U.S. EQUITIES SKYROCKET, AS TREASURY PLAN TO REMOVE TOXIC ASSETS IS GIVEN “THUMBS UP” SUPPORT BY KEY MONEY MANAGERS. EXISTING HOME SALES POST BETTER THAN EXPECTED GAINS.
U.S. Equities staged their largest one day rally of the year, with S&P futures closing above 800 for the first time since mid February, as the US Treasury outlined its plan to work with the private equity community to deal with the toxic assets that continue to plague the global financial system and fuel the ongoing credit freeze up. The plan was well received by a number of major private equity entities such as Pimco and Black Rock Private Equity. Both of these financial management firms offered their support for the plan and stated their commitment to participate.
The acceptance of the plan triggered a broad based rally led not surprisingly by the financial sector. Bank of America rose over 20% and Citigroup rallied near 18%. The exceptional support for the plan appears to stem from the notion that the government would be taking control of the financing terms for the joint ventures on extremely generous terms. This perceived winning strategy is perceived as a strong draw to bring back a lot of the “smart money” which pulled out of the market in mid 2008 and has been waiting for the right terms and structure to be put into place in order to draw back working funds into the financial markets.
Key points of the plan include initial joint investment from private equity and Tarp funds creating a public private fund worth about $500 billion. The investors as well as the fund will buy the bad loans at auction using loans that will be guaranteed by the FDIC. The financial institutions will have the ability to decide which of the toxic assets they wish to offer and which they will try to make a go of on their own.
The markets have been at this crossroads before. A sustainable rally will likely be contingent upon how quickly the financing program can be put into place. Even more significant will be the measure of the banking sectors ability to raise and offer credit once these assets have found new homes.
Equities also received additional happy news from a better than expected existing home sales report which offered the largest monthly increase since July 2003.
Technically, June Dow futures settled above the key resistance level of 7750. If this level can be held, look for the market to find significant resistance at 7910. Support has reset at the 7310 level.
EQUITY RANGES
OPEN
HIGH
LOW
CLOSE
CHANGE
DJM9 (JUNE DOW)
7400
7745
7365
7712
+497
SPM9 (JUNE S&P)
783.50
821.00
780.50
817.30
+53.20
NDM9 (JUNE NASDAQ)
1214.00
1259.00
1202.00
1252.00
+64.00
Prepared by Rich Roscelli & Paul Brittain.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.
