US Market finally reacts to rate cut

Market witnesses a strong day with the Dow closing above the 13,000 mark for first time in four months

In a late reaction to Federal Reserve’s rate cut decision, US Market started and ended strongly today, Thursday, 01 May, 2008 after Dow closed above the 13,000 mark for the first time in four months. With the help of financial and technology sector, stocks rallied. Eight of the ten economic sectors advanced with energy and material sector being the sole laggards.

The market was up by 200 points at one point in the day. At the end, The Dow Jones industrial Average ended with a gain of 190 points at 13,010. The Nasdaq Composite Index, finished higher by 67.9 points at 2,480. S&P 500 finished higher by 23.7 points at 1,409.

Twenty-five out of thirty Dow components ended in the green today. American Express, Citigroup and Bank of America were the main Dow winners. Amex gained almost 7% while the other two stocks gained more than 4%.

Yesterday, the Federal Open Market Committee announced that it cut the fed funds and discount rates by 25 basis points. This left the fed funds rate at 2% and the discount rate at 2.25%. The Fed said economic activity remains weak, while inflation expectations are picking up.

Among the economic reports for the day, April's ISM Manufacturing survey posted a reading of 48.6, which was a bit above the 48 reading that was widely anticipated. But the interest fact about the data was that it was unchanged from the prior month, indicating that manufacturing conditions have not worsened. On the other hand, according to government data released today, construction spending for March slipped 1.1% month-over-month.

Initial jobless claims for the week ending 26 April came at 380,000 against an expected 365,000. Also, March's personal consumption expenditures, announced this morning, increased 0.4% in March, which is more than the expected 0.2% increase.

Crude prices dropped by almost a dollar today, as the dollar strengthened against its rivals. The same reduced the commodities’ appeal as a hedge against inflation. Prices also continued to slip for the third straight day after yesterday’s weekly inventory report by the Energy Department showed that crude supplies rose more than forecast. Crude-oil futures for light sweet crude for June delivery closed at $112.52/barrel (lower by $0.94/barrel or 0.8%) on the New York Mercantile Exchange. Earlier prices slipped to $110/barrel. For the year, crude is up by 16.8% till date.

In the currency market today, the dollar was solidly higher against most major rivals extending earlier gains after better-than-expected U.S. manufacturing data. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 1% to 73.31.

Volume on the New York Stock Exchange neared 4.4 billion, and gaining stocks topped those declining more than 2 to 1. On the Nasdaq, nearly 2.3 billion shares traded hands, and advancers beat decliners by a more than 2 to 1 ratio.

For tomorrow, Department of Labor's monthly employment report will be the main report garnering attention. Separately, the March factory orders reading will also be released.