Stock Markets Continue To Rally

Asian stock markets continued to rally for a second day as U.S. and Japanese economic data indicated the global recession is showing signs of easing.  Investors returned to buying as some upbeat corporate earnings fueled optimism the global economy is recovering. The rally helped recoup some losses after the outbreak of swine flu and fears for a resulting epidemic sent investors into risk-aversion mode. The Nikkei 225 Stock Average surged 3.9% to 8,828.26 in Japan, where stock markets opened after a holiday yesterday. Hong Kong’s Hang Seng Index jumped 3.8% to 15,520.99 and South Korea’s Kospi advanced 2.3% to 1,369.36.

In a marketplace given to looking forward six months or so, investors did not have enough reason to rejoice as the latest growth data showed GDP fell at an annual rate of 6.1% from January through March.  Nevertheless, investors looking for reassuring signs did find consumer data somewhat comfortable.  And U.S. Federal Reserve’s observation that the rate of economic contraction was “somewhat slower” was an added relief.  Markets shrugged off reports suggesting Chrysler’s imminent bankruptcy and media reports that at least one-third of the stress-test banks may require additional capital.  At the end of the day, the DJIA closed up 2.1% to its highest since February 9, the tech-heavy NASDAQ was up 2.3% to its highest since November 4, and the S&P up 2.2% to its highest since January 28.

The NASDAQ has now surged 25% from February 27, for its best two-month run since 2002, and is up 34.9% from its March 9 closing low. The S&P has gained 29.1% and the DJIA 25% from March 9 levels. Also, the CBOE Vix “fear factor” index fell 4.9% in yesterday’s trading to 36.08, signaling a less volatile environment. Exxon Mobil (XOM) joined IBM (IBM) in declaring a dividend hike, lifting its quarterly payout by 5% to 42 cents. Despite flu-related worries, a weak GDP report and a huge inventory build up, crude prices rallied 2.2% to $51. As investors took to risk assumption, the prices of Treasuries continued lower, with the 2-year off 0/32 to a yield of 0.954%, and the 10-year off 26/32 to a yield of 3.107%.

Among the ten S&P sectors, nine moved higher Wednesday, with only telecom stocks heading southwards, with a 0.3% drop.  Financial shares led the advance with a 4.6% gain. On the DJIA, banking stocks also topped the list of advancing issues, with Citigroup (C) advancing 8.0%, Bank of America (BAC) rising 6.5%, and JP Morgan (JPM) recording a 5.2% gain. News that shareholders had stripped Bank of America’s (BAC) CEO Lewis of his Chairman title failed to dampen spirits, with the stock rising 6% in premarket trading. Last night’s First 100 Days news conference revealed Obama anxious to lose the mantle of government involvement with the banking industry, ameliorating fears of a backdoor-entrance into banking nationalization.

Yesterday’s earnings news also surprised on the upside with better-than-expected earnings from Aetna (AET), Baker Hughes (BHI), General Dynamics (GD), Hess (HES), Starbucks (SBUX), Time Warner (TWX), Visa (V), Waste Management (WMI), and Wyeth (WYE).

Wednesday’s economic posts indicated advance US GDP fell a worse-than-expected 6.1% during the first quarter, following the fourth quarter’s 6.3% drop.  The decline widely missed the expected 4.7% drop. However, the data revealed businesses cut inventory levels at the fastest pace in the past decade, lifting hopes of a turnaround on future builds. Moreover, the key ingredient of consumer spending rose 2.2%, following a 4.3% fourth quarter drop, signaling resiliency in the segment, which represents 70% of the total economy. Wal-Mart (WMT) added to such hopes, noting increased consumer purchasing of non-essentials such as sporting goods and bedding.

The FOMC monthly interest rate decision provided the as-expected news that the Fed plans to keep key interest rate levels at 0.00%-0.25% for an extended period as the fragile recovery gains footing.

Today’s data include weekly initial claims, expected to show continued gains, with jobless claims up 5,000 to 645,000 from 640,000 the previous week. March personal income is expected to match the prior month’s 0.2% decline; personal spending is expected to show an 0.1% drop versus February’s 0.2% advance. The Chicago Purchasing Managers Index is likely to show an increase to 34.0 in April from 31.4.

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