After The Closing Bell - Stocks shot out of the gate at the opening bell, held on to their gains throughout the day, and closed with a flourish, on optimism that French and German officials could hammer out a workable solution for troubled European banks by month’s end.
The devil is in the details, of course, and it is unclear how the differing views of the main parties involved will be reconciled. In contrast to French authorities, German Chancellor Angela Merkel feels that the European Financial Stabilization Fund should only be used as a last resort, and that banks should raise capital on their own. But this a poor time for banks to be issuing equity. With their share prices at low levels, dilution to existing shareholders would likely be considerable. Preferred stock issuances would likely be expensive, too. Nevertheless, Wall Street liked the fact that progress toward addressing the difficulties on the other side of the Atlantic was apparently being made. Word that a restructuring of Dexia, a troubled French and Belgian bank, had been arranged, may have inspired the bulls, as well.
The feeling that stocks had been oversold as recession fears temporarily eased after Friday’s positive employment report provided another lift. Cyclical stocks slumped in the past six weeks on fears that demand for their products would ease if the economy took a downturn. Many of those, including the shares of oil driller Chevron (CVX - Free Chevron Stock Report) and heavy equipment maker Caterpillar (CAT - Free Caterpillar Stock Report) enjoyed nice bounces today.
The struggling financial sector also did very well, with Dow components Bank of America (BAC - Free BofA Stock Report), JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report), and American Express (AXP - Free Amex Stock Report) all posting sizable advances. Financial stocks have felt the brunt of investor fears over Europe because it is thought that banks would be the conduit for bringing euro-zone headaches stateside.
At the closing bell, the Dow Jones Industrial Average and the NASDAQ were at their session highs, up 330 points and 87 points, respectively. The number of advancing issues swamped decliners on both the Big Board and the NASDAQ.
All in all, it was a heady day for the bulls, although there are still concerns about the sustainability of the rally. Big advances have been followed by large reversals on the major exchanges all too frequently of late. The yet-to-be resolved troubles in Europe are one factor driving the volatility, while fears over the state of the U.S. economy are another. Investors can expect to get a better read on broader business conditions during the earnings season that begins when aluminum maker Alcoa (AA - Free Alcoa Stock Report) releases its results after the close of trading tomorrow. - Robert Mitkowski, Jr.
At the time of this article, the author did not have positions in any of the companies mentioned.
12:15 PM ET - Stocks are rallying strongly today, as sentiment appears more upbeat. Notably, the news out of Europe has helped. Leaders in France and Germany have announced that they will unveil a plan to recapitalize the region’s banks, as well as address Greece’s financial obligations. The plan should be finished by the end of October. On a related note, the recent government bailout of Dexia may also suggest that institutions in the region will not be left to fail. On the Continent, the markets largely headed higher. The DAX was ahead by 3.0%; the CAC-40 was up 2.1%, and the FTSE-100 tacked on 1.8%. The move in Germany’s market likely reflected positive export data released today, as well.
Back in the United States, the economic news is light today. However, investors may still be feeling better about the economy after Friday’s employment report. That release, as well as other reports, has some economists now asserting that a second recession will likely be avoided. However, many still believe that GDP growth will moderate in the current quarter. We get more issuances tomorrow, specifically the minutes from the FOMC’s September meeting.
Corporate news today has done little to move the market. Shares of Yahoo! (YHOO) are trading higher, possibly on speculation that the Internet company may be looking for a buyer. Shares of Netflix (NFLX) are also up after news that the company is no longer pursuing a plan to separate the business into two parts. More important will be the September-quarter earnings releases that will be streaming in with force. We kick off the season with Dow component Alcoa (AA - Free Alcoa Stock Report), which is set to issue results tomorrow. Notably many stocks, particularly in the energy and basic materials sectors, have sold off sharply in the past few weeks. If profits and guidance come in better than expected, investors may reconsider the valuations currently assigned to these issues.
At roughly noon in New York, the market is holding its gains. The Dow Jones Industrial Average is up 279 points (2.51%); the S&P 500 Index is advancing 34 points (2.90%); and the NASDAQ is up 77 points (3.09%). Market breadth is overwhelmingly positive, as advancers are ahead of decliners by almost 9-to-1 on the NYSE. All of the market sectors are participating in the move. However, the conglomerates and basic materials issues are leading the charge. Stocks advancing on heavy volume include: Nabors Industries (NBR), Morgan Stanley (MS), Manitowoc (MTW), and Complete Production (CPX). Stocks heading lower include: Vertex Pharmaceuticals (VRTX), Sprint Nextel (S), and Superior Energy Services (SPN).
