Wall Street opened higher today following additional signs of a recovery in the embattled labour market and Bernanke's pledge to maintain 'accommodative policies' to support the US economy.
The stock market received a boost after the US Labor Department showed the number of Americans claiming first-time unemployment benefits (initial jobless claims) falling by 14,000 to 442,000 for the week ended March 20 – steeper than expectations for a drop of 7000.
Investors also welcomed a speech by the Federal Reserve Chairman Ben Bernanke today reiterating his view about the central bank maintaining low interest rates – this is positive because it reassures the market that the US economic recovery has a greater chance of withstanding a removal of certain stimulus measures and an eventual cut in US government expenditure.
'The economy continues to require the support of accommodative monetary policies,' Bernanke said today. 'However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus.' Mr Bernanke went on to explain that the closing emergency-loan programmes and raising the discount rate 'do not constitute a tightening of monetary policy, nor should they be interpreted as signalling any change in the outlook for monetary policy.' Raising the discount rate, which is the interest-rate paid on funds deposited by banks at the Fed, and the so-called reverse repurchase agreements that temporarily drain cash from the banking system, will be among the main tools for tightening credit, Bernanke explained today.
The market also warmed up to Germany's Angela Merkel, who surprisingly recommended a combination of International Monetary Fund help and bilateral EU aid as a measure of last resort for Greece – although I profess to remain a sceptic, this development has helped restore confidence in the stock market since it implies that Germany, the richest EU member, is willing to collaborate with the rest of the region on a Greek bail-out.
Investors should therefore keep watch on news about the EU summit, where the details of a rescue plan are expected to emerge. Positive news from Dubai spurred risk appetite as well today. It transpires that the emirate has committed $9.5 billion to help Dubai World restructure its debt.
By around 3.40pm (London time) the Dow Jones industrial Average was trading at 10935.53, representing a 99.38-point (+0.92%) rise over its previous close. In addition, the S&P 500 was 11.88 points (+1.02%) higher at 1179.60, while the Nasdaq 100 gained 22.48 points (+1.15%) to 1974.32.
Shares of retailer BestBuy and chipmaker Qualcomm rallied 5.15% to $43.43 and 6.4% to $42.75 respectively this afternoon after unveiling stronger earnings. Best Buy, the world's largest electronics retailer, reported fourth-quarter earnings and sales that exceeded consensus expectations. Top and bottom line growth was bolstered by a surge in demand for televisions and laptops.
Similarly, pent-up demand for mobile phone chips encouraged Qualcomm to raise its second-quarter sales and profit forecasts. The company's Chief Executive Officer Paul Jacobs said 'favourable volume and product mix' in the company's chipset business are responsible for the upward revisions.
Qualcomm projects second-quarter sales of at least $2.55 billion, up 6.25% from an earlier goal. In addition, profit, excluding certain one-off items, is expected to come in between 56 cents and 58 cents a share, up from an earlier forecast of 49 cents to 53 cents a share.
Chipmakers Intel, STMicroelectronics, and Advanced Micro Devices rose between 0.6% and 2.8% thanks to this news.
Elsewhere, Citigroup rallied 4.5% to $4.34 this afternoon on rumours about the US Treasury planning to sell its 27% stake in the bailed-out bank. Sector peer Bank of America jumped 3.6% to $18.20 while Wells Fargo climbed 3.2% to $31.85.
Analyst upgrades also added to the excitement this afternoon, with US e-commerce company eBay jumping 3.7% to $27.92 after Credit Suisse upped the company's rating from 'neutral' to 'outperform', and solar cell manufacturer First Solar climbing 3.2% to $112.94 after Morgan Stanley initiated coverage on the company with an 'overweight' rating. Athletic shoe maker Nike was also in favour, with its shares advancing 0.8% to $73.98 after HSBC upgraded the stock from 'neutral' to 'overweight'.
Separately, I'm keeping Take-Two Interactive Software on my watch list since billionaire investor Carl Icahn has increased his stake in this company. According to a SEC filing, Icahn bought 50,840 shares of Take-Two at a price of $10.01 on 18 March 2010. The following day he acquired an additional 660,000 shares at $9.93, bringing his total stake in the company to 11,583,873 shares, which in total represents a 14% stake in the company.
