ALL Allstate Corporation

 

The Greek bank deal, lower than expected damage from hurricane Irene, and an encouraging consumer spending report, combined together to push the benchmarks significantly higher on Monday. However, volumes remained low as Irene kept the traders away from the Street. It was the insurers that led the gains after Irene caused less damage than what was feared.

 

The Dow Jones Industrial Average (DJIA) jumped 2.3% and settled at 11,539.25. The Standard & Poor 500 (S&P 500) gained 2.8% and closed the day at 1,210.08. The Nasdaq Composite Index surged 3.3% and wrapped up at 2,562.11. The fear-gauge CBOE Volatility Index (VIX) plunged 9.3%. The day was marred by low volumes as commuters failed to travel to trading stations as the tropical storm Irene kept them away from work. On the New York Stock Exchange, consolidated volumes were 3.6 billion, significantly lower than this year’s average of 4.4 billion. This was also the lowest level recorded since July 26.

 

Though Irene disrupted public transport and left Wall Street understaffed, the hurricane failed to hit the markets as the damage was lesser than what had been previously expected. Consulting firm Kinetic Analysis Corp reduced its estimate of the damage caused by the storm to $7 billion late Sunday from the previously expected $20 billion. Accordingly, insurers will now have to cover up $3 billion, which is far lesser than what they had to shell out in 2003 in the wake of Hurricane Isabel.

 

Meanwhile, insurers got a breather when it became clear that they would have to pay smaller amounts as cover charges post hurricane Irene. Among the gainers for this sector were The Allstate Corporation (NYSE:ALL), Hartford Financial Services Group Inc. (NYSE:HIG), The Travelers Companies, Inc. (NYSE:TRV), American International Group, Inc. (NYSE:AIG), Selective Insurance Group Inc. (NYSE:SIGI), Hallmark Financial Services Inc. (NASDAQ:HALL) and CNA Financial Corporation (NYSE:CNA), and they surged 8.5%, 12.9%, 5.1%, 7.5%, 7.5%, 8.5% and 5.0%, respectively. Insurance and banking stocks also registered the highest increase among the 10 industry groups in the S&P 500, gaining 4.2%.

 

The bank deal in Greece upped the momentum further. Two of the nation’s largest lenders, EFG Eurobank Ergasias and Alpha Bank announced their plans to merge and paved the way for creating the largest bank in the country. Greece urgently requires significant measures to tackle its debt concerns and the government urged the lenders to merge and help the nation survive the crisis. US-listed National Bank of Greece SA (NYSE:NBG) sky rocketed 37.7% following the news, thus contributing to the broader rally.

 

The consumer spending report also added to the cheer after data released by the Bureau of Economic Analysis revealed personal spending had recorded its largest increase in five months in July. Personal consumption expenditures (PCE) or consumer spending climbed 0.8%, ahead of the consensus expectation of a rise of 0.6%. Additionally, “Personal income increased $42.4 billion, or 0.3 percent, and disposable personal income (DPI) increased $32.5 billion, or 0.3 percent, in July”.

 

In another development, the National Association of Realtors reported pending home sales had dropped in July, but were above year-ago levels. According to NAR: “The Pending Home Sales Index, a forward-looking indicator based on contract signings, slipped 1.3 percent to 89.7 in July from 90.9 in June but is 14.4 percent above the 78.4 index in July 2010. The data reflects contracts but not closings”. Investors paid little importance to the decline in July and the report failed to cause any dent to the broader markets. The 1.3% drop was also in-line with expectations. Striking a positive note, Lawrence Yun, NAR chief economist said: “The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy”.

 

Markets have turned around its bearish nature and bulls are looking set to enjoy their run. Currently, the Dow is just 0.3% down for the year and has recovered from the 7.4% yearly loss that it registered on August 10. Even the S&P 500 has recouped all of its losses since it touched this year’s low on August 8, following the Standard & Poor’s downgrade of the US’s credit rating by a notch. The index has jumped 8.1% since then.

 

 
AMER INTL GRP (AIG): Free Stock Analysis Report
 
ALLSTATE CORP (ALL): Free Stock Analysis Report
 
HALLMARK FINL (HALL): Free Stock Analysis Report
 
HARTFORD FIN SV (HIG): Free Stock Analysis Report
 
NATL BK GR-ADR (NBG): Free Stock Analysis Report
 
SELECT INS GRP (SIGI): Free Stock Analysis Report
 
TRAVELERS COS (TRV): Free Stock Analysis Report
 
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