At the time of this article's writing, the author had a position in Alcoa (AA).
10:15 AM ET - Stocks are rising sharply this morning. At roughly 10:15 ET, the S&P 500 Index is ahead by about 26 points (2.24%), with similarly large gains on the Dow and on the NASDAQ. The move comes as finance officials in Germany and France have announced that progress is being made on a concrete plan to recapitalize regional banks and extend aid to Greece. As expected, the equity markets in Europe are having a good session. In addition, the euro is up slightly to about at $1.36 today, which is also a vote of confidence. Elsewhere, sentiment in the U.S. may still be getting a boost from Friday’s Employment report, as well as the commencement of earnings season. Dow component Alcoa (AA – Free Alcoa Stock Report) is slated to report results tomorrow. - Adam Rosner
At the time of this article's writing, the author had a position in Alcoa (AA).
Before The Opening Bell - It may be a semi-holiday in the United States today, with the banks generally closed in observance of Columbus Day, and the stock market open, and it is a holiday in Japan and Taiwan, but the equity markets across the rest of the world are mostly celebrating, as stocks gain in varying amounts. The reason for the latest euphoria, which has the U.S. equity futures up strongly with less than an hour to go before the start of the new trading day here, is a meeting over the weekend, between the heads of France and Germany, in which Nicolas Sarkozy and Angela Merkel, respectively, indicated that some sort of agreement could be hammered out that would lessen the current debt crisis in Europe.
To be sure, nothing concrete by way of agreement has yet been reached between those two euro-zone powerhouses, and we are uncertain if a default can be avoided in Greece, or if one does occur if it can be orderly and thus not excessively disruptive to the Continent. Our concerns reflect the fact that several other nations in Europe, such as Spain, Ireland, Portugal, and Italy have all suffered selective economic reversals in recent months. Meanwhile, the likely strong start to the stock market today in our country suggests once again that it is Europe, rather than events stateside, that are largely driving our financial markets at this time.
All of this follows a rather volatile session on Friday in this country. Here, for part of one day, at least, it was U.S. news that told the tale of the tape, as a somewhat better-than-expected employment report put out by the Labor Department at 8:30AM (EDT) heavily influenced equity trading. With 103,000 jobs added in September and upward revisions of July and August payrolls added in, the market raced off to a solid start. Then, some second thoughts were effected, as many began to note that perhaps twice that number of jobs would likely have to be added before the current, and unchanged, 9.1% jobless rate recorded in September could be meaningfully reduced. That thought, plus the knowledge that some 45,000 of the 103,000 payrolls added last month were due to the return of formerly striking Verizon (VZ - Free Verizon Stock Report) workers, sent a dose of reality through Wall Street and stocks bent. However, they did not break.
In fact, just after 3PM (EDT), a buying binge of sorts broke out and the Dow soared to a gain of nearly 100 points. But during the final 10 to 15 minutes, the sellers took over, apparently not wanting to be overly exposed with a weekend about to start. And by the close, the Dow was off about 20 points, with the NASDAQ and the other averages off proportionately more. Losses were significant enough in the aggregate to send most mutual funds, especially those focused on smaller and mid-cap names, even more sharply lower.
Now, as a new week dawns, we have several economic reports on our shores to ponder, beginning with this Thursday's data on the trade balance. Here, following a sharp narrowing of the deficit in July, some further diminution in the shortfall could be at hand for August. Then, on Friday, we will get data on September retail sales. A solid gain is the forecast for such activity. Finally, the University of Michigan will shortly thereafter issue its latest survey on consumer sentiment, where a modest increase seems likely.
We also will experience the start of earnings season in the days ahead, with the first of the major reports being issued tomorrow afternoon by Dow component Alcoa (AA - Free Alcoa Stock Report). Thereafter, we will get reports, in short order, from JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report) on Thursday and IBM (IBM - Free IBM Stock Report) early next week. - Harvey S. Katz, CFA
At the time of this report's writing, the author did not have positions in any of the companies mentioned.