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Financial News

Aug 2009 Financial News

Report: recession eases, but revisions worry investors

Aug 03, 2009

Stocks tacked on moderate gains last Friday after the government said the economy shrank at a slower pace than expected in the April-June quarter.

Gross domestic product slowed at a rate of one per cent during the quarter, better than the 1.5 per cent drop expected by analysts. But the report also found that consumers cut spending in the second quarter, a troubling sign because their outlays account for more than two-thirds of all US economic activity.

Investors have been placing big bets this month that the longest recession since World War II is finally beginning to recede. The Dow began Friday with a gain of 8.4 per cent for the month, its strongest July since 1989, when it gained nine per cent. The blue chips are on track to post the best performance of any month since October 2002.

Alan Lancz, money manager at Alan B Lancz & Associates, said the GDP report signalled the economy was improving, but he worries that investors are getting ahead of themselves and buying stocks as if the economy will rebound quickly off the bottom. In late afternoon trading, the Dow rose 40.43, or 0.4 per cent, to 9,194.89. The Standard & Poor’s 500 index rose 3.98, or 0.4 per cent, to 990.73, while the Nasdaq composite rose 5.28, or 0.3 per cent, to 1,989.58.

The GDP report is the strongest sign yet that the recession is winding down. However, the Commerce Department revised the first-quarter GDP figure much lower, saying economic activity tumbled 6.4 per cent. That is the worst quarterly reading in nearly 30 years. The latest report also said consumers cut spending by 1.2 per cent in the second quarter, after a 0.6 per cent increase in the first quarter. Investors have been looking to consumers to help lead the economy out of a recession. Spending has been cut as consumers continue to worry about jobs.

The unemployment rate is expected to move higher after hitting a 26-year high of 9.5 per cent in June. In corporate news, Walt Disney Co fell 78 cents, or three per cent, to US$25.44 after reporting a 26 per cent drop in fiscal third-quarter profits on slower DVD sales while revenue fell by seven per cent. In other trading, bond prices rose. The yield on the benchmark ten-year Treasury note, which moves opposite its price, fell to 3.50 per cent from 3.61 per cent late Thursday.

Light, sweet crude rose US$2.51 to settle at US$ 69.45 a barrel on the New York Mercantile Exchange. The dollar fell, and gold prices rose. More than two stocks rose for every one that fell on the New York Stock Exchange, where volume came to a light 770.6 million shares compared with 960 million shares traded at the same point Thursday. The Russell 2000 index of smaller companies rose 3.78, or 0.7 per cent, to 561.58. (AP)

Source: Trinidad Guardian
Date published: Aug-03-2009