After The Close - The U.S. stock market got off to a cautious start this morning, but managed to stage a significant advance in the afternoon. At the close of the session, the Dow Jones Industrial Average was near its high for the day, rising 95 points (0.7%); the broader S&P 500 Index was up 12 points (0.8%); and the NASDAQ tacked on 20 points (0.7%). Market breadth showed a favorable bias, with advancing issues ahead of decliners by decent margin on the NYSE. All of the market sectors made positive contributions. The healthcare and select consumer names showed leadership, while the transports and basic materials issues put in a less impressive performance.
Technically, the S&P 500 Index has been holding above its 50-day moving average, located at 1,429. Quite possibly, the market, which has consolidated a bit recently, can stabilize at this level. The VIX is currently at about 15, which is still a very low reading, and suggests traders are optimistic.
Meanwhile, traders were probably feeling a bit better about the economy today. Specifically, the Commerce Department reported that retail sales surged by 1.1% in September, coming in much better than analysts had expected. Excluding auto sales, the retail figures also showed solid gains. In another report, business inventories rose slightly in August, which may well suggest that the outlook remains healthy. However, the economy in the New York region is mixed, as the Empire State Manufacturing Index declined slightly in October. Tomorrow is a busy day for economic reports. We receive figures for consumer prices, industrial production, capacity utilization, and a report on the housing market from the National Association of Home Builders (NAHB).
Meanwhile, earnings season is picking up. Today, the attention was once again turned to the banks. Citigroup (C) stock rose strongly, after the company posted better-than-expected earnings. Also in the financial sector, Charles Schwab (SCHW) saw its stock move higher, after the discount broker put out a positive report. There was also some merger and acquisition news released today. In the telecom area, Softbank has announced that it plans to purchase a substantial interest in Sprint Nextel (S). However, Sprint shares were trading nominally lower on the news.
Active stocks that moved up today included, Bank of America (BAC - Free Bank of America Stock Report), Intel (INTC - Free Intel Stock Report), and Alpha Natural Resources (ANR). Stocks that headed lower were Metro PCS (PCS) and Annaly Capital (NLY).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:15 PM ET - The major U.S. equity indexes started the session in positive territory, helped by a good report on the U.S. economy (more below). Then after a mid-morning lull in trading, selective buying has picked up in the last hour. Thus, as we reach the midday hour on the East Coast, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index are all modestly higher. Still, advancing issues are only slightly ahead of decliners on both the Big Board and the NASDAQ, which may suggest that investors are still taking a wait-and-see approach ahead of a heavy week of earnings releases, led by five Dow-30 companies tomorrow.
As noted, the U.S. economic news was encouraging this morning. Before the U.S. stock market opened, the Commerce Department reported that retail sales for the month of September jumped 1.1%--the expectation had been for an increase of 0.7%. The August figure also was revised higher, from 0.9% to 1.2%. This data, along with Friday’s good report on consumer sentiment from the University of Michigan, suggests that the consumer is back in business, and is a very good sign heading into the holiday shopping season, which kicks off next month. The services sector accounts for roughly two-thirds of the nation’s economic output. Not surprisingly, the consumer cyclical sector is showing some leadership, along with the healthcare group. In particular, automobile and apparel stocks are showing some strength.
On the earnings front, a heavy weak of reports brought no major surprises this morning. Banking giant Citigroup (C) and financial services firm Charles Schwab (SCHW) were notable reporters this morning. Citigroup announced that profits plunged on a $4.7 billion write-down of its stake in a brokerage operated by Morgan Stanley, but shares of the bank rose as the results beat expectations and investors were encouraged to learn that its North American mortgage lending revenue increased and capital markets results rebounded. Charles Schwab said that third-quarter profit rose 12%, helped by higher revenues from asset management and administration. Shares of the brokerage house are nominally lower.
We also learned from the corporate world today that Softbank, the third-largest cellphone company in Japan, has agreed to buy 70% of Sprint Nextel (S) for $20.1 billion, giving the struggling U.S. cellphone company a much-needed infusion of cash. However, the news is weighing on the telecom sector, as stocks of larger rivals AT&T (T - Free AT&T Stock Report) and Verizon (VZ - Free Verizon Stock Report) are weaker on the Sprint deal. The telecom sector is joined in the red today by the energy and basic materials groups, which are lower on continued global economic concerns (more below). Oil prices are lower on the New York Mercantile Exchange on similar concerns.
