David Berman, today at 4:44 PM EDT
There were big hopes for North American stocks on Tuesday: Monday's surge by major U.S. indexes rekindled hopes that the two-month-old rally would hit a new winning streak after essentially stalling last week. All that stood in the way of more gains was a report on U.S. housing starts and building permits, an easy hurdle to clear given recent signs that the housing market was showing signs of stabilizing.
Oops. Both readings were disappointing – and though some economists were quick to point out that most of the disappointment was in the volatile condo and apartment numbers, U.S. indexes never gained much traction throughout the day, surrendering modest gains in the final 30 minutes and ending down.
The Dow Jones industrial average closed at 8474.85, down 29.23 points, or 0.3 per cent. The broader S&P 500 closed at 908.13, down 1.58 points, or 0.2 per cent. However, volume was light, with just 1.14 billion shares in the S&P 500 trading hands, the lowest level since May 1 – a possible sign that there was little conviction in the market.
Financials were weak, with Wells Fargo & Co. down 5.7 per cent and Bank of America Corp. down 4.1 per cent.
Hewlett-Packard Co. rose 2.4 per cent. However, the computer maker released second quarter results after markets closed, reporting a 17 per cent drop in earnings and forecasting third quarter earnings that were below estimates.
In Canada, where the stock market was closed on Monday for Victoria Day, the S&P/TSX composite index closed Tuesday at 10,100.95, up 338.1 points, or 3.5 per cent – making up for the lost day, and then some.
The gains were exceptionally widespread, with 87 per cent of the stocks in the benchmark index ending the day higher. Among the standouts: Manulife Financial Corp. rose 5.7 per cent, Canadian Natural Resources Ltd. rose 7.1 per cent and Potash Corp. of Saskatchewan Inc. rose 4.9 per cent.
Meanwhile, most of the laggards suffered mild losses. Barrick Gold Corp. and Rogers Communications Inc. each fell 0.3 per cent.
David Berman, today at 3:16 PM EDT
The VIX volatility index fell below 30 on Tuesday for the first time since mid-September, suggesting that investor anxiety over stock market volatility has dropped below a notable threshold.
As recently as November, the VIX was in record territory above 80, when the S&P 500 was in freefall. It then bounced between 40 and 50 – which is also exceptionally high, based on history – from the start of the year until the end of March.
How low can the VIX go? That's a question Bill Luby addresses in his VIX and More blog. He finds it hard to believe that the VIX will fall below the 25-26 level, largely because he thinks that the current rally in stocks – which has eased anxieties over financial collapse and a global depression – is looking a little stretched.
He put the 25-level for the VIX in context: First, the historical average going back to 1990 is 20.12. Second, the mean average during 2008 – when it hit record highs – was 32.68. Third, for the five-year period between 1998 and 2002, which included the demise of Long-Term Capital Management and the end of the dot-com bubble, the VIX averaged 25.27. Mr. Luby concludes that 25 is a low number for a volatile period.
“Even as fears dissipate, there is still uncertainty about the strength of the recovery in addition to the normal uncertainty about the direction of the economy and the markets that would be associated with a period of relative market calm,” he said. “Historical volatility, therefore, should provide a volatility floor and with historical volatility currently unable to drop below the low to mid-20s, we should begin to see evidence of that volatility floor shortly.”
David Berman, today at 2:31 PM EDT
If you've been tempted by the surge in India's benchmark stock market index – up 17.3 per cent on Monday, before trading was halted; the gains held on Tuesday – FT Alphaville has a nice round-up of some of the thoughts on investing in this awakened tiger.
The surge began after elections concluded, ousting about half of the once-powerful Communists from their seats and handing a decisive victory to the reform-minded Congress Party.
“The Congress party now has more room to ease restrictions on foreign investment in insurance, retailing and banking,” said Mark Perry on the blog Carpe Diem. “The government may also sell some of its stakes in state-run oil, banking and fertilizer companies.”
However, FT Alphaville pointed out that some observers warn that the government could disappoint investors who have unrealistic expectations. That's because India is suffering much like everyone else during the global economic downturn, with it growth rate plummeting to about 5 per cent this year from 9 per cent.
As well, India's democratic system is seen by some, especially other Asian nations, as being unwieldy – to the point where it imposes a kind of tax on the country. The blog quotes an article in the Financial Times:
“But it is still true that, for all the virtues of its political system, Indian governance has failed hundreds of millions of people. Rates of poverty and illiteracy are much higher in democratic India than in authoritarian China.”
