US stocks manage to stay steady

Encouraging housing report try to give stocks a good boost

US stocks ended almost flat (little higher) on Tuesday, 02 June, 2009. Though US stocks started the day in the red today, encouraging pending home sales data soon pushed stocks higher in the early trading session today. But by mid noon, indices pared most of their early gains and lingered mostly flat. Weakness in the financial and energy sector can mainly be attributed for this weakness. Car sales May figures for US hit the wires today.

After starting the day 5 points lower earlier during the day, The Dow Jones Industrial Average went up by 60 points soon. But by mid day, it gave up almost all of its gains. The Dow Jones Industrial Average ended higher by 19.4 points at 8,740. The Nasdaq Composite Index, ended higher by 8 points at 1,836. S&P 500 ended higher by 2 points at 944.

Seven of the ten sectors ended in the green led by materials and consumer staples sectors. Financials and utilities were the main laggards.

The National Association of Realtors reported on Tuesday, 02 June, 2009 that pending sales of existing homes in US rose for the third month in a row in April, boosted by record-low mortgage rates and special incentives for first-time buyers. In April, existing-home sales rose 2.9% to a seasonally adjusted annual rate of 4.68 million, 3.5% below year-earlier sales rates.

The pending home sales index for April rose 6.7% after a 3.2% increase in March. The index, based on sales contracts on existing homes, was 3.2% above April 2008.

But it is the financial stocks that trailed the broader market as blue-chip firms announced plans to raise fresh capital to repay their TARP amounts. American Express and J.P. Morgan Chase, both companies announced plans to sell stock.

The financial sector was also reeling under pressure following the yearly report from Moody's that both the U.S. banking industry rating outlook and the industry's broader fundamental credit outlook continue to remain negative. As per the report, Moody's believes that many banks will be unprofitable in 2009.

Treasuries had been oscillating today, but the benchmark 10-year Note went up four ticks. The spread between the yields of the 2-year Note and the 10-year Note remained near record highs.

May auto and truck sales data hit the wires today. Ford announced that it has achieved its highest market share in three years, while its U.S. auto sales for May fell a less-than-expected 24%. General Motors said its May U.S. sales fell almost 30%. Honda Motor said that total American vehicle sales for May dropped 39% since the past year, and Toyota Motor said May vehicle sales fell nearly 38% year-over-year.

Crude prices pared almost all of their earlier losses today, Tuesday, 02 June, 2009 and ultimately closed little lower at the end. Prices gave up earlier loses on hopes that economic recovery will take place soon. The encouraging pending home sales data in US revived hopes of a faster than expected economic recovery. The subdued dollar also played a role in crude shedding most of its earlier losses. On Tuesday, crude-oil futures for light sweet crude for July delivery closed at $68.55/barrel (lower by $0.03 or 0.04%). Last week, crude ended higher by 7.5%.

In the currency market on Tuesday, the U.S. Dollar Index, a gauge of the greenback against six major currencies, slid as much as 1%, following a 6.1% drop in May. It was the fourth straight drop for the dollar on speculation that record U.S. borrowing will further weaken the dollar. The index lost 1% in April and 2.9% in March.

Economic data will be in focus tomorrow, with the ADP private employment change at 8:15ET, followed by April factory orders and May ISM services at 10:00ET. The weekly crude inventories report is scheduled for release at 10:30ET. Other than that, Fed Chairman Bernanke will testify on economic and financial conditions before the House Budget Committee at 10:00ET.