Fundamentals, US Markets

US Stocks close at Fresh 2009 Highs amid Risk Appetite on Earnings

U.S. Session Key Developments

•    Dollar Weakness Buoys Commodities Higher
•    Traders Dismiss Lack of Sales Growth on Cost-Cutting Successes

US Markets closed at the highest level in more than a year as equities continued to soar on optimism for third quarter profits, along with weakness in the greenback that helped propel commodities towards recent highs. Some of the cross-currents affecting sentiment include results from electronics maker Philips that surprised analysts with a profit, as well as a statement from the World Steel Association that demand in 2010 will rise 9.2% as growth prospects increase. Closer to home, risk appetite saw a further boost as Ford reported higher sales in Europe while toolmaker Black & Decker lifted its guidance for Q3. Ultimately, the Dow has been in a serious rally since early March that has taken the index more than 50% above its lows. While there is certainly potential impetus for more gains ahead should spending improve and layoffs decline; the near-term may entirely hinge on major earnings releases and commentary. Firms reporting this week include large multi-national firms such as chipmaker Intel, JPMorgan Chase and Goldman Sachs, and General Electric. Many of these companies, as well as others, could have a significant impact on re-affirming the recent move or shifting sentiment on their respective sectors. At the same time, releases thus far show cost-cutting efforts have played a high role in profitability while top-line sales continue to suffer; investors looking for growth may need to wait for the fourth quarter for real signs of economic improvement.

DJIA 30                      9,885.80                   +20.86               +0.21%
Despite temporary falling into negative territory in the afternoon, the Dow Jones Industrial Average ended the session at the highest level in more than a year. Strong performance was noted in several major firms ahead of earnings this week, including Johnson & Johnson and Intel up more than one percent each. Bank of America also proved to be a big winner as its stock climbed for the second session on a week with a large docket of earnings from financial firms. Overall, the Dow’s continued momentum may help the index breach the 10,000 mark as the index has shown minimal pullbacks at best in recent months.

S&P 500                    1076.19                   +4.70                 +0.44%
Trading in the broader S&P500 led the index to outperform the Dow as the Oil & Gas sector led the advance along with financial stocks. Higher commodity prices largely played into the move as dollar weakness continued while individual companies including Black & Decker and Ford rallied more than seven percent on firm-specific news. With the S&P 500 now at a fresh 2009 high, and higher lows remaining evident in the past few months, the uptrend is likely to continue rising towards the gap created by the rapid declines at the onset of the financial crisis in September 2008.

NASDAQ                         2,139.14                    -0.14             -0.01%
It is often rare for the technology-heavy NASDAQ to diverge from its peers, however the slight gain of 0.21% in the tech sector failed to make up for losses seen in several sectors including Financials and Consumer Services. Some of the big index movers on the downside included Dell and Amazon lower by more than two percent each. The firms may be seeing pressure as their ability to cut costs may be impaired by already-low operating costs, while sales demand is likely to keep the top-line under pressure. The upcoming release from Intel, may however, shift sentiment higher if the company projects strong guidance.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com