David Berman, today at 12:24 PM EDT
U.S. stocks pulled out of a modest retreat by midday Tuesday, rising even after investors were clearly disappointed by a dismal reading of U.S. housing starts and building permits for April.
At noon, the Dow Jones industrial average was up 19 points, or 0.2 per cent, to 8523. The broader S&P 500 was up 3 points, or 0.3 per cent, to 913.
Despite the slight rise, eight of the 10 subindexes in the S&P 500 were higher. Utilities enjoyed the biggest gains, rising 2 per cent, and materials rose 1.3 per cent. Most of the other gains were fairly slight: consumer staples rose 0.4 per cent, industrials rose 0.7 per cent and consumer discretionary stocks rose less than 0.1 per cent.
Meanwhile, health care stocks fell 0.7 per cent and financials slipped 0.5 per cent.
In Canada, the S&P/TSX composite index made up for the lost day of trading, when markets were closed on Monday: The index surged 350 points, or 3.6 per cent, to 10,113.
All subindexes were up, but financials and energy stocks led the way, rising 4.2 per cent and 4.8 per cent, respectively – a good thing for the broader index, given that these two groups of stocks have the biggest weightings.
In other moves, industrials rose 3 per cent, consumer discretionary stocks rose 3.4 per cent and materials rose 2.9 per cent.
David Berman, today at 12:05 PM EDT
Gildan Activewear Inc. has been one hot stock ever since the clothing maker released its quarterly results last week, surging more than 40 per cent in just three trading days. Now, UBS has raised its recommendation on Gildan to “buy” from “neutral” and raised its target price to $19 a share from $15.
“As we highlighted in our [second quarter for fiscal 2009] preview note, the results in the quarter were not as significant as the outlook, and the outlook was solid (all considered),” Vishal Shreedhar, an analyst at UBS, said in a note.
He pointed out that management estimates gross margins will rise in the second half of the company's fiscal year, to a range between 25 per cent and 26 per cent, which is up from 18.5 per cent in the first half of the year. The relatively poor margins in the first quarter were mostly due to higher commodity prices, production downtime and lower sales – issues that appear to have since stabilized or improved.
David Berman, today at 10:39 AM EDT
Warren Buffett still has the touch. Despite attracting some criticism because the share price of his holding company, Berkshire Hathaway Inc., has essentially stalled, Bespoke Investment Group pointed out that Mr. Buffett's stock picks outshone the broader market so far in the second quarter.
Based on Mr. Buffett's holdings at the end of the first quarter, his portfolio is up 22.4 per cent, blasting past the 13-per-cent gain by the broader S&P 500 over the same period.
Bespoke noted that his top-performing stock is Gannett Co. Inc., which has risen 97.7 per cent in the second quarter. That's a relatively small holding, though. Among Mr. Buffett's larger holdings, American Express Co. is up 86.6 per cent and Wells Fargo & Co. is up 83.7 per cent.
David Berman, today at 9:47 AM EDT
A disappointing report on U.S. housing construction put a brake on U.S. stocks at the start of trading on Tuesday, a day after major indexes surged on the hope that the housing market was showing new signs of stabilizing.
The Dow Jones industrial average fell 22 points, or 0.3 per cent, to 8,482. The broader S&P 500 fell 1 point, or 0.2 per cent, to 908.
Financials were actually fairly strong, with Citigroup Inc. up 2.2 per cent and Bank of America Corp. up 1.1 per cent.
Despite reporting upbeat quarterly results and signalling stability ahead, Home Depot Inc. fell 3.8 per cent after the Commerce Department issued a dismal report on housing starts and building permits for April, suggesting further tumult for the U.S. housing market.
As well, Walt Disney Co. fell 1.2 per cent and technology stocks were generally weaker, with Microsoft Corp. down 1.1 per cent.
The S&P/TSX composite index rose 263 points, or 2.7 per cent, to 10,026 – playing catch-up after the Canadian market was closed on Monday for Victoria Day.
Gains were widespread. Among financials, Royal Bank of Canada rose 3.2 per cent and Manulife Financial Corp. rose 4.4 per cent. Among energy stocks, Suncor Energy Inc. rose 3.7 per cent and Canadian Oil Sands Trust rose 5.1 per cent.
David Berman, today at 9:11 AM EDT
U.S. stock market futures took a turn for the worse after investors got a look at April's housing data, erasing earlier gains. With about 30 minutes before markets open, futures for the Dow Jones industrial average were down 3 points. Futures for the broader S&P 500 were flat.
