US Markets end higher

Market makes a major turnaround after initial claims data fuels fresh recession worries

US Market posted strong gains today, Thursday, 31 January, 2008. Market opened lower initially on a disappointing economic report. But some encouraging outlook from bond insurers turned around the investor sentiments and the indices rallied for the rest of the day. All ten economic sectors finished in positive territory. Financial and Discretionary stocks ended the session with the largest gains. But it was the worst January month for the market in eight years.

The Dow Jones industrial Average ended the day with a huge gain of 208 points at 12,650. The Nasdaq Composite Index, finished higher by 41 points at 2,390. S&P 500 finished higher by 23 points at 1,378. Twenty-eight out of thirty Dow stocks ended in the green today. Home-Depot and American Express led the team of Dow winners, each gaining more than 4%.

The Labor Department reported today that the number of Americans filing first-time claims for unemployment benefits rose to a 27-month high. Initial claims for state unemployment benefits rose 69,000 in the week ended 26 January reaching 375,000. It marked the highest level since early October and the biggest weekly jump since September 2005 in the wake of Hurricane Katrina. Dow plunged by more than 150 points after the report.

But then, the turnaround in sentiment came after bond insurer, MBIA offered assurances that it had enough cash to ride out the meltdown in the mortgage market. The company held a four hour analyst meet today, where the chief executive, Gary Dunton, told investors he is confident the company can retain its crucial AAA credit rating and that MBIA will still be able to raise fresh capital.

Google results fall short of expectations

Among economic reports, Dept. of Commerce said December personal income rose 0.5% and spending rose 0.2%, which were mostly in-line with expectations. Market expected income to rise 0.4% and spending to rise 0.1%. The report's price index for personal consumption expenditures, a gauge of inflation closely monitored by the Fed, rose 0.2% in December from November levels. Fourth quarter employment costs rose 0.8%, in-line with expectations.

Indian ADRs ended mixed today. While MTNL was the largest loser, VSNL was the largest gainer, each shedding or winning more than 5%. ICICI Bank and HDFC Bank closed lower by 1.3% and higher by 1.7% respectively.

After today’s close, Google reported its fourth-quarter profit rose 17% though its results fell short of Wall Street's forecasts.

Yesterday, the Federal Open Market Committee decided to cut the fed funds rate 50 basis points to 3% and the discount rate 50 basis points to 3.50%. Last week, Federal Open Market Committee (FOMC) approved a 75 basis point intermeeting cut in the fed funds rate to 3.50%. All these efforts were to save the US economy from plunging deep into a recession.

Market to focus on tomorrow’s unemployment data

Crude prices ended lower for the first time in six days after fresh recession worries once again started bothering investors today. The largest gain in unemployment claims in more than two years imparted a sense of nervousness among investors that economy is indeed in the path of a slowdown. Crude-oil futures for light sweet crude for March delivery today closed at $91.75/barrel (lower by $0.58/barrel or 0.6%) on the New York Mercantile Exchange. Prices are 58% higher than a year ago. Earlier it fell to a low of $89.58/barrel.

On the New York Stock Exchange, almost 2.2 billion shares traded, and for every stock posting declines, three gained. On the Nasdaq, nearly 2.9 billion shares changed hands, with advancing stocks running ahead of those declining more than 2 to 1.

Several important economic reports are due tomorrow. The first among them will be January's unemployment data followed by January's ISM Manufacturing Index. December's Construction Spending and January's Consumer Sentiment are also scheduled for release tomorrow.