Thursday’s Market Recap: Surprise GDP Growth Lifts US Stocks

One of the big stories of the day was Dell’s very disappointing second quarter, in which, Dell (DELL) reported a 17% decline in quarterly profit. This decline is accredited to spending cutbacks on IT which has spread away from America and has also hit Western Europe and Asia. This is evidence of a global slowdown in IT spending and could be a bad sign for the Information Technology sector as whole. Dell reported a net income of $616 million, or $0.31 per share, down from $746 million or $0.33 per share a year ago. Excluding certain business costs, Dell earned $0.33 per share which was well under Wall Street’s expected earnings of $0.36 per share. Revenue did grow at 11% for the quarter to $16.43 billion. Shares of Dell fell to $25.21 dropping $0.42 or 1.64% during intra-day trading. Currently, after the news release, Dell is trading at $22.60, down $2.61, or 10.35%.

On a better note, The Commerce Department reported that GDP grew at 3.3% (annual rate) in the second quarter, the greatest percentage growth in GDP since the third quarter of last year (which recorded a GDP growth of 4.8%). The government had expected GDP to come in at around 1.9% and economists were expecting GDP to be around 2.7%.

Unfortunately, this rebound in our economy, driven by strong exports, is not expected to last very long as an overseas economic slowdown could force a decline in exports. Economists expect a slight slowdown and GDP to grow at 1.5% for the upcoming July-September Quarter.

The Labor Department reported that the number of newly laid off people seeking unemployment benefits fell for the third straight week. The number of claims fell by 10,000 claims from last week, and is currently at 425,000, which came in under the expected 427,000 claims. Claims over 400,000 is an indicator of a slowing economy, economists warn, and although this is good news, the realization that companies may still have to cut jobs due credit issues and higher energy costs.

These positive reports did lead today’s strong market performance, along with a decline in oil prices. The Dow Jones Industrial Average (^DJI) traded ended the day at 11,715.18, up 212.67 points, or 1.85%. The Dow has advanced almost 330 points over the past three days, but remains pretty much flat on the week after Monday’s big decline on credit woes. The Nasdaq composite index (^IXIC) closed at 2,411.64, up 29.18 points, or 1.22% and the S&P 500 (^GSPC) climbed to 1,300.68, up 19.02 points, or 1.48.% from the previous day.

Crude oil fell $2.56 to $115.59 a barrel, Gold rose $3.20 or 0.39% to $831.40 per ounce. The Dollar gained on other major currencies and is currently at 0.6807 vs. the Euro and 109.59 vs. the Yen. The 10 year Treasury note rose to 3.79%, up 20 basis points from yesterday.

The National Retail Federation reported overall retail sales are expected to slow, and are expecting 3.5% growth for 2008, compared to 2007’s growth rate of 3.7%. Oil Ministry officials reported that China and Iraq signed a $3 billion deal, revising a previous deal from 2003, to allow China’s largest oil company to help develop the Ahdab oil field.

Let’s take a look at how the individual sectors of the S&P 500 performed today. This is not the performance of the sector SPDRs, but an actual sector performance analysis as reported by the S&P  500.

In order of top performing for today 8/28/08 (% change):

1. Financials up 4.50%, or 12.37 points to close the day at 287.27

2. Telecommunication Services up 2.52%, or 3.27 points to close the day at 132.97

3. Industrials up 2.37%, or 7.35 points to close the day at 317.59

4. Consumer Discretionary up 2.31%, or 5.48 points to close the day at 242.80

5. Materials up 1.37%, or 3.33 points to close the day at 245.90

6. Health Care up 0.85%, or 3.24 points to close the day at 383.01

7. Information Technology up 0.84%, or 3.06 points to close the day at 368.01

8. Consumer Staples up 0.61%, or 1.77 points to close the day at 293.62

9. Utilities up 0.60%, or 1.16 points to close the day at 193.78

10. Energy down 0.75%, or -4.28 points to close the day at 563.58

Year to Date the Top performing sectors are (% change):

1. Consumer Staples (-1.98%)

2. Materials (-5.37%)

3. Consumer Discretionary (-6.45%)

4. Health Care (-6.51%)

5. Energy (-6.54%)

6. Utilities (-10.33%)

7. Industrials (-10.37%)

8. Information Technology (-10.60%)

9. Telecommunication Services (-21.00%)

10. Financials (-26.73%)

Year to date the S&P 500 down 11.42%

Disclosure: The author does not have positions in any of the companies mentioned above.

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