Earlier in the morning, futures had been up in anticipation that the rally on Monday, when the Canadian stock market was closed for Victoria Day, would continue. On Monday, the Dow Jones industrial average rose 2.9 per cent and the S&P 500 rose 3 per cent after Lowes Companies reported a 22 per cent drop in its first quarter profit but issued guidance for the second quarter that topped expectations.
On Tuesday morning, Home Depot Inc. also released a strong quarterly report. However, its shares were down 3.2 per cent in premarket activity after the Commerce Department issued its latest report on the U.S. housing market, which suggests that the decline has further to go.
Housing starts in April fell 13 per cent, far worse that economists had expected, due to a stunning drop in work being done on condos and apartments. As well, building permits fell 3.3 per cent, which was also worse than expectations.
“Overall, this report was a shockingly weak report as the plunge in housing starts was in stark contrast to market expectation, and was broadly at odds with the other housing market indicators that have been pointing to an improved tone in U.S. housing market activity,” said Millan Mulraine, economics strategist at TD Securities, in a note.
“Notwithstanding, if there is any silver-lining in this report it is that all the weakness (in both starts and permit approvals) were in the volatile condo segment of the market and there is a history of extreme negatives being followed by extreme positives in subsequent months.”
In Europe, the U.K.'s FTSE 100 was up 0.3 per cent and Germany's DAX index was up 1.6 per cent in afternoon trading. In Asia, Japan's Nikkei 225 rose 2.8 per cent in overnight trading.
Steve Proceviat, 18/05/09 at 4:43 PM EDT
Positive housing and banking news on Monday made investors feel good about stocks again.
The Dow Jones industrial average shot up 235 points, its biggest daily point gain in over a month, and made up three-quarters of last week's losses. All the major indexes rose about 3 per cent.
A better-than-expected profit report from Lowe's Cos., an uptick in homebuilder sentiment and positive comments from analysts about U.S. banks revived investors' confidence in an economic rebound. Stocks fell sharply last week on worries that a recovery might be further off than hoped, interrupting a rally that has left the Standard & Poor's 500 index up 34.5 percent since March 9.
Steep drops in home values have been at the heart of the economy's troubles, slicing into consumers' wealth and saddling banks with huge losses. Analysts believe that stability in the housing and banking industries are imperative for the economy to rebound.
“There's a realization that things are going to get better,” said James Cox, managing partner at Harris Financial Group. “That's the main theme of the market over the last couple of weeks.”
Despite Monday's bounce, however, the market is expected to remain volatile as investors look for signs that the economy is actually recovering — not just slowing its descent.
At the start of the market's upswing in March, signs of stabilization were enough to encourage investors to buy stocks. Linda Duessel, equity market strategist at Federated Investors, said the rally has been driven by “less bad” information.
“Probably, we'll get bored with that as the months progress,” Duessel said. “We'll need something better to move the market.”
According to preliminary calculations, the Dow rose 235.44, or 2.9 percent, to 8,504.08. That was the biggest point gain since a 246-point jump on April 9.
The S&P 500 index rose 26.83, or 3 percent, to 909.71, and the Nasdaq composite index rose 52.22, or 3.1 percent, to 1,732.36.
Steve Proceviat, 18/05/09 at 3:48 PM EDT
Reassuring news about housing and banking Monday gave investors a reason to return to the stock market.
The Dow Jones industrial average shot up more than 180 points and wiped out more than half the losses it suffered last week. All the major indexes were up more than 2 percent.
A better-than-expected profit report from Lowe's Cos. and positive comments from analysts about the nation's banks revived investors' confidence in an economic rebound. Stocks fell sharply last week on worries that a recovery might be further off than hoped. The drop interrupted a rally that still has the Standard & Poor's 500 index up 30.5 percent since early March.
Stocks rose Monday after Lowe's posted earnings that easily beat Wall Street's forecasts and the company raised its full-year profit outlook. Buying accelerated later after the National Association of Home Builders said its housing market index rose for the second month in a row in May, reflecting growing optimism among builders.
Meanwhile, Rochdale Securities analyst Richard Bove noted the potential for “explosive earnings growth and unusually strong stock price performance” for banks as the economy recovers. And Goldman Sachs raised its rating on Bank of America Corp. to “Buy,” due to expectations for solid earnings in the second quarter on strong mortgage and capital markets revenue.
BMO Nesbitt Burns also upgraded its view of the banking industry, saying it expects profits will start to rebound in coming quarters.
In mid-afternoon trading, the Dow rose 183.03, or 2.2 percent, to 8,451.67. The S&P 500 index rose 18.79, or 2.1 percent, to 901.67, and the Nasdaq composite index rose 34.41, or 2.1 percent, to 1,714.55.
