Mid-Day Recap: Equities Make Fresh 2009 Highs

In late August, Wall Street was worried that the March to August run-up in equity prices had become overheated, but since September 2 the Dow has added 2.81%, the benchmark S&P 500 has edged up 3.81%, and the Nasdaq has climbed 4.76%.

Those advances continued for a fifth day this morning as investors took an expanding trade deficit to suggest consumers were opening their wallets at home and abroad in July. At 12:45, the S&P 500 and Dow were both up 0.33% while the Nasdaq pushed up 0.46%. That puts all three indexes at fresh highs for 2009.

The US trade deficit expanded a sharp 16% to $32 billion, with demand for foreign goods jumping 4.7% in July, while exports saw their third straight advance with a 2.2% gain. 

“The surge in the July trade deficit should be viewed as good news,” said Brian Bethune, chief financial economist at IHS Global Insight. “It is a sign that the U.S. economy is accelerating out of recession early in the third quarter, and in the short space of several months the inventory situation has changed dramatically in certain critical industries from a situation of excess supply to relative tightness. This is driving increases in production that require imported components.”

A jump in imports will be a subtraction from GDP growth, said Joseph LaVorgna from Deutsche Bank, but gains on both fronts are “evidence of a rebound in overall economic activity—both in the US and abroad.”

Markets were pleased by the 26k drop in jobless claims for the week ending September 2. The 550,000 new claims for unemployment benefits is still staggeringly high, but the drop marks a seven-week low.

“Granted, there may be something funky going on here, as it covers the period before the long Labor Day weekend, but any downward move in claims is certainly welcomed,” said Jennifer Lee, economist at BMO Capital Markets.

Figures for continuing claims were also headed in the right direction as they fell 159k to 6.088 million.

“This in fact is the lowest print on this indicator since April, and it suggests that the recent moderation in continuing claims is perhaps gaining traction,” said Ian Pollick from TD Securities.

In previous weeks, the decreasing number of total claims has been attributed to a technicality: as the unemployed run off the 26-week limit on benefits, the continuing claims figure falls even though jobs haven’t necessarily been created. Indeed, a separate report from the Labor Dept. indicated that, as of July, job openings in the US were at 2.4 million, a record low in nine years of data. 

But today’s report may indicate that job creation is improving near summer’s end, as the number of people receiving emergency benefits fell for the second straight week in the period ending Aug. 22. 

Other data from the morning were less encouraging. The world's largest seed company, Monsanto, reported that it would spend nearly $600 million to cut jobs and reduce costs due to increased competition. Earnings for the fiscal year ending August 31 were on the lower end of forecasts.

Later today, the Treasury will hold a $12 billion auction in 30-year bonds, which are currently trading lower at 4.273%. Despite the renewed appetite for equities, investors have retained a taste for bonds this morning, with the benchmark 10-year yield moving down from 3.47% yesterday to 3.40%.

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