Late rally at Wall Street

The start and end of the week witness solid rally

It was a holiday shortened week that ended on Friday, 29 May, 2009. But indices registered modest gains in course of the week. Trading volume and news flow remained relatively light during the week. News concerning General Motors always remained in the forefront in the course of the week. Treasury auctions were another event that dominated. Other than that, there was mixed set of economic data. The dollar index dropped considerably during the week pushing metal and crude prices substantially higher.

The Dow Jones Industrial Average gained 223 points (2.7%) for the week to end at 8,500.33. Tech - heavy Nasdaq gained 82.32 (4.7%) to end at 1,774.33. S&P 500 gained 32.14 (3.5%) to end at 919.14.

The indices rallied during start of the week after better-than-expected consumer confidence data gave participants some solid evidence that economic conditions may be improving, which brought about broad-based gains for the major indices. The Conference Board in US reported on Tuesday, 26 May, 2009 that reading on U.S. consumer confidence jumped to 54.9 in May from an upwardly revised 40.8 in April as expectations for jobs improved. Market was expecting a reading around 43. Dow rallied by 196 points on that day.

Downside guidance from Monsanto and news that a $27 billion bond exchange offer from General Motors proved unsuccessful led to some early weakness in stocks during the middle of the week.

Stocks moved substantially lower on Wednesday, 27 May, following an auction of 5-year government Notes carrying a 2.3% yield. Though the auction itself was solid, mortgage origination sellers moved to hedge their positions and pressured the long-end of the yield curve. That sent the benchmark 10-year Note more than one point lower, which pushed its yield above 3.7% to a fresh 2009 high.

Economic reports dominated on Thursday, 28 May, 2009. The Commerce Department reported on Thursday, 28 May, 2009 that U.S. new home sales rose 0.3% in April to a seasonally adjusted annual rate of 352,000. But the figure was well below the 365,000 pace expected. In a separate report, the Commerce Department reported that new orders for U.S made capital goods were much stronger than expected in April. Orders for durable goods rose 1.9% in April, pushed higher by new orders for primary metals, machinery and motor vehicles. It marked the largest gain in new orders since December 2007.

In the strained labor market, The Labor Department reported today that the number of new layoffs declined by 13,000 to 623,000 last week. The decline in initial jobless claims was in line with expectations. The four-week average of new claims, which smoothes out distortions in the week-to-week data caused by weather, holidays, strikes and the like, fell by 3,000 to 626,750 in the week ending 23 May. Initial claims for the week ending 16 May were revised up by 5,000 to 636,000.

In the US market on Friday, 29 May, 2009, indices oscillated between red and green for the entire day. But at the end, with the help of late buying, mainly from the financial sector, stocks surged in the final hour and closed at session highs.

The Dow Jones Industrial Average ended higher by 96 points at 8,500.33. The Nasdaq Composite Index, ended higher by 22.5 points at 1,774. S&P 500 ended higher by 12.3 points at 919. More than 1.8 billion shares traded hands on the NYSE on that day, the most in more than one month.

The Commerce Department reported on Friday, 29 May, 2009 that the U.S. economy contracted at a revised 5.7% annual rate in the first quarter, a decline that's smaller than the 6.3% drop in the fourth quarter. Market was expecting a drop of 6.1% in the first quarter.

General Motors dominated the headlines during the week. The company completed several steps on its road to bankruptcy. After agreeing to a restructuring deal with the United Autoworkers, where the union would take a significantly smaller stake in the company and the U.S. government would take a significantly larger one (70%), the company disclosed that it would not consummate its exchange offers as the principal amounts of notes tendered were substantially less than the amount required. But it would allow GM to move forward with bankruptcy. Reports indicate the Obama administration plans to usher the company into bankruptcy during the start of the next week.

Crude oil prices ended May, 2009 with highest monthly gain in a decade. Prices rose substantially higher on Friday, 29 May 2009. Prices rose for the fifth consecutive session as the dollar slid further and also on hopes of quicker than expected global economic recovery. Prices also continued to rise after energy department, earlier during the week, reported unexpected drop in crude inventories for last week. Market was anticipating a buildup in crude inventories. On Friday, crude-oil futures for light sweet crude for June delivery closed at $66.31/barrel (higher by $1.23 or 1.9%). For the week, crude ended higher by 7.5%.

In its latest annual report, EIA reported on international outlook for energy that global oil demand will grow to 91 million barrels a day in 2015 and 107 million barrels a day in 2030. Global oil supply will rise to 106.6 million barrels a day by 2030. The EIA also said natural-gas consumption will increase to 153 trillion cubic feet in 2030. The Energy Information Administration predicted in a newly released report that oil prices will rise to $110 in 2015 and $130 in 2030.

In the currency market on Friday, the U.S. Dollar Index, a gauge of the greenback against six major currencies, slid as much as 1.6%, heading for a 6.1% drop in May. The index lost 1% last month and 2.9% in March.

For the year 2009, Dow is down by 3.1%. The Nasdaq and S&P 500 are up by 12.5% and 1.8% respectively.