Wall Street continued to build on the prior day’s gains this afternoon, as worries about the Greek economy receded after ECB President Jean Claude Trichet yesterday reassured the market that ‘a default is not an issue for Greece’.
The release of better-than-expected US store-chain retail sales and the expectation of a positive first quarter reporting season also powered the stock market today.
The first quarter reporting period will hit the market from next week, with aluminium producer Alcoa scheduled to kick off on Monday. Intel, Google as well as General Electric will also publish their results next week with investors hoping that these reports will continue to show a robust improvement in fundamentals.
However, certain analysts are sceptical, saying these expectations are already priced into the market’s current valuation. ‘I don't think (earnings) will move the needle,’ said Joseph Battipaglia of Stifel Nicolaus. ‘That's not a bad thing. It's just that we've gotten away from a worst-case scenario to what I would consider a best-case scenario, and now it's a lot harder to justify higher stock prices.’
Incidentally, JP Morgan today downgraded Alcoa from ‘overweight’ to ‘neutral’ and removed it from its broker's focus list after estimating 2011 earnings per share of 48 cents and lowering the company’s price target. ‘Although Alcoa has taken significant costs out of its business by closing high cost operations and through additional procurement and productivity savings, we think it will still struggle to generate attractive returns at our strategist's 2011 aluminium price forecast of 92 cents/pound,’ the broker said.
Unsurprisingly, Alcoa’s shares slid 3% to $14.42 this afternoon. However, rival Aluminium Corp of China advanced 3.4% to $28.58 a share and diversified mining giant Barrick Gold gained 0.5% to $41.12. Miners benefitted from a retreat in the US dollar after Fed vice chairman Donald Kohn reiterated Bernanke’s pledge to keep interest rates very low for an ‘extended period’.
A depreciation in the US dollar helped support commodity prices as well today, with May Light Sweet crude oil (WTI) up 0.4% to $85.75 a barrel this afternoon. June gold futures rose 0.2% to $$1,155.7 per troy ounce, while May high-grade copper rose 0.5% to $3.6060 per pound.
Meanwhile, the Wall Street Journal today suggested that a number of major banks have masked the level of risk they took over the last five quarters by temporarily lowering their debt just before reporting the figures to the public. Banks seemed to shrug off these reports, however, with Citigroup climbing 1.8% to $4.55 and Bank of America advancing 0.7% to $18.77.
Also in financials, mortgage insurer Ambac Financial Group rallied 74.6% to $1.12 a share this afternoon after surprising the market by saying that it turned a fourth-quarter profit of more than $500 million. Peer MBIA climbed 2.8% to $7.76 while PMI Group rose 4.2% to $7.17.
Elsewhere, shares of Apple rose 0.5% to $241.14, despite being among 18 computer makers being sued by Wi-Lan over allegations they are infringing upon its Bluetooth patents.
By around 3:30pm (London time), the Dow Jones Industrial Average traded at 10964.10, representing a 37.03 point increase (+0.34%) over its previous close. Meanwhile, the broader S&P 500 was up by 3.8 points (+0.32%) to 1190.24 while the Nasdaq 100 traded 3.65 points (+0.18%) higher at 1984.38.
In other news, the Polish zloty today suffered its sharpest decline in two months against the euro, after Poland’s central bank said it sold the zloty in the open market and bought a ‘certain amount’ of a foreign currency. These actions were intentionally taken to stem the zloty’s rapid appreciation against the euro, which was hurting the country’s exports. Separately, The Washington Post today reported that China is considering allowing the yuan to rise by up to 3% this year.
