Saturday, January 3, 2009

A Strong Rally to Start 2009

U.S. stocks started the new year with a big jump on Friday as investors hoped for a recovery that could be on the horizon after a disastrous 2008. Analysts said investors seemed to be discounting economic data, including Friday's release showing a sharp contraction in factory activity, in anticipation of a turnaround in the second half of 2009.

As a forward looking vehicle, the stock market is historically predicting the economy 6-9 months forward. The current reports explain the past, but the market will look at them, digest them, and move forward. This does not mean we will have a "V" shaped recovery, but it does mean that as the future becomes clearer, the market should continue to improve.

Analysts have said investors have been watching for clues of how President-elect Barack Obama will try to shake the U.S. economy. Obama is due to meet leaders in Congress on Monday to discuss his stimulus plan. Some Republicans are worried that their Democratic rivals could expand the plan to as much as $1 trillion.

As for Friday, the Dow Jones rose 252.81 points (2.88%). The S&P 500 jumped 27.83 points (3.08%). The Nasdaq gained 55.18 points (3.50%).

Chevron was among the top boosts to the Dow as oil prices rose above $46 a barrel amid tensions between Russia and Ukraine and violence in the Middle East. Delays in Gulf Coast tankers due to fog also lifted oil prices. Shares of Chevron rose 3.5%, while Exxon Mobil gained 2.3%. The S&P Energy index climbed 4.3%.

Big-cap tech stocks, including Apple and Microsoft, which are seen as better positioned to withstand a weak economy due to large cash reserves, helped lift the Nasdaq. Shares of iPod maker Apple rose 6.3% while Microsoft added 4.6%.

Consumer discretionary stocks rose after Starwood Hotels signed a confidentiality agreement with property magnate Sam Zell's Equity Group Investments LLC, which could be in preparation for Zell acquiring a larger stake in the company. Starwood shares surged over 16% while the S&P Consumer Discretionary index gained 4.7%.

The S&P Industrials index rose 4.2%, as Textron rose 10.8% and Manitowoc gained 9.6%.

General Motors shares jumped 14% after the U.S. government on Wednesday paid out the first $4 billion in emergency loans to support the biggest U.S. carmaker. A parallel rescue payment for privately held Chrysler was on hold until the new year. Chrysler said it remained in talks with the U.S. Treasury to finalize its own $4 billion loan agreement and expected to receive its share of the funding soon.

Shares of Ford rose 7.4% even after it forecast a sharp drop in industry-wide U.S. auto sales for December.

Advancers outnumbered decliners on the NYSE by a ratio of about 9 to 2, while on the Nasdaq about eight stocks rose for every three that fell.

Source: Reuters

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