November 12, 2009
Economy at a Glance | Nov. 12, 2009
Stock market indices give a boost to business confidence
ALEX CARRICK
Chief Economist, CanaData
A significant crossover point has been reached by North America’s major stock market indices. As of October 2009’s month-end closing, the four major indices are all higher than they were a year ago.
Never mind that the base period comparison is low because stocks plummeted at the end of September last year.
The year-over-year increases still give a considerable boost to business confidence. Combine it with the fact that U.S. gross domestic product change was positive (+3.5% quarter to quarter annualized) for the first time in five quarters in the July to September reporting period and the outlook for business prosperity has definitely picked up.
Another positive is that more than three quarters of earnings reports so far for the latest quarter are exceeding analysts’ expectations. Even Ford Motor Co. has just reported a profit. Layoffs, downsizings and other cost-costing measures have been the means to achieve better financial statements, more so than an improvement in market demand. Nevertheless, this lays the foundation for expanding activity levels as general economic recovery gets underway in earnest.
Largest percentage gains year over year
NASDAQ (+18.8%) has realized the largest percentage gain year over year among the four major U.S. and Canadian indices. The Toronto Stock Exchange (+11.8%), thanks to improvement in some commodity prices, has also seen a double-digit increase. What is also notable about the TSE gain is that it does not take into account the 12% jump in value of the Canadian dollar versus the U.S. greenback over the past year. The S&P 500 (+6.9%) and Dow Jones Industrials (+4.2%) have made more modest moves in the right direction.
Degrees of recovery
So where do the indices now stand relative to their recent declines? How much of their drops have they recovered? For all four indices, February 2009 closing levels were the low points in the recession. Since then, the NASDAQ is 45.0% of the way back to its previous cyclical peak of October 2007. The TSE has recovered 42.3% of its loss between May 2008 and February 2009. Dow-Jones Industrials have fought 38.6% of the way back to their previous peak in October 2007 and S&P 500 stocks have clawed back 37.0% of their loss, also versus October 2007.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
Data sources: New York Stock Exchange (NYSE), Standard and Poor’s (S & P), National Association of Securities Dealers
Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters/Table: Reed Construction Data – CanaData.
