AIG Shares Surge 20% After Reporting First Profits in Almost 2 Years

Stocks put up an impressive rally today after two straight days of decline. June payroll numbers and bank recovery and strength data were the underlying drivers of today's run. Even the beleaguered American International Group (NYSE:AIG) saw shares surge 20% to $27.14 on news that it had posted its first profit in nearly two years.

The Dow closed at 9,370.07, up 113.81 points; the Nasdaq pushed back through and held over the 2,000 mark to end the week at 2,000.25, up 27.09 points; and the S&P 500 got back over the psychological hurdle of 1,000 to finish at 1,010.48, up 13.40 points for the day.

The Russell 2000, a composite of the 2,000 leading small-cap stocks, close up 14.78 points to end the day at 572.40. This represents a 2.65% gain for the day versus daily gains of only 1.23%, 1.37%, and 1.34% for the Dow, Nasdaq, and S&P 500, respectively.

Small-cap volume price gainers were lead by Media General (NYSE:MEG), up 31.25%. Media General was followed by Crocs (Nasdaq:CROX), up 28.57%; YRC Worldwide (Nasdaq:YRCW) up 25.56%; Aircastle Limited (NYSE:AYR) up 23.30%; and Cogent Communications (Nasdaq:CCOI), up 22.09%.

*****The unemployment rate…fell? 247,000 people lost their job in July and that was enough to push the jobless rate down to 9.4% from 9.5%. 

July was a lot better than June, when 443,000 people lost their jobs. And the talking heads are already saying its more evidence that the economy is stabilizing.  

What I want to know is: how does the unemployment rate drop after 274,000 more people become unemployed? Were there that many employed 17 year-olds with a birthday in July? Or was it the upward revision of 43,000 to May and June payroll number?  

Despite today’s nice number, unemployment is still expected to rise into double digits early in 2010. And unemployment is expected to average 9.8% for all of 2010. That means that whatever growth we have right now is about we can expect for next year.  
*****It’s clear that investors are buying stock in the hope that that growth will return to the global economy sooner than pretty much every economist on the planet expects. Or maybe they’re buying stock just because prices are moving higher.  

But there are plenty of potential surprises looming. Last week, Treasury Secretary Geithner said the unemployment rate may not peak until the second half of 2010. Now, imagine if stocks stay strong into next year and the unemployment rate remains stable. Investors will assume the economy is poised for a growth. I bet they’d be pretty disappointed if unemployment spiked in August or September of 2010. 

*****Whatever happens next year, socks are rallying strongly today. As well they should. The unemployment rate is falling, money is cheap and the government has declared that there is no downside.  

The Treasury is considering canceling the 20-year Treasury inflation-protected security (TIPS) and issuing a 30-year TIPS. This can be interpreted as a bold insurance to investors against inflation.

As we know, investors, especially foreign buyers of American debt like China, are worried about inflation and weak U.S. dollar. If the Treasury issues longer dated TIPS, it’s essentially saying that it will reimburse investors if inflation does rise sharply. That’s either bravado, or a sincere belief that inflation is not as much as an issue as some fear.  

Either way, the government has backed just about every other negative potential in the current economy, why not take on inflation too? 

*****TIPS are one way to protect you money against inflation. Buying commodities is another. My Global Commodity Investing advisory service is doing quite well as commodity prices continue to rise. You can learn more here.  

*****I’d like to thank SCI Daily readers for your help with the T-shirt slogan contest to support the launch of my first book, The Small Cap Investor: Secrets to Winning Big with Small Cap Stocks. We're taking submissions on the Small Cap Investor page on Facebook or by email (tshirt@smallcapinvestor.com) until Sunday, August 9th.  

Everyone who submits a T-shirt slogan will get a 30-day, 100% complimentary subscription to my SmallCapInvestor PRO advisory service. The winner gets a one-year subscription to ALL of my advisory and trading services (a $2,680 value), plus a signed copy of the book and three t-shirts.  

*****Now, here’s TradeMaster Daily Stock Alerts technical analyst Jason Cimpl and his weekly video market forecast. It’s been a wild week and investors need to know what’s going happen next week. Click here to view Jason’s video charting analysis; it’s free. 

*****The Managed America web video conference is coming up next Monday, August 10 at 6:00 P.M. It's free to attend and you can register right now. Click here to register for this free online event. 

That's it for today. Have a great weekend.

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