Falling dollar boosts commodity stocks
Wall Street bounced back yesterday as a fall in the dollar spurred buying in industrial and commodity-linked shares, while another batch of strong corporate earnings added to gains.
The Dow Jones industrial average gained 129.35 points, or 1.18 per cent, to 11,107.97. The Standard & Poor’s 500 Index rose 12.27 points, or 1.05 per cent, to 1,178.17. The Nasdaq Composite Index added 20.44 points, or 0.84 per cent, to 2,457.39.
Equities and the greenback have had an inverse relationship lately because the Federal Reserve’s ultra-low interest rate policy has led investors to buy riskier assets like stocks and commodities.
“The correlation has come back strongly and much of that has to do with the Fed and the promise of asset purchases,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
The euro and the popularly traded S&P E-mini futures contract have tracked each other closely in the last month. In the last 22 sessions, they have had a positive correlation coefficient of 0.8, implying a very strong relationship between the two.
Volume was in roughly in line with the average for the year so far but was below Tuesday’s high volume sell-off.
Materials shares led the broad market higher. Freeport-McMoRan Copper & Gold gained 2.8 per cent to $95.35 and the S&P materials index rose 2 per cent. Commodities gained as the US dollar dropped to a near 15-year low against the yen.
The Boeing Company gave the biggest boost to the Dow, up 3.3 per cent at $71.36. The company reported a quarterly profit that beat expectations and raised its full-year forecast, helped by a recovery in the commercial airplane market.
Delta Air Lines and US Airways Group jumped after they reported strong profits. Delta surged 10.9 per cent to $12.97 and US Airways jumped 7.4 per cent to $10.84.
After the dollar’s rise on a surprise Chinese interest rate hike on Tuesday, the currency’s change of fortune prompted a snap-back in stocks.
Eaton Corp was among major industrial companies that raised their profit forecasts for the rest of the year, sending its shares up 4.1 per cent at $86.82.
Earnings from financial companies were mixed. Wells Fargo & Co reported higher earnings, but Morgan Stanley reported a surprise loss.
Wells Fargo rose 4.3 per cent to $25.60, while Morgan Stanley fell 0.04 per cent to $25.38. US Bancorp rose 0.1 per cent to $22.83 after reporting higher earnings.