Wall Street Wrap – Goldman upgrades the Big Banks, Dollar Down, Gold Up
By Robert Perrego, at 4:53 pm on October 5th, 2009Goldman Sachs Group Inc. (NYSE: GS) upgraded Wells Fargo & Co. (NYSE: WFC) and Comerica Inc. (NYSE: CMA) to buy this morning and added Capital One Financial Corp. (NYSE: COF) to its conviction buy list, sparking a rally in the financial and banks and the market as a whole. Not all banks are a go for Goldy as they are recommending people steer clear of the regional banks and buy the big banks on a valuation basis. This bullish turn by Goldman comes right at the kick-off of Q3 earnings season, and the big question is whether or not top line revenue numbers will increase or if earnings will hold just by firing more people. Capital One jumped 8.25%, Wells Fargo was up 6.88% and Comerica added 4.16%, while Goldman, which pretty much helped itself by upgrading the sector they are in, gained 3.81%.
Overall the Dow gained 112.08 points (+1.18%, 9599.75) with the S&P 500 the strongest index up 15.25 points (+1.48%, 1040.46) while the Nasdaq 100 brought up the rear adding 13.15 points (+0.79%, 1675.64).
The G7 finance ministers met in Istanbul and what was surprising is not what they said, but what they did not say. Over the past few months everyone from the Chinese to the Russians to the IMF have called the dollar out on weakness, massive U.S. budgetary deficits and high debt levels. The sudden silence about the dollar was deafening.
Looks like the finance ministers have decided to stop bringing up the dollar subject and hope no one notices it drop or pile on the short side of that trade. All these world leaders and officials do is keep complaining about a weak dollar and all that does it make it weaker, and make dollar shorts a lot of money. These financial super-brains may now have decided that the ‘ostrich’ approach will do better than the whining and complaining approach. Complaining doesn’t seem to do any good when the Administration in the White House seems to do nothing but stay up late at night thinking up ways to spend even more dollars they do not have.
Strangely enough, our market rallies when the dollar drops as a massive game of ‘beggar thy neighbor’ is about to start in worldwide trade. There is going to be a huge fight for customers worldwide and a cheaper dollar puts us back in the game. This is how international finance and currency markets work to balance out problems like, say, the Chinese and Japanese having trillions and trillions of our dollars. The dollar drops and they buy more stuff from us and we get the dollars back. Then of course there is that one nasty problem with a weak dollar… commodity inflation!
New York Spot Gold was up $14.50 an ounce trading at $1,016.80 at 4:12 p.m (+1.45%). Looking at the gold charts you see a breakout waiting to happen. Looking at the PowerShares DB Dollar Bull ETF (NYSE: UUP) chart and you see weakness and the dollar rolling over after hitting resistance. The dollar chart looks ready to break down. The dollar cracks, and it could this week, and gold is going to take out the all time highs in a flash. Gold is 1.7% from its all time high while the dollar ETF is 3.4% from its all time low. This means the dollar does not even have to make a new low in order for gold to take out the highs. If the dollar does make a new low, look out.
Other commodities: Oil ETF (NYSE: USO) up 0.86%, copper ETF (NYSE: JJC) up 1.98%, steel ETF (NYSE: SLX) up 3.83%, natural gas ETF (NYSE: UNG) up 6.23%, coal ETF (NYSE: KOL) up 3.67%, agricultural ETF (NYSE: DBA) up 1.01%.
What will impact the market now? Some bad economic numbers and job losses you say? We got those all week last week and the market rallied today. The market is getting numb, even to watching a couple hundred thousand jobs walk out the door every month. The story will be in the dollar and the top line revenue numbers during this earnings season. Alcoa, Inc. (NYSE: AA) is the first Dow component to report on Wednesday. They are expected to lose 12 cents a share on revenues of $4.46 billion. My guess is they miss both numbers.
