Mid-Day Recap: Market Rally Resumes as Nasdaq Crosses 2,000

After a two-day pause on Tuesday and Wednesday, markets are continuing the rally that began three weeks ago. Midway through Thursday's session, markets are up close to 2%, with the Nasdaq crossing the 2,000 mark for the first time since October. Meanwhile, following a strong 7 yr note auction, benchmark Treasuries have recovered early morning losses,  leading MBS prices higher and mortgage rates lower!

As of 1:30, the S&P, Dow, and NASDAQ have all reached 2009 index highs. The S&P is 1.89% higher to 993. Since July 10th the index has soared by 12.58%. The Nasdaq has climbed 1.36% today to 1994, after hitting 2008 earlier in the morning, and the Dow is trading 1.73% higher at 9228.

The upswing is driven by earnings, as the only economic report this morning was a mixed labor report (details below).

Motorola cut production costs and shipped more phones than expected, allowing the company to record a profit of $26 million, or 1 cent per share. Travelers Companies, the insurance company, said net income fell 21% in the quarter, but that too was better than forecasts as earnings per shares were $1.27, two cents higher than the market forecast.

MasterCard also topped expectations as Q2 net income leapt 26.4% compared to last year. Colgate earnings rose 14% as costs were slashed. 

Dow Chemical recorded a quarterly loss of $435 million, but their CEO said in a statement that the economy "appears to be stabilizing" and the second-largest chemical manufacturer was optimistic about future demand from China, "where domestic stimulus programs have created demand."

Exxon Mobil reported a 66% slide in Q2 profits, but that was largely a result of the volatility in oil prices.

Some media are also reporting that the jobless claims report was good news, as the tally of continuing claims fell 54k in the week ended July 18 to 6.197 million, the lowest since April 11. However, economists emphasized that the “improvement” is likely more a reflection of the unemployed no longer receiving benefits rather than an indication of job creation.

“The all-inclusive tally of those collecting unemployment benefits is still at a record high, totaling 9,266k in the week to July 11,” noted Jennifer Lee from BMO Capital Markets, explaining that the all-inclusive figure has a lag. “Those receiving extended benefits fell 37k to 352 in the week to July 11, and the emergency unemployment compensation recipients rose 25k to 2,657k.”

Meanwhile, initial jobless claims rose 25k to 584k for the week ending July 25.

“The latest data appears to reflect a return to trend following several weeks of erratic readings due to retooling in the auto sector for the new model year,” said Joseph LaVorgna from Deutsche Bank. 

He added: “Our sense is that the economy is turning the corner, but the labor market improvement will be sluggish given the slower-than-usual pace we anticipate for the recovery given cosumers’ excessive leverage.”

No more data is scheduled for today but the all-important advance estimate for Q2 GDP is released tomorrow. The median forecast is -0.7%.