Stocks Surge; Nasdaq Finishes Above 2,000, S&P 500 Breaks 1,000 Mark - U.S. Commentary

on August 03 2009 4:44 PM

RTTNews - Stocks saw a significant rally on the first trading day of August, fueled by better-than-expected economic data. The major averages all finished in positive territory, with the Nasdaq and the S&P 500 moving past the key technical levels of 2,000 and 1,000, respectively.

Notable buying interest was generated by a report from the Institute for Supply Management that showed a much slower than expected pace of contraction in manufacturing activity in July. The report also showed notable improvements in new orders and production.

The ISM said its index of activity in the manufacturing sector rose to 48.9 in July from 44.8 in June, although a reading below 50 indicates a contraction. Economists had been expecting a more modest increase to a reading of 46.5.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee said, Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue.

Separately, the U.S. Commerce Department revealed that construction spending rose 0.3 percent in June following a revised 0.8 percent slide in May. The figure surprised economists, who had expected a decline of 0.5 percent for the month.

The unexpected increase was largely due to a 1.0 percent increase in public construction. While private construction slipped 0.1 percent, residential construction spending was up 0.5 percent.

Some positive sentiment was also generated by news that Ford (F) reported its first increase in U.S. sales in nearly two years in the month of July. Ford said its sales rose 2.3 percent compared to the same month a year ago due in part to the government's Cash for Clunkers program.

In earnings news today, Humana (HUM) and Tyson Foods (TSN) beat Wall Street estimates, while traders are looking forward to the release of results from homebuilding stalwarts Centex (CTX) and Pulte Homes (PHM) after the closing bell this afternoon.

The major averages all closed sharply higher, with the Nasdaq ending the session at its best level of the day. The Dow closed up by 114.95 points or 1.3 percent at 9,286.56, the Nasdaq climbed by 30.11 points or 1.5 percent to 2,008.61, and the S&P 500 rose by 15.15 points or 1.5 percent to 1,002.63.

With the gains, the Nasdaq closed above the 2,000 level for the first time since October, while the S&P 500 closed above the 1,000 level for the first time since November. The Dow also set a nine-month closing high.

Sector News

Banking stocks saw a considerable move to the upside to kick of the week, with the Kbw Banking Index rising by 2.6 percent on the day. With the gain, the index finished at its best level in nearly three months.

Resource stocks also turned in outstanding performances on the day, with the sector boosted by the surge in steel stocks. The move in the resource segment came amid another rally in commodity prices on the NYMEX amid optimism regarding forward-looking demand.

Significant strength was also visible among healthcare provider stocks, with the Morgan Stanley Healthcare Provider Index posting a gain of 4.5 percent on the session. The advance lifted the index to its best closing level in just over ten months.

Further, railroad and chemical stocks also posted notable gains, with the Dow Jones Railroads Index and the S&P Chemical Index climbing by 3.8 percent and 2.7 percent, respectively. With the gains, the railroad index reached its highest closing level in over eight months, while the chemical index finished at a ten month high.

Defense, housing and semiconductor stocks also rose by substantial margins, indicative of the broad based rally in the equity markets on the day.

Dow Components

Shares of aluminum producer Alcoa (AA) led the Dow higher, posting a gain of 7.1 percent on the day. The climb launched the stock to its best closing price in over nine months.

Insurance giant Travelers (TRV) also climbed by a notable margin, rising by 4.5 percent on the session. With the gain, the broke out of a recent trading range, reaching an eight-month closing high.

Bank of America (BAC) and DuPont (DD) also rose, advancing by 3.6 percent and 3.1 percent, respectively. With the climb, Bank of America finished the session at an eight-month high, while DuPont closed at its best level in nine months.

While JP Morgan Chase (JPM), Caterpillar (CAT) and General Electric (GE) also posted strong gains, weakness was visible in food giants Kraft (KFT) and Coca-Cola (KO), which both fell by 0.5 percent. Verizon (VZ) and Wal-Mart (WMT) retreated by more modest margins.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region finished Monday's trading mostly higher, with Hong Kong's Hang Seng Index posting a gain of 1.1 percent. Japan's benchmark Nikkei 225 Index bucked the uptrend, however, ending the day slightly lower.

The major European markets also closed notably higher, with the French CAC 40 Index and the German DAX Index posting gains of 1.5 percent and 1.8 percent, respectively, while the U.K.'s FTSE 100 Index rose by 1.6 percent.

In the bond markets, treasuries saw notable losses amid the rally on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, closed at 3.639 percent, a gain of 13.8 basis points on the day.

Looking Ahead

Tuesday, traders will have a chance to react to earnings from Pulte Homes and Centex, while D.R. Horton (DHI), CVS Caremark Corp. (CVS), Tenet Healthcare (THC) and Vornando Realty Trust (VNO) are set to report ahead of the opening bell.

Traders will also look to data from the Commerce Department on personal income and spending, while pending home sales figures from the National Association of Realtors are scheduled to be released shortly after the opening bell on Wall Street.

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