Fundamentals, US Markets

Stocks Start Week Stronger on Global Optimism While US Sales Rise

U.S. Session Key Developments

•    Asia/Europe Contributes to Risk Appetite
•    Commodities Higher as Dollar Falls

US equities closed off session highs but still managed moves of more than one percent as global risk appetite spread from Asia and Europe with follow through in the US as advance retail sales rose more than expected. Early on, dollar weakness played into the trading theme with commodities rising as members of the Asia Pacific Economic Cooperation group pledged to maintain stimulus, while Japanese GDP grew faster than expected in the third quarter. Further boosting sentiment were US sales at 8:30am, which helped to limit potential fallout from a lower reading in empire manufacturing for the New York region. Other factors on the day included automaker General Motors reporting a $1.15B loss while citing improvements and making plans to begin repaying government loans starting in December. As the day dragged on, investors cautiously braced for a speech by Fed Chairman Bernanke at the Economic Club of New York. The FOMC head gave no subtle hint of change in policy action for the near-term, while continuing to re-iterate loose monetary policy for an “extended period.” Meanwhile, comments by Dallas Fed President Richard Fisher included a warning that GDP in Q3 may see a lower revision. Ultimately, stocks showed little reaction to either Fed speech as gains held firm for much of the day. A small sell-off occurred in the final hour, but stocks managed to hang on to new highs for the year. Looking at the overall situation, it seems dollar weakness continues to play a major role in market movements, as US competitiveness increases and higher commodities benefit raw material producers. Also of note, towards the close of trading, investors heard from Meredith Whitney on CNBC, who spoke stoically on her bearish tone on financials and markets as a whole. While her views have often seen considerable reaction from traders in recent months, the comments today appeared to be dismissed with skepticism. So long as the Federal Reserve continues to maintain its dovish tone on monetary policy, despite purportedly claiming to favor a strong dollar, further weakness appears imminent for the greenback and consequently equity gains could continue forward.

DJIA 30                      10,406.96                   +136.49               +1.33%
The Dow rallied to a fresh high following a gain of more than one percent to take its year-to-date advance to 18.58%. The index saw gains across all sectors with Basic Materials and Industrials up more than two percent. Aluminum producer Alcoa advanced more than three percent as metals climbed, while Boeing led industrial firms as the plane maker expects the first flight of its heavily-delayed 787 “Dreamliner” by the end of 2009.

S&P 500                    1,109.30                   +15.82                 +1.45%
The broader S&P500 index closed higher with the best gain of the five majors as all sectors advanced along with more than 90% of stocks. Basic Materials and Oil & Gas led the session, up more than two percent as commodity priced raced higher on dollar weakness. Major firms moving the index included greater than two percent gains in Exxon Mobil and General Electric.

NASDAQ                         2,197.85                    +29.97             +1.38%
The tech-heavy NASDAQ closed higher with a considerable gain to extend its year-to-date performance to nearly 40%. The index saw gains in nearly three-fourths of stocks while a small 1.07% rise in Technology led the index point advance. Major firms leading the advance included Oracle and Intel, both up more than two percent, while seven of the ten largest firms posted gains.

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