Stocks Rally on Oil
Oil settled down $US2.24 a barrel at $US119.17 - almost $US30 below its highs in July.
After the Federal Reserve left rates unchanged, investors charged into stocks that suffered most during oil’s rise. The Amex Airline Index rallied 2.12, or 9.6 per cent, to 24.20, reaching its apex of the northern hemisphere summer.
American Airlines parent AMR surged $US1.26, or 13 per cent, to $US10.95. Ford Motor added US28 cents, or 5.8 per cent, to $US5.09, and General Motors rose US59c, or 5.8 per cent, to $US10.69, although the latter was down 57 per cent for the year to date.
Owing to the spikes in oil and petrol prices this summer, malls have lost customers, airlines have turned in massive losses and the auto market is such that a recent review of EBay showed sports utility vehicles less than five years old selling for a fraction of their purchase price.
Meanwhile, banks and lenders continued to gain, as investors were relieved that the Fed didn’t overtly commit to a rate hike: American International Group rose $US3.20, or 12 per cent, to $US29.89, the strongest gainer on the Dow.
The Financial Select Sector SPDR fund, a basket of financial stocks, rose 4.8 per cent to $US22.48. A compilation of retailers and other consumer-dependent issues, the Consumer Discretionary Select Sector SPDR, added 4.5 per cent to $US29.73.
Overall, the Dow Jones Industrial Average rose 331.62 points, or 2.94 per cent, to 11,615.77, marking its biggest gain since April 1 and recapturing the losses of the last three sessions for its highest close since July 23.
The Standard and Poor’s 500 rose 35.87 points, or 2.87 per cent, to 1284.88, the highest close for the broadest gauge of US stocks since July 1. The technology-oriented Nasdaq Composite rose 64.27, or 2.81 per cent, to 2349.83.
Still, all three indexes are more than 11 per cent down for the year to date.
While markets were understandably relieved, one money manager said the thesis had not changed one iota after the Fed’s statement, which was, if anything, cautionary on all fronts.
“I’d say the statement is neutral to hawkish,” said Sean Simko, head of fixed-income management for SEI Investments. “They’re not boxing themselves in with their statement, but they are still acknowledging that inflation is a concern.”
As for economic growth, “they’re buying themselves some time to see if the 2 per cent fed-funds rate is going to stimulate growth,” Mr Simko said.
The Fed, chaired by Ben Bernanke, has now held the fed-funds rate unchanged for two straight policy meetings after slashing rates by 3.25 percentage points between September and late April in a bid to fire up flagging economic growth.
Analysts said the price retreat in oil underscored the market’s profound concern about demand in a slowing global economy.
“A drop in oil prices is good news for the economy from a consumption standpoint and from an inflation standpoint,” said Patrick O’Hare, an analyst at Briefing.com.
Rupert Murdoch’s News Corporation, the owner of The Australian and Dow Jones Newswires, rose 4.67 per cent $US15.25 after reporting strong profit gains in the fourth quarter and the fiscal year.
Bond prices weakened. The yield on the 10-year US Treasury bond rose to 4.007 per cent from 3.972 per cent yesterday, while that on the 30-year bond climbed to 4.629 per cent from 4.589 per cent. Bond yields and prices move in opposite directions.
In London, the FTSE 100 index gained 2.52 per cent to 5454.50, in Paris the CAC 40 rose 2.47 per cent to 4386.35 while in Frankfurt the Dax added 2.66 percent to finish at 6518.70.
The EuroStoxx 50 index of leading eurozone shares advanced 2.76 per cent in value to stand at 3380.09
Source: The Australian Today
Tags: Americal Airlines, crisis, Dow Jones, fuel costs, GM