Wednesday, May 6, 2009

Banks Lead The Market

Although it’s sometimes unbelievable to watch, momentum in a market can be quite a site to behold. Just after the open, it looked like we might have finally reached a point where market players would start booking some of their gains, but the bulls stepped up to the plate and consistently bought dips throughout the day.

We’ll see if the bulls can keep this sort of action up, especially with the potential for a sell-the-news reaction once the bank stress test results (which were leaked throughout the day) are officially released and we get the jobs data on Friday. The one thing we do know, though, is that fighting this action has not been a way to make money.

Going into more detail, an underlying bid gives lift to stocks. Profit takers attempted to reverse early gains that were spurred by better-than-expected economic data, but an underlying bid helped stocks rebound to finish at their best levels in months... The latest ADP Employment Report estimated that 491,000 jobs were cut from private payrolls in April. Though that is certainly a high number, it isn't nearly as bad as the 645,000 job cuts that were expected. It is also down substantially from the 708,000 job losses recorded for the prior month, which fits the idea that the economy is bottoming... The idea that the economy has started to bottom has lured money in from the sidelines in recent weeks. Recently released data indicate that the end of March brought the biggest sequential inflow of funds into mutual fund assets on a percentage basis since April 2003, and the biggest inflow of absolute funds since April 2008... The inflow of money has compounded gains in recent weeks, taking the stock market up 38% from its March 6 low. That has many market watchers anticipating a pullback... However, there is a persistent bid that seems to stymie downside moves from gaining traction. Just so, this session's early gains were reversed by profit takers, but that gave way to a rebound that gathered momentum as participants looked to scoop up financials... Financials were under pressure in premarket trading, but actually rallied into the open after reports quelled concern that major banks may need to raise outside capital in order to satisfy the government's bank stress tests. The Wall Street Journal reported JPM does not need additional capital and Citigroup's capital hole is considerably smaller than Fed officials initially identified, while separate reports indicated that BAC needs only to convert its capital to a larger proportion of common stock... The official findings of the bank stress tests aren't due until after tomorrow's close, but leaking the news should help mitigate against any shock that would result from unveiling the results all at once... Financial stocks won additional favor after news sources reported that the Senate has approved an amendment that could make it less costly to exit the TARP program. Shares of diversified banks and regional banks both finished 12.7% higher. The broader financial sector closed near its session high with an 8.1% gain... Energy stocks climbed 3.6%, contributing to the broader market's advance. Energy stocks were bolstered by higher oil prices, which advanced 4.6% to settle at a five-month closing high of $56.34 per barrel. The move was helped largely by the notion that demand will improve with economic conditions in the back half of this year. Crude's advance was also helped along by relatively bullish inventory data, which indicated oil inventories for the week ending May 1 increased by 605,000, far less than the 2.5 million barrel build that was widely expected... With oil prices on the rise, shares of oil and gas explorers advanced 7.1%, while oil and gas equipment companies climbed 4.0%, and drillers gained 2.6%. Offshore specialist RIG was able to win additional support by posting this morning better-than-expected quarterly results... UTX reaffirmed its full year 2009 guidance, but GE was the primary leader among industrial stocks. Industrials finished with a 1.7% gain... Despite the early efforts of profit takers, the S&P 500 spent the entire session in positive territory. Though it encountered some resistance when it approached the 920 level, the stock market still closed at its best level since early January... The move was supported by strong trading volume. Nearly 1.9 billion shares traded hands on the NYSE this session; that's the most in a single session since mid-April, and above recent averages....

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