US equity markets opened in negative territory this afternoon, as investors feared the reining in of stimulus packages across deficit-stricken economies and the tightening of monetary policy across emerging markets will leave the global economy vulnerable to a double dip recession.
Uncertainty over Greece's ability to service its sovereign debt repayments, due to Germany’s reluctance to back a Greek rescue package has contributed to risk aversion as well today.
Greece’s Papandreou and European Commission President Jose Barroso have been urging EU members to announce a package that will help Greece lower its borrowing costs and avoid the need for a bailout. However, Germany’s Angela Merkel last week signalled that Greece might have to turn to the International Monetary Fund for any emergency lending and on Sunday told Deutschlandfunk radio station that it was wrong to raise ‘false expectations’ of a eurozone bail-out package for Greece.
All of the above factors weighed on the US equity market during the early trading session. By around mid-afternoon, however, the market took an unexpected turn and started to relinquish losses following a rally across pharmaceutical shares. The sector rally was instigated by the final passage of a landmark health-care bill on Sunday.
By around 3:30am (London time) the Dow Jones Industrial Average was trading at 10793.30, representing a 51.32-point (+0.48%) increase while the broader and more representative S&P 500 was trading 4.86 points (+0.42%) above its previous close at 1164.76.
‘The health-care legislation approval removes the uncertainty,’ said Richard Sichel, the chief investment officer at the Philadelphia Trust Co. ‘On top of that, the shares had been beaten down, so you can find reasonably valued companies.’
Unsurprisingly, shares of global health care giant Merck & Co climbed 2.1% to $38.85 while Pfizer advanced 1.8% to $17.22. Hospital shares were also en vogue with, Community Health Systems up 4.4% to $39.8, Health Management Associates and Tenet Healthcare surging 7.2% to $8.72 and $6.15 respectively.
Broker upgrades also helped revive risk appetite, with shares in biopharmaceutical company Halozyme Therapeutics rallying 3.4% to $8.32 after Brean Murray & Co upgraded its share price from ‘hold’ to ‘buy’. Meanwhile, St Jude Medical Inc, a maker of devices to treat irregular heartbeats, climbed 2.3% to $40.30 after Lazard upgraded the company’s stock from ‘hold’ to ‘buy’. Separately Boeing, the world’s second-largest commercial plane maker, rose the most in the Dow Jones Industrial Average, gaining 2.12% to $72.23 after Oppenheimer & Co and Cowen & Co upgraded its to ‘outperform’.
Earnings news also stimulated risk appetite today, with speciality cookware retailer Williams Sonoma rallying 10.4% to $26.64 after unveiling a bigger-than-expected quarterly profit of 86 cents per share after excluding certain one-off items. This beat the Bloomberg’s analyst average estimate by 17%.
Elsewhere, shares of CNX Gas Corp shot up by 22.8% to $37.83 after coal and natural gas producer Consol Energy said it will buy the remaining shares in the company that it doesn’t already own for $965 million.
Meanwhile, shares of US video game retailer GameStop climbed 3.65% to $21.88 after Barron’s said the company’s shares could rise to $30 a share by next year as growth in its video-game business will help bolster profits. Western Union was alos flagged up by Barrons. The company’s share rose 1.1% to $16.85 after the financial news provider said it appears inexpensive and could gain if the global recovery increases demand for its services.
