Dow Gains 200 Points on GDP, Oil
Stocks rallied to the finish Thursday, egged on by stronger-than-expected GDP growth and a drop in oil prices.
Second-quarter GDP was revised to show 3.3 percent growth, up from the prior estimate of 1.9 percent. Economists had expected to see 2.7 percent growth. The third and final reading will come next month.
A huge part of GDP growth came from trade, which added 3.1 percent.
"Wow!!" Robert Brusca, of Fact and Opinion Economics, said of the trade contribution. That's "a huge number," he said. "Without trade, U.S. GDP would have limped ahead by 0.2 percent."
Still, GDP is growing by 2.2 percent year-over-year, Brusca points out — "too fast for a recession."
The day's rally went against historical precedent, where the Thursday before Labor Day is typically negative as traders clear out ahead of the weekend. In the past 11 years, the market has been down 10 times on this day. Well, now that stat is down 10 of the past 12.
Volume on the New York Stock Exchange was 956 million, about half the daily volume. That's been the standard this week, but when you look at the month historically, this is even low for August. Seems there's enough uncertainty out there with consumer spending and credit issues that a lot of traders are opting to just stay on the sidelines.
Twenty-nine of 30 Dow components ended higher, with the exception being Coca-Cola after Credit Suisse downgraded the beverage maker's stock to "neutral" from "outperform," saying the company is coming under increased pressure to restructure its North American operations, something that would be harder for Coke than for rival Pepsi , and that a projected dollar recovery could crimp earnings growth. (Click here to track the Dow components.)
Coke shares skidded 1.3 percent. Pepsi finished flat.
Financials got a boost from Fannie Mae, which announced a sweeping management shake-upin an effort to come to grips with mounting credit losses and a shrinking capital base. Lehman Brothers said Fannie's capital and reserves are better than the market perceives.
The S&P financial-sector index jumped 4.5 percent. Financials accounted for four of the five top gainers on the Dow: Bank of America , American Express , AIG and Citigroup .
Shares of both Fannie Mae and Freddie Mac continued to rally. Fannie Mae is up about 80 percent from its intraday low of $4.40 on Friday, while Freddie Mac shares have doubled from their low of $2.50 that day.
Shares of MBIA were the biggest percentage gainer on the NYSE, jumping 35 percent, after the bond insurer agreed to take over $184 billion of municipal bonds currently backed by FGIC, providing additional stability to bond holders and maybe helping it avoid insolvency.
Lehman Brothersplans to lay off 1,500 employees, or 6 percent of its work force, the New York Times reported. Its shares rose 7.4 percent.
The GDP report boosted large industrial companies. Dow industrial Caterpillar , often viewed as a gauge of the economy, climbed 3.1 percent.
Boeing gained 2.8 percent after the aerospace giant made its "best and final offer" to its largest labor union in an attempt to avert a strike. Boeing said it would provide employees with an average of $34,000 in additional wages and incentives over three years. The company also withdrew its plan to discontinue early retiree medical coverage for employees hired after 2010. A union rep said the group did not yet have a response as they were still poring over the 300-page document.
Of course, Tropical Storm Gustav, which is readying to move back to hurricane status and heading toward the Gulf Coast, continued to hover over the market.
Crude oil dropped more than $2 to settle at $115.59 a barrel after the EIA said it would release additional barrels of crude from its supply if Gustav hits Gulf operations. Earlier, oil topped $120 a barrel.
Gulf energy companies braced for Gustav's arrival. Shell Oil, which has the largest offshore operations, began shutting output Thursday, working to evacuate all of its 1,300 Gulf of Mexico workers by Saturday. Anadarko plans to have all non-essential workers evacuated from offshore operations by Saturday and will have production shut down by Sunday.
The dollar rose against the euro after oil began to tumble. Earlier, the U.S. currency had come under pressure as European Central Bank officials indicated inflation worries persist in the euro zone.
The U.S., Europe and Japan planned a joint intervention to rescue the dollar when it was plunging in March when Bear Stearns collapsed, the Nikkei business newspaper reported. The paper did not say whether a certain level for the dollar was envisaged.
Shares of auto makers didn't seem to be bothered by Toyota, which cut its 2009 sales forecastby 7 percent due to pressure from high gas prices on demand for large vehicles. General Motors shares rose 1.4 percent, while rival Ford gained 4 percent.
In earnings news, shares of Tiffany shot up 11 percent after the upscale jeweler beat expectations and raised its outlook.
Sears's profit was more than cut in half in the second quarter, falling to 50 cents a share from $1.15 a year earlier. The retailer, controlled by hedge-fund manager Eddie Lampert, also slashed its full-year forecast, saying housing woes and rising food prices will crimp sales for the rest of the year. Still, shares rose 4.2 percent.
Earnings are due out after the bell from Dell Computer . Once again, Dell grabbed more market share during the quarter, outshipping rival Hewlett-Packard , an industry-research group reported. Analysts expect a profit of 36 cents a shareon sales of $15.94 billion.
Dell shares shed 1.6 percent ahead of the news. HP gained 1.1 percent.
MONDAY-THURSDAY: Democratic National Convention in Denver
THURSDAY: Jobless claims; GDP, corporate profits; natural-gas inventories; Earnings from Sears Holdings, Tiffany and Dell; Barack Obama's acceptance speech
FRIDAY: Personal income and spending; Chicago manuf. report; consumer sentiment; farm prices
WATCHERS: McCain VP announcement
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