Best day for US Market in four months

Drop in crude prices and Fed’s latest directive on economy give stocks the required boost

It was the best day for US Market in almost four months time today, Tuesday, 05 August, 2008 as stocks rallied right out of the gate since the opening bell. The indices traded in the green for the entire day and the Dow and the Nasdaq posted their biggest one days gains in a long long time. The broad-based rally was aided by favorable wording in the Fed's latest directive, a drop in crude prices and a better-than-expected economic reading on the services sector. All the ten sectors ended in the green today led by the financial sector.

The Dow Jones industrial Average ended the day with a huge gain of 331 points at 11,615.7. The Nasdaq Composite Index, finished higher by 64.2 points at 2,349.3. S&P 500 finished higher by 35.8 points at 1,284.88.

Twenty nine out of thirty Dow components ended in the green today led by AIG and Boeing. The two stocks ended 12% and 6% higher today. P&G was also one of the front runners today following its good earning report.

Today, The Federal Open Market Committee (FOMC) left the fed funds rate at 2%, and the discount rate at 2.25%, as expected. The Fed noted that there are both risks to inflation and growth. The FOMC said that although the economy grew in the second quarter, labor markets have "softened further" and financial markets remain under "considerable stress." The Fed gave no sign that it plans to change policy in the foreseeable future.

In terms of economic news, The July Institute of Supply Management (ISM) Services report indicated that business conditions aren't as weak as widely reported, although conditions are still not ideal. The reading rose to 49.5 from 48.2 in June, which topped the average estimate of 48.8.

Also a report showed that European retail sales declined by the most in at least 13 years in June. Surge in oil and food costs left consumers with less money to spend on other goods.

In earnings news, Procter & Gamble topped estimates as the company reported a 33% growth in profits.

The financial sector provided good leadership throughout the session today, indirectly benefiting from a healthy advance in European banks after Paris-based Societe Generale reported better-than-feared earnings. AIG led the surge among Dow components ending higher with a gain of 12% after being upgraded to Buy from Neutral at UBS.

Barring Rediff.com and MTNL, all the Indian ADRs ended in the green today. HDFC Bank and ICICI Bank were the largest gainers soaring 11% and 15% respectively.

Crude prices ended substantially lower today as the dollar strengthened and demand concerns fuelling from slower economic growth in US and Europe. Prices closed below $120 level for the first time in three months. Oil prices also fell as Tropical Storm Edouard was unlikely to have disrupted oil and natural-gas facilities in the Gulf of Mexico.

Crude-oil futures for light sweet crude for September delivery closed at $119.17/barrel (lower by 2.24 or 1.8%) on the New York Mercantile Exchange. Futures earlier fell to an intraday low of $118 a barrel. Last week, crude prices ended higher by 1.5%. But it has lost 4.8% since last Friday. Crude lost $15.92 (11%) in July, 2008, the biggest ever in dollars. It's now $28 lower than the $147.27 record high hit last on 10 July, 2008.

Trading volumes showed 1.4 billion shares trading on the New York Stock Exchange and 757 million trading on the Nasdaq stock market. Gainers topped decliners by a margin of 3 to 1 on the NYSE and 2 to 1 on the Nasdaq.

For tomorrow, the main focus will be the widely anticipated weekly crude oil inventory report from the Department of Energy. Other than that, there will be earning reports including one from Freddie Mac.