October 19th, 2009 3:30 PM by Mel Samick
Investors were ecstatic as the Dow Jones Industrial Average broke the 10,000 mark for the first time in 2009. The New York Times called the Dow's rise to 10,000 “a milestone of the stock market’s recovery from the depths of the financial crisis.” Given struggles with all-time highs in foreclosure rates and unemployment rate soaring toward 10 percent, it’s a big boost to investor’s morale.
The Federal Open Market Committee (FOMC) minutes also eased investors' fears of the Fed’s withdrawal of support in the near future. The Fed believes that the economy has started its recovery process, but that it is still not ready to survive without its support. Furthermore, The Fed's outlook for inflation is still soft, although oil prices bumped up their numbers for headline inflation.
As the stock markets continued their upward climb this past week, all major indices trended positive, with gains of up to 2 percent. Fueled by an upward movement in oil prices, the energy sector rose nearly 5 percent over the last week. Among varied economic indicators, third quarter corporate earnings have kept investors and analysts very busy. All major economic indicators, from retail sales to the manufacturing index, either met investors’ expectations or exceeded their expectations. Even the investors’ biggest challenge, the employment numbers, were modestly better. Continuing claims dipped below six million, while jobless claim numbers also fell below market expectations.
JP Morgan Chase posted an earning per share of $.81, beating the market expectation of $.51. In another major boost to the stressed financial sector, both Goldman Sachs and Citigroup also reported better than expected earnings. However, due to increased credit losses, Bank of America fell short of investors’ expectations. The service sector is still facing the heat of the recession, as both IBM and GE posted third quarter losses. Google helped offset that bad news, though, with its positive earnings release.
Rising commodities are usually seen as a proxy of a growing economy. With oil and gold prices hitting their highest levels in 2009, there is little doubt that the rate of expected economic improvement has risen in tandem. The weak U.S. dollar and less-than-expected increases in inventory have contributed to a further rise in oil prices.
The imperiled housing sector is even more troubled, as foreclosures rose to an all-time high. With the U.S. Treasury losing its shine versus stocks, the mortgage sector also witnessed an upward move in rates. The Conforming Fixed 30-year rate was hanging at around 5.0 percent while the Conforming Fixed 15-year rate was around 4.45 percent. Standard 5/1 ARM rates were hovering around 4 percent.
Information provided by Amtrust Bank Capital Markets