US Market manages a turnaround

Indices register good gains even after opening in the red post Fannie Mae’s losses

In spite of making a slow start, US Market ended higher today, Tuesday, 06 May, 2008. It was mainly the financial and the energy sector that helped the market end in the green. Crude prices closing a little shy of $122/barrel and good results from the homebuilding sector helped market rally. Nine of the ten economic sectors ended in the green. Telecom was the sole loser.

The Dow was down by almost 85 points earlier in the day. At the end, going into close, The Dow Jones industrial Average ended the day with a gain of 51.2 points at 13,020.6. The Nasdaq Composite Index, finished higher by 19.19 points at 2,483.31. S&P 500 finished higher by 10.7 points at 1,418.4.

Seventeen out of thirty Dow components ended in the green today. Alcoa was one of the main Dow winners while GM is one of the main Dow laggards.

In the morning, the indices were in the red after Fannie Mae fuelled the selling interest after reporting a larger than expected loss, cutting its dividend by 30% and announcing it is raising $6 billion in capital. The housing market turmoil continued to take its toll on Fannie Mae. Its shares opened more than 7% lower, but quickly rebounded to finish the day with an advance of 9%.

A warning from Federal Reserve Chairman Ben Bernanke weighed on sentiment earlier in the session, after he said late Monday that increasing home foreclosures could further harm the economy.

In the post lunch hours, market turned around. There was not clear catalyst for the gains, but financials stocks witnessed the most buying interest. The tech sector was also having the most influential role on the turnaround. Microsoft and Yahoo! were leading the way.

Indian ADRs ended mixed today. Infosys and VSNL were the two top winners gaining 3.5% and 2.8% respectively.

Crude prices rose by almost $2 once again today. Price rose due to supply problems continuing at Nigeria. The weak dollar also pushed up the crude price today. It touched a new high of $122.9/barrel today during the after hours electronic trading. Dollar weakness tends to benefit dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies. Crude-oil futures for light sweet crude for June delivery closed at $121.84/barrel (higher by $1.9/barrel or 1.6%) on the New York Mercantile Exchange. In the past three sessions, crude prices have gone up by almost $9.3 (8.3%). For the year, crude is up by 25.3% till date.

On the currency markets today, dollar continued to decline pushing crude prices further up. A weak dollar makes oil more attractive as an investment alternative. The dollar index, which measures the greenback against a basket of six major currencies, was at 73.007, down from 73.190 in late Monday.

For tomorrow, there are a number of economic reports on the dock. The first quarter productivity report is due tomorrow morning. Higher productivity helps offset inflationary forces, making the report a focal point tomorrow. Also due tomorrow is the March pending home sales index from the National Association of followed by the weekly oil inventory report. Lastly, the consumer credit report for March is due in the afternoon