Friday, August 29, 2008

Market Rallies on GDP Revised Up to 3.3%, Oil and Natural Gas Fall, Financials Jump

On Thursday, the Dow rose nearly 2% after the government revised the 2nd quarter gross domestic product to a 3.3% annual rate. The number was buoyed by strong export growth and consumer spending, and it was well above the initial estimate of 1.9%.

After the GDP report, released at 8:30 am, stocks rose quickly at the open driving gains in major industrial and financial companies. The Dow finished up 212.67 points (1.85%), the S&P 500 closed up 19.02 points (1.48%), and the NASDAQ ended up 29.18 points (1.22%).

Crude oil surprisingly fell today $2.56 to close at $115.59 a barrel. This seemed to ease fears about constraints on consumer and business spending as well as some inflation. Earlier in the day, oil jumped above $120, then fell after the International Energy Agency (IEA) pledged to open its emergency stockpiles if Tropical Storm Gustav damages U.S. oil and natural gas facilities in the Gulf of Mexico this weekend. Natural gas was hurt further after a surprising jump in inventories was announced.

On news of the shake up at mortgage giant Fannie Mae (FNM), financials quickly started to regain some strength. Bank of America (BAC) had the largest gain in the S&P when it closed up 6%.

Additionally in financials, MBIA (MBI) had a huge percentage jump by finishing up 34.9% after the bond insurer said on Wednesday it plans to reinsure a $184 billion portfolio of investment-grade U.S. public finance credits. On the news, other insurance companies rallied as well with Ambac Financial (ABK) adding 41.6%, and American International Group (AIG), the world's largest insurance company, closing up 7.6%.

There was quite a bit of talk that the economy is stronger than originally thought, and that the next Fed move will be higher. The economic reports have been mixed at times, but it seems that most bond traders and economists still believe that the Fed will hold off on raising rates till closer to year's end or even longer. The economy has strengthened, but with inflation somewhat decreasing due to energy prices, the Fed does not need to slow down the economy to battle inflation.

Friday's news will be the consumer sentiment report and personal income report (a gauge of inflation for the Fed), and there should also be an announcement by John McCain of his running mate.

Expect a light trading day going into the long Labor Day weekend with the market being closed on Monday.

1 comment:

Jamie Turner said...

As usual, you guys were right about all the doom and gloom. The media is going way over the top on all this. Thanks for your great blog!