Stocks rose on Friday based on hopes that a lifeline for struggling U.S. automakers could still materialize although, we won’t know anything until current President Bush completes his ‘farewell tour’ around the globe. The latest news in the U.S. automakers’ attempt to secure a financial rescue is that the White House (or the Bush administration) said it may be willing to provide emergency funding to the struggling auto industry, the day after Congress failed to approve a deal (using part of the $700 billion Troubled Asset Recovery Plan).
The technology heavy NASDAQ index led the way in the United States since investors are betting that the large stockpiles in cash at technology companies will help them weather the economic downturn. Global small caps also had a good day since a lot of these companies are trading at less than cash in the bank. Cash might be king during a bear market but in today’s market environment you can invest in a company that is trading at less than its cash value and have a margin of safety on cash (i.e. spend 50 cents to buy a dollar of cash within the company).
The Dow Jones industrial average rose 0.75%, the Standard & Poor’s 500 Index rose 0.70% and the Nasdaq Composite Index rose 2.18%. During the course of the day, the three major U.S. stock indexes rebounded from a drop of about 2 percent or more at the open. For the week, the Dow was down 0.1%, its second straight week of declines but the S&P was up 0.4% for the week and the NASDAQ rose 2.1%. Canada also posted gains but it continues to struggle a little more than certain global markets with weakness in the financial sector.
The gains come as the stock market attempts to recover from the S&P 500’s 11 ½ year intraday low hit on November 21, 2008. So far this year, the broad S&P 500 is down about 40%. But since the November 21, 2008 the S&P has rebounded by almost 19% (in $US) which illustrates the fact that a lot of money can be made on the rebound (stocks dropped 50% from their respective highs but will need to jump 100% in order to regain what they lost).
Asian and European markets are up this morning, U.S. futures are flat and oil is up (a fair amount) as OPEC is set to establish production cuts this week. The Fed is expected to reduce interest rates again this week.
Regards,
Wilfred Vos Bcs, CFP, FMA, FCSI, CIM, CFA, MBA, DMS, CBV
SVP & Partner
