While you were sleeping: Wall Street off to good start
August 7 (BusinessDesk) – Stocks advanced on both sides of the Atlantic as most US companies seem to have escaped the
latest quarterly earnings season relatively unscathed, while there are reasons to be optimistic that Europe's sovereign
debt crisis is being kept in check.
In late afternoon trading in New York, the Dow Jones Industrial Average rose 0.56 percent, the Standard & Poor's 500 Index gained 0.55 percent and the Nasdaq Composite Index climbed 1.04 percent. In Europe, the Stoxx 600
Index finished the session with 0.5 percent advance on the previous close.
German Chancellor Angela Merkel’s government backed the European Central Bank’s bond-buying plan, Bloomberg News
reported, citing a government spokesman. ECB President Mario Draghi has said the central bank will purchase short-dated
bonds of Italy and Spain to help ease their borrowing costs if and when needed.
The yield on Spain’s two-year note sunk 48 basis points to 3.48 percent, while the yield on Italian two-year notes fell
eight basis points to 3.05 percent.
The commitment to help both countries is a welcome sign for investors as the strains of the euro zone crisis has
hampered the recovery of the world's largest economy. Still, with lowered expectations, the most recent round of
American quarterly earnings has managed to by and large surpass these estimates.
“The earnings season has again surprised primarily because expectations were so low,” James Paulsen, the chief
investment strategist at Minneapolis-based Wells Capital Management, told Bloomberg. The prospect for bond purchases by
the ECB “has also boosted bullish attitudes among investors.”
To be sure, Federal Reserve Chairman Ben Bernanke told a research conference that many Americans are still struggling
amid signs of recovery.
"Even though some key aggregate metrics -- including consumer spending, disposable income, household net worth, and debt
service payments -- have moved in the direction of recovery, it is clear that many individuals and households continue
to struggle with difficult economic and financial conditions," Bernanke said in a prepared text.
The US Treasury will sell US$32 billion of three-year notes tomorrow, US$24 billion of 10-year notes on August 8 and
US$16 billion of 30-year bonds the following day.
“On a relatively slow day, the back and forth of competing European headlines may once again drive Treasury prices,” Ian
Lyngen, a government-bond strategist at CRT Capital Group in Stamford, Connecticut, told Bloomberg. “We’ll probably look
for supply to create a concession.”
Investors were pleased with the plans of Best Buy's founder and former chairman, Richard Schulze, to buy the shares he
does not already own in the electronics retailer for US$24 to US$26 each. Shares of Best Buy soared 14 percent to
A group of investors rescued Knight Capital Group in a US$400 million deal that keeps the embattled leader in US
equities market-making in business, but comes at a huge cost to existing shareholders.
Chief Executive Tom "TJ" Joyce told Reuters the new investors supported him and his management team, but it was too
early to tell whether the firm would shrink or keep the same strategy it had before last week's losses.