The Dow Jones industrial average broke through the psychologically important 10,000 mark! The Dow is now up 53% from its March 9th low, but remains 29% cent below its peak of 14,164.53 hit in October 2007. The Dow will still need to appreciate in value by 41.16% before posting an all time high again.
Canada’s main stock index closed higher yesterday as rising oil prices lifted the energy sector while upbeat U.S. corporate earnings helped boost overall investor sentiment. Sentiment was also boosted by encouraging and better-than-expected U.S. retail sales for September and surprisingly robust financial results from banking and technology bellwethers JPMorgan Chase and Intel. Canada’s earnings calendar starts to ramp up in the next several weeks, and the market will look to see if corporate results show improvement to the bottom line beyond cost-cutting now that the global economy is emerging from recession. Investors are rewarding companies that are showing earnings growth from last quarter even though earnings are lower from last year at this time and companies that have been able to generate some revenue growth since earnings growth based on cost cutting alone is not longer sufficient.
The rally in energy stocks came as the price of oil surged to a 2009 high above $75 a barrel due to optimism about a global economic rebound that would lead to higher energy demand. The S&P/TSX composite index hit its highest level in nearly 3 weeks, closing up 119.24 points, or 1.04% to close at 11,532.78. The energy sector gained 2.14%, the financial sector was up 1.46%, the technology sector gained 2.37%.
The Canadian dollar continued to edge towards parity with the U.S. currency, up another cent to 97.48 cents U.S. A weakening U.S. dollar, higher commodity prices and positive Canadian economic data have pushed the loonie substantially higher in the last week.
In the United States, the Dow industrials broke through the 10,000 level for the 1st time in a year on surprisingly robust company results and better-than-expected retail sales. Dow 10,000 may be largely psychological, but with tremendous levels of cash on the sidelines this may be a call to action for some still be a call to action for investors,” said Lawrence Glazer, managing partner at Mayflower Advisors in Boston.
The Dow Jones industrial average rose 1.47% to close above 10,000, the Standard & Poor’s 500 Index rose 1.75% and the Nasdaq Composite Index rose 1.51%. The Dow first crossed above 10,000 in late March 1999 as the tech boom accelerated before the bubble popped the following year. Strong results from JPMorgan Chase & Co and Intel bolstered analysts’ optimism over the earnings season that is picking up pace.
A fresh 14-month low for the dollar also helped stocks as investors bet the slumping currency will lift profits of large multinational companies with big overseas sales.
JPMorgan Chase & Co’s quarterly profit rose sharply, bolstering hopes other major Wall Street banks will report strong results this week, the S&P financial index gained 3.4%.
A U.S. government report showed U.S. retail sales, excluding auto purchases, rose for a 2nd month. The data offered cautious optimism that spending could help support the economy as it struggles out of recession.
Oil rose above $75 a barrel to settle at a record high for the year. Support was provided by the weak U.S. dollar which slipped to its lowest in more than a year, making dollar-denominated commodities like oil and gold more affordable for holders of other currencies.
Oil has more than doubled from below $33 in December amid hopes of economic recovery but has run ahead of weak oil demand, high inventories and abundant supply.
Asian and European data supported a more optimistic view of the economy. Chinese trade figures provided fresh evidence of recovery in the world’s 2nd largest oil consumer, while oil data showed strong year-on-year growth in China’s oil imports in September.
Euro zone industrial output accelerated month-on-month in August providing evidence the area’s economy is likely to have started growing in the 3rd quarter.
Earnings are due this week from several major U.S. companies. Intel and JPMorgan are two major bellwethers, so if the most significant semiconductor company and the most significant bank are exceeding expectations and guiding higher, that has a positive implication for the entire stock market.
The Dow’s rally above 10,000 was led by banks and erases about half the damage done since the index hit a record 2 years ago. More gains may depend on meeting profit estimates that call for per-share earnings among the 30 companies in the average to rise 22% next year and 18% in 2011, according to data compiled by Bloomberg.
We have moved a lot in 9 months from the threat of another Great Depression to a really powerful recovery. Although, companies will report a 9th straight quarter of declining profits, the longest streak since the Great Depression, before earnings return to growth in the final quarter of the year, analysts’ estimates compiled by Bloomberg show.
This morning stocks and commodities are looking to down slightly as do companies like Citigroup and Goldman Sacs.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
