Stock Market News for June 12, 2009

A better-than-expected demand for government bonds and a drop in jobless claims sent US stock markets to their multi-month highs Thursday, but a late-session pullback trimmed much of the gains, even as a drop in Treasury yields reassured investors that an incipient economic recovery is on track.  An auction of $11 billion in 30-year bonds yesterday went off better than expected, tempering fears of higher interest rates.  Many investors have been worried that weakening demand for government debt and rising yields could push interest rates higher and eventually hurt prospects of a budding economic recovery.  At day’s end, the Dow Jones industrial average added nearly 32 points, or 0.4%, and closed a shade below its 2008 finish.  The S&P 500 index added 0.6% to 944.89 points, its highest close since November 5.  The NASDAQ edged up 0.5% to close at its highest point since October 6. Market’s measure of volatility, the CBOE Vix, eased 1.2% to 28.11.  However, volume remained light on the NYSE with only 1.2 billion shares trading.

Since hitting 12-year lows on March 9, stocks have bounced sharply as policy makers have pumped in billions of dollars to prevent the economy from plunging into a deeper recession.  However, the rally has lost steam lately as rising bond yields and commodity prices have heightened fears of inflation and many analysts have said a correction is due shortly.  

Yesterday, investors also took heart from a Commerce Department report which said retail sales increased 0.5% in May.  However, much of this recovery was built on the back of higher gasoline prices.  Excluding autos and gasoline sales, retail sales improved just 0.1%.

Crude prices jumped beyond $73 briefly, after International Energy Agency raised its demand forecast, asserting a "long-awaited emergence of improving fundamentals."  Oil and gas sector shares rose 1.8%, with Schlumberger (NYSE:SLB - Analyst Report) advancing 4.9% and Chevron (NYSE:CVX - Analyst Report) adding 2.4%.  Basic material shares gained 1.6%, with Alcoa (NYSE:AA - Snapshot Report) registering a 6.4% advance.  Copper prices closed at its highest level since last October on a 6% rise in China copper imports from April levels. Aluminum prices jumped 3.1%.

Yesterday, Bank of America (NYSE:BAC - Analyst Report) jumped 8.3% and the firm was the leading gainer on the DJIA after it was upgraded to "outperform" from "market perform" by Keefe, Bruyette and Woods.  Improved profit assumptions and the rating upgrade helped financials edge up 0.5%.  Keefe, Bruyette also lifted its price target on BofA to $16.50 per share from $12.  Also, Morgan Stanley (NYSE:MS - Snapshot Report) raised its profit assumptions for the bank, citing improved assumptions for fee income this year and in 2010.  Goldman Sachs (NYSE:GS - Analyst Report), while remaining cautious on regional banks, raised its ratings on several, including Regions Financial (NYSE:RF - Analyst Report) and Fifth Third (NASDAQ:FITB - Analyst Report) to "buy", and BB&T (NYSE:BBT - Analyst Report) and Huntington Bancshares (NASDAQ:HBAN - Analyst Report) to "neutral."

The better-than-expected reception of yesterday’s $11 billion 30-year bonds auction helped buoy T-bill prices, which were under pressure following yesterday’s disappointing auction of 10-years, which had sent the benchmark notes to their highest yield since last October.  Fears of weakening foreign demand for US debt were assuaged by reports that indirect bids, a measure of foreign interest, was a healthy 34% at Wednesday's sale.  This morning, a WSJ report suggested the Fed is unlikely to increase its program of Treasury purchases, although the central bank may decide to extend its purchasing program.