billion. This would suggest that when the economy does recover and businesses start placing orders to restock their shelves the bounce could be a lot stronger than expected. A few analysts are already raising their third and fourth quarter GDP numbers toward +3% to +4% growth.
Part of any second half growth could come from the auto industry. One of the big stories today was the cash-for-clunkers deal. Consumers can trade in their older low fuel-efficient cars and get a $4500 rebate if they got a newer, higher fuel-efficient car. The $1 billion program officially launched less than a week ago and it's already out of money. That means Americans bought more than 222,000 new cars in the last week through the program. Congress and the White House have been scrambling all morning to try and raise the budget for this deal by another $1 billion or more. Ford Motor Co. (F) appears to be a big winner here with the stock up 6.6% today and up 28% in the last two weeks.
The U.S. dollar is also a headline today with the currency plunging to new lows for the year. It's really seeing a big decline for the session and commodities are getting a boost by the move. Crude oil is up $1.25 and back above $68 a barrel. Gold futures are up more than $17. Copper is up another 3% and hitting new highs for 2009.
Currently the S&P 500 index is up just over 3 points at 989 but it's bouncing from its lows of the morning. The NASDAQ composite is up almost 7 points to 1991. The Dow Industrials are up more than 30 points and nearing the 9200 level again. The small cap Russell 2000 is up just under 3 points as it edges over the 560 level.
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:
Scanning the OptionInvestor.com play list I see that the FXE euro ETF is up sharply thanks to weakness in the dollar. The GDX gold-miner ETF is up 4.1% thanks to weakness in the dollar and strength in gold. Our new put play on the biotech sector still looks okay. The biotech index is not participating in the market's strength. The IBB biotech ETF is off 0.8%.