While you were sleeping: Bulls back in charge

Tuesday 21st September 2010

It was hardly headline worthy but a decision today to call an end to the US recession was a green light for equity investors.

The decision by the National Bureau of Economic Research, which dates business cycles in the US, seems a tad out of date. The bureau declared the end point to have been June 2009 - that’s right, more than a year ago.

In late trading, the Dow Jones Industrial Average rose 1.25%, the S&P 500 gained 1.33% and the Nasdaq Composite Index advanced 1.41%.

The bureau’s declaration comes a day before the US Federal Reserve meets to discuss the more current state of the world’s biggest economy and what it may or may not do to bolster the growth outlook.

Investor optimism has been on the rise in recent weeks in part because of the increasing likelihood that a double-dip recession was fading fast. Some solid corporate news has also helped.

Solid earnings and International Business Machines’ plan for a US$1.7 billion takeover of Netezza bolstered the mood among equity investors in Europe and on Wall Street.

The S&P 500 rose to a four-month high today, pushing through a key resistance level ahead of the Federal Reserve meeting scheduled for Tuesday.

Lennar, America’s No. 4 home builder, announced revenue that exceeded expectations.

“It’s a confluence of positive news,” Wasif Latif, vice president of equity investments at USAA Investment Management, told Bloomberg News

“Companies with healthy balance sheets are announcing takeovers, dividends and buybacks. That’s a good indication of corporate confidence.”

Even so, President Barack Obama today said many Americans were still struggling, as he defended his policies during aggressive questioning after the worst US recession since the 1930s was declared over.

"Even though economists may say the recession officially ended last year, obviously for the millions of people who are still out of work... it is still very real for them," Obama told the meeting, hosted by CNBC television.

Record-low interest rates are stoking the biggest increase in US share buybacks ever, according to Bloomberg News, citing data by Birinyi Associates.

American companies announced US$55.9 billion in repurchases since June, data compiled by Birinyi show. That adds to US$93.5 billion in the second quarter and US$108.3 billion during the first three months of the year, compared with $125 billion in all of 2009.

The benchmark Stoxx Europe 600 Index climbed 1.3% to 266.22.

BP gained 2.1% after saying its Macondo well in the Gulf of Mexico has been permanently sealed.

The VIX, or Wall Street’s fear gauge, dropped 2.4% to 21.48, continuing a steady decline.

The Dollar Index, which measures the greenback against a basket of six major currencies, was little changed, while the price of gold remained near record highs ahead of the Fed meeting.

Businesswire.co.nz

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