Stocks Start April with a Rally
U.S. stocks finished solidly higher Wednesday thanks to better-than-expected reports on construction spending, pending home sales, and the Institute for Supply Management's manufacturing index, which gave the market hope that stabilization in the pace of economic decline is near.
But a worse than expected decline in the ADP payroll survey for March likely limited gains, according to S&P MarketScope.
Trading was slow amid conflicting reports that President Obama wants General Motors Corp. (GM) to go into controlled bankruptcy. There is much anxiety and uncertainty over GM's fate.
Thursday's reports on factory orders and weekly initial jobless claims could restrain traders, says S&P MarketScope.
On Wednesday, the 30-stock Dow Jones industrial average finished higher by 152.68 points, or 2.01%, at 7,761.60. The broad S&P 500 index added 13.21 points, or 1.66%, to 811.08. The Nasdaq composite index gained 23.01 points, or 1.51%, to 1,551.60. On the New York Stock Exchange, 23 stocks were higher in price for every seven that declined. Breadth on the Nasdaq was 17-9 positive.
Treasuries and the dollar index were higher. Gold futures were up slightly. Oil futures were lower.
Stocks finished solidly higher Tuesday in March's final session, giving the market its best monthly performance in six years.
Treasury Secretary Timothy Geithner downplayed a decision on GM bankruptcy in comments outside the G20 meeting in London Thursday, saying a decision has not yet been made to force either GM or Chrysler into bankruptcy. The New York Times and Bloomberg News had reported that the Obama administration is seeking to ease General Motors into a "controlled" bankruptcy by persuading some creditors to agree to a plan that would divide the company into two pieces. Bloomberg, quoting members of Congress, also reported Obama also is prepared to let Chrysler go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can't form an alliance with Fiat SpA.
However, a White House official quickly denied the report, telling Bloomberg in an e-mail: "The president's position has not changed. He remains committed to a significant restructuring without a bankruptcy if at all possible." Reuters also quoted a senior administration official as saying, "This report is not accurate."
On Wednesday, Automakers reported stronger than expected vehicle sales data for March, leaving an 8% bounce to a 9.8 million annual sales pace from what now appears to be a likely floor for sales in February at a lean 9.1 million rate, says Action Economics.
Obama and UK Prime Minister Gordon Brown were optimistic about the G20's recession recovery plan.
Thousands of G-20 protesters jammed downtown London on Wednesday and some tried to storm the Bank of England, pelting police with eggs and fruit and rocking the barricades designed to control them.
In economic news Wednesday, U.S. ISM manufacturing index rose to 36.3 in March from 35.8 in February. The pace of contraction has been slowing since the index hit 32.9 in December (the lowest since June 1980). The employment index improved to 28.1 versus 26.1 in February. New orders climbed to 41.2 from 33.1. Imports edged up to 33.0 from 32.0. Price paid rose to 31.0 from 29.0. The data are better than expected. Stocks were already coming off their lows ahead of the data, and this report supports that move, while Treasury yields are either side of unchanged.
U.S. construction spending fell 0.9% in February from a revised -3.5% in January (was -3.3%). December's -2.4% was also revised down to -3.1%. Residential construction spending declined 4.1% in February after a 3.5% decline previously (revised from -2.8%), while non-residential construction rebounded 0.5% following a 3.6% drop in January (revised from -3.5%). Private construction activity dropped 1.6%, while public works rose 0.8%.
U.S. pending home sales index rebounded 2.1% to 82.1 in February, after a 7.7% decline to 80.4 in January. The index continues its sawtoothed monthly pattern, but is still down 6.2%, year-over-year. Gains were posted in three of the four regions, with only the West posting a decline on the month (-13.5%).
the U.S. ADP private payroll survey posted 742,000 lost jobs in March, after losing a revised 706,000 jobs in February (was -697,000). The goods producing sector lost 327,000 jobs. Manufacturing employment fell 206,000, which is the 37th consecutive monthly decline. The service producing sector payrolls lost 415,000 jobs.
The data bode poorly for Friday's March payrolls report, says S&P Economics, adding downside risk to S&P's estimate of 650,000 jobs lost.
The Mortgage Bankers Association said the volume of mortgage applications filed last week ticked up a seasonally adjusted 3% from the week before, as mortgage rates continued to fall. Applications were up 68.8% for the week ended March 27 from the same week in 2008, according to the MBA's weekly survey.
Unemployment in the euro zone jumped more than expected in February to 8.5%, underlining the speed of economic deterioration a day before the ECB meets on interest rates. Joblessness in the 16 countries using the euro rose from January's upwardly revised 8.3% of the workforce, Eurostat, the European Union's statistics office, said. Economists had expected a level of 8.3% for February and said the unemployment rate was likely to reach 10 percent this year as the economic crisis deepens.