US stocks reverse five-day decline: Morning market insights

The New York Stock Exchange reversed a five-day decline of the Standard & Poor’s 500 Index after Alcoa reported an unexpected first-quarter profit. The result renewed for business growth in the new earnings season.

Alcoa (AA: US), the first company in the Dow Jones Industrial Average to announce quarterly results, climbed 6.2% on the result to $US9.90.

“Alcoa helped dampen the dark mood in the market,” Frederic Dickson, a chief market strategist at D.A. Davidson & Co in Oregon, told Bloomberg. “It’s always nice to see the first company out of the box with an earnings surprise. It’s time to see how this progresses and reassess when to put some money back in.”

Lawrence Creatura at New York’s Federated Investors says earnings expectations are still low and profit surprises may drive the market higher.

“This isn’t a phantom bounce,” Creatura, who helps oversee $369 billion, told Bloomberg. “It seems reasonable to expect positive surprises as we move through the earnings season. Management teams have done a good job of keeping expectations contained.”

The S&P500 Index rose 0.74% to 1368.71 overnight.

The Dow Jones Industrial Average was up 0.70%, or 89.46 points, to 12805.40.

The NASDAQ Index gained 0.84% to 3016.46.

The Federal Reserve ‘Beige Book’ report stated the economy had maintained its expansion in all 12 of its regions as manufacturing, hiring and retail sales showed strength in the face of higher fuel prices.

“The economy continued to expand at a modest to moderate pace from mid-February through late March,” the report states. “Hiring was steady or showed a modest increase across many districts.”

West Texas Intermediate (WTI) oil was up 1.66% to $US102.70 a barrel overnight.

Gold was flat at 0.02% down to $US1660.30 an ounce.

The Australian dollar was slightly up overnight as markets stabilised, buying $US1.03045 at 8.15am AEST.

Europe

European share markets stabilised overnight when European Central Bank (ECB) executive board member Benoit Coeure moved to reassure markets that the bank would restart its bond-purchase program to lower Spain’s borrowing costs.

Coeure said in Paris overnight that Spanish market conditions were not justified.

“Will the ECB intervene? We have an instrument, the securities markets program, which hasn’t been used recently but it still exists,” he said.

Spanish bond yields declined as Coeure’s comments reassured investors.  The yield on Spanish 10-year bonds climbed to a dangerous high of 5.99% on Tuesday night but fell to a more manageable 5.82% last night. Ireland and Greece were bailed out when bond yields reached about 7%.

Despite the calming words, Mohamed El-Erian, co-chief investment officer at the world’s biggest bond fund, PIMCO, told Bloomberg Radio Europe’s problems were growing.

“Europe has a debt issue and Europe has a growth issue, and until Europe deals with both, we are going to have these reoccurring periods of nervousness in the market.”

London’s FTSE 100 closed up 0.70% overnight to 5634.74.

The German DAX was up 1.03%, or 68.30 points, to 6674.73.

The European Stoxx50 index was up 0.85% to 2341.36.