The overseas markets performed fairly well today. Overnight, Asia’s indexes were higher on decent economic data from China. Although that nation reported a trade surplus, investors were a little concerned about the weak import figures, which reaffirm the notion of a weakening economy. However, that data were overshadowed, at least in the eyes of investors, by China’s latest producer and consumer price figures, which showed that inflation was held in check there last month. A benign reading on inflation also gives China’s central bank the ability to provide additional monetary stimulus to Asia’s largest economy, if it were deemed necessary. Such monetary actions are often viewed favorably by equity market participants—and that seemed to be the case overnight.
Meantime, the aforementioned news from China and the strong retail sales data from the United States—two of the euro zone’s major trading partners—along with positive comments from European Commissioner Olli Rehn on situations in both Greece and Spain are pushing the major European bourses higher as trading draws to a conclusion on the Continent.
Looking ahead to the second half of the day, we would not be surprised to see trading continue with same lack of conviction on the part of investors. In our opinion, the chance of a big movement today prior to the busy four days of earnings reports to come this week seems unlikely.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Stocks to Watch in The Survey - Wireless service provider Sprint Nextel (S) has entered an agreement with Softbank whereby the telecom company based in Japan would acquire a 70% stake in Sprint for $20.1 billion. Sprint shares were notably higher in premarket trading.
Elsewhere, financial services giant Citigroup (C) reported a substantial drop in September-period earnings, due in large part to charges tied to the value of its debt. – Sharif Abdou
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Wall Street slumbered and stumbled through a listless end to a disheartening week on Friday, pushing generally lower after several unsuccessful tries to overcome some early session selling. In fact, helped by a last-minute push, the Dow Jones Industrial Average managed a slim two-point gain. However, the Standard and Poor's 500 Index, the NASDAQ, the S&P Mid-Cap 400, and the small-cap benchmark Russell 2000 Composite closed lower on the day, and losing stocks held sway on both the Big Board and the NASDAQ.
Worries about earnings, most recently by the banks, more than offset optimism, on back-to-back days, from upbeat reports on weekly jobless claims and consumer sentiment. There seems to be a general feeling that no matter what the rest of the world does--at least within reason--our economy seems unquestionably on the path to a continuing recovery. Our expectation is that this sentiment will prove on the mark and that current business trends will translate into GDP growth of some 1.5%, or a bit more, during the current half.
As to the banks, two giant financial institutions reported their third-quarter results on Friday, as Dow-30 component JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report) and Wells Fargo (WFC) issued their statements. The former beat expectations for the period, and did so rather handily. However, there appears to be some concern about margins going forward. Also, Wells Fargo failed to do as well on the revenue side as expected, although earnings did top consensus forecasts modestly. Both stocks gave ground on Friday, as did ailing semiconductor maker Advanced Micro Devices (AMD), which saw its low-priced stock tumble on the day, closing down 14%, to $2.74 a share.
Now, a new week dawns for Wall Street and the flow of earnings reports will be picking up noticeably, with such key companies as Coca-Cola (KO – Free Coca-Cola Stock Report), American Express (AXP – Free Amex Stock Report), Intel (INTC – Free Intel Stock Report), IBM (IBM – Free IBM Stock Report), Johnson & Johnson (JNJ – Free J&J Stock Report), Microsoft (MSFT – Free Microsoft Stock Report), and Verizon (VZ – Free Verizon Stock Report) due to issue their quarterly statements. Overall, our expectation is that Wall Street will fail to overwhelm investors, as it had done in most prior quarters since the business and profit recoveries began in 2009. Comparisons are getting more difficult, and in the presumptive difficulty in making their revenue numbers, due to a general lack of strong demand for their offerings in a sluggish economic expansion, many will likely post profits that will fail to inspire investors.
As to the economy, this will also be a busy week, with data scheduled for release in the days ahead on consumer prices, industrial production, factory use, housing starts, building permits, weekly jobless claims, the leading indicators, and sales of existing homes. On balance, the reports should be quite good, as was the case just moments ago when the Commerce Department posted a strong gain in September retail sales.
Finally, the equity futures are surging this morning, boosted, in no small measure, by building optimism on the economy, with the stirring 1.1% gain in retail sales for last month and the upward revision for August sales helping to propel the S&P 500 futures ahead by eight points and the NASDAQ futures into the black by almost 20 points. – Harvey S. Katz
At the time of this article's writing, the author had positions in INTC.