Index Daily Change Weekly Change
S&P/TSX composite index 0.94% Gain 1.60% Gain
Dow Jones industrial average 0.65% Gain 0.70% Gain
Standard & Poor’s 500 Index 0.74% Gain 1.00% Gain
Nasdaq Composite Index 0.19% Gain 0.30% Gain
The Canadian stock market moved higher on Thursday as upbeat economic data prompted buying of commodities at the start of the 2nd quarter, but a steep slide by Research In Motion (RIM) tempered the overall gains. The TSX energy sector rose more than 3% as oil hit an 18-month high. Commodity prices got a boost as factories in the United States, Europe and Asia added production last month, suggesting recovery from a deep recession was taking root in economies around the globe. The materials sector gained 1.7% as copper reached a 20 month high and gold prices also advanced.
On the downside, investors hit shares of RIM, which dropped 8.2% after its results came in below expectations. That magnified worries about rivals stealing market share from the BlackBerry smart phone.
In the United States the Dow and the S&P 500 rose, thanks to upbeat economic data, but the Nasdaq was stagnant as investors hit RIM shares. Anxiety about Friday’s March payrolls report held gains in check. The U.S. stock market will be closed for Good Friday when the March unemployment report is released, and some investors opted to book profits before the long Easter weekend, derailing an earlier 1% run-up.
An index of U.S. manufacturing activity in March rose to its highest level in over 5-1/2 years, the Institute for Supply Management (ISM) said. This economy in our view is bouncing back much stronger than most people expect. Energy, materials and major manufacturers led the Dow’s and the S&P 500’s gains as Thursday’s data suggested improving global demand for commodities.
The 2nd quarter got off to a good start for the stock market, with both the Dow and the S&P 500 closing at 18-month highs.
On Friday morning data showed that U.S. employers created jobs in March at the fastest rate in 3 years as private firms stepped up hiring, the strongest signal yet that the economic recovery is on a solid footing and needs less government help. Non farm payrolls rose 162,000 and the unemployment rate held steady at 9.7% for a 3rd straight month, the U.S. Labor Department said on Friday.
The payrolls increased only the 3rd time since the economy sunk into recession in late 2007, was the largest since March 2007. Private employers hired more workers than expected, while temporary hiring for the U.S. decennial census came in below economists’ forecasts. The report suggests that the economy has broken through to sustained job creation. But it will be a long slog to bring down the unemployment rate. Job growth is critical to keeping alive the economic expansion that started in the 2nd half of 2009 once government stimulus efforts and a boost from business inventory rebuilding fade.
Obama’s popularity has taken a hit along with that of fellow Democrats in the face of high unemployment despite his efforts to paint rival Republicans under former President George W. Bush as responsible for the economic mess he inherited. Obama acknowledged more work needed to be done to put back to work the more than 8 million Americans who have lost their jobs since the economy was struck by recession.
“We are beginning to turn the corner,” Obama said, “today’s job numbers, while welcome, leave us with a lot more work to do. It will take time to achieve the strong and sustained job growth that we need.”
“It’s a good, solid report,” Treasury Secretary Timothy F. Geithner said in a Bloomberg Television interview in New York on April 2nd, “It shows we’re getting stronger, and the economy is now creating jobs.”
Some analysts said the relatively strong details of the report suggested the economy was on a path that could lead the Federal Reserve to raise benchmark interest rates as early as late this year. The U.S. central bank has promised to keep overnight rates ultra low for an extended period, citing subdued inflation and the likelihood the economic recovery will be moderate. The Fed has identified unemployment as one of the factors that will determine when it will start raising rates. There is a closed door Fed Board meeting today on the discount rate. Rumors were rampant last week that it will lead to another hike in the discount rate to 1% (as the Fed rate remains unchanged).
This morning European stock markets are up strong over 1% while U.S. stock futures suggest that the Standard & Poor’s 500 Index will climb above its highest close in 18 months, after data showing employers added the most jobs in 3 years boosted optimism about the economy (about 0.30%). The S&P 500 completed a 5th straight weekly gain on April 1, the longest streak in almost a year. Apple also climbed today after iPad sales probably beat projections.
U.S. companies are sitting on a record pile of cash after spending the lowest proportion of their profits on stock buybacks since 2003 a sign that repurchases may propel the equities rally as earnings recover. Buybacks by companies in the Standard & Poor’s 500 Index totaled $137.6 billion last year or 28% of operating profit, according to S&P. The last time the ratio dropped to that level, the S&P 500 subsequently climbed for 4 years. U.S. firms will almost double their spending on stock repurchases to $235 billion in 2010 as earnings surge, according to Mizuho Financial Group Inc. S&P 500 companies, excluding financials, that bought their own stock in fiscal 2009 have rallied an average of 7% more than the index since the start of last year as the purchases reduced the supply available to investors, according to Bloomberg data.
The acceleration of buybacks is a positive as it shows that the recovery is translating itself into an expansion. The economy pulled out of its deepest recession since the Great Depression and a record 9 quarters of profit declines ended. S&P 500 companies are turning to share buybacks after cash climbed to a record $831.2 billion at the end of the 4th quarter, according to data from New York-based S&P that goes back to 1980. That was the 5th straight increase from the prior quarter. Cash represented 11.4% of assets at companies outside the financial industry, the highest level in more than 50 years, according to Tokyo-based Mizuho.
Cash sitting there, waiting to come in later, which will then later help buoy both businesses and stocks - this bull market will carry on for several years.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
