After The Close - Stocks surged from the get-go today on favorable economic news, and held on to most of their gains through the close of the session. At the end of the day, the Dow Jones Industrial Average was up 129 points and the NASDAQ was 29 points higher. The broader market confirmed the rally, with gainers handily outpacing losing issues across the board.
Encouraging news from the Labor Department showed that third-quarter productivity surged at a 3.0% annual pace, or the fastest rate since the end of 2009. Gains in productivity are seen as the key to higher profits for employers and better wages for employees. There have been concerns that productivity has been waning in recent years, after about a 2.5% average annual rise in the 1990s and for much of the 2000s. It is unclear whether the latest tally will prove sustainable, but Wall Street cheered the data as a step in the right direction. Meanwhile, figures on the nation’s industrial production and capacity utilization for November were also supportive.
As might be expected, the industrial sector led the pack today, given the helping hand provided by word of the leap in productivity. Stocks such as Caterpillar (CAT - Free Caterpillar Stock Report) and FedEx (FDX) fared particularly well.
The tech sector also shined, with IBM (IBM) leading the charge on the Dow. The bullishness toward tech was fueled by word that chipmaker Avago Technologies (AVGO) is buying LSI Corp. (LSI) for $11.15. LSI stock jumped on heavy volume.
Another deal saw insurer American International Group (AIG) selling its aircraft leasing business to Dutch leasing company AerCap (AER) for more than $5 billion. AER stock turned in a stellar performance as a result.
On the down side, shares of Twitter (TWTR) were hurt by a couple of analyst downgrades. The feeling is the stock has gotten ahead of itself.
Elsewhere, the energy sector turned in a good showing, with shares of Exxon Mobil (XOM -Free Exxon Stock Report) hitting an all-time high as oil prices traded higher in New York.
Overall, the stock market can be viewed as being in a transition phase. Investors have bid up shares partly on the feeling the stimulus provided by the Federal Reserve will lead to a noticeable economic recovery. But now that stimulus is seen as being dialed back, as business conditions actually pick up. The associated trend toward higher bond yields is likely to provide competition for stocks at some point. -Robert Mitkowski
At the time of this article, the author did not hold a position in any of the stocks mentioned. -
12:30 PM EST - The U.S. stock market opened higher this morning, and has managed to hold most of its gains, so far. As we pass the noon hour in New York, the Dow Jones Industrial Average is up 139 points; the broader S&P 500 Index is ahead 13 points; and the technology-heavy NASDAQ is also up 31 points. Market breadth suggests a strong positive bias to today’s session, as advancing issues are outnumbering decliners by about two to one on the NYSE and on the NASDAQ. All of the major market sectors are participating in today’s up move. Leadership can be found in the technology issues with gains in the semiconductor stocks. Also, basic materials and industrial names are up considerably. While there is no real weakness in the market today, some of the healthcare stocks, such as the healthcare providers and large drug makers, are underperforming a bit, relative to the other sectors.
Technically, the S&P 500 Index, which has pulled back recently, is attempting to rally today. However, it remains to be seen if the bulls can maintain their buying efforts through the afternoon. Further, we will need to see some follow through over the next few sessions, as well. Meanwhile, the Fed is set to meet over the next couple of days, and any related news may act as a catalyst to move the market. Traders are so far feeling better about stocks today, as the VIX, now at 15.62, is a bit lower.
Traders received quite a few economic reports this morning. Specifically, the economy in the New York region has improved, but not as dramatically as some had expected. The Empire Manufacturing report came in at 1.0 in December, which was better than November’s reading, but short of analyst forecasts. In the broader economy, productivity for the third quarter came in at 3.0%, which was better than expected. Meanwhile, capacity utilization and industrial production picked up in November, which is a positive indication.
In the corporate arena, traders received some M&A news to digest. Specifically, shares of technology company LSI Logic (LSI) are up sharply on news that Avago (AVGO) is looking to acquire that business. AerCap Holdings (AER) stock is also up sharply on acquisition-related news. -Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.-
Stocks to Watch from The Survey – Earnings news is rather light ahead of the bell, but there is some M&A activity to be aware of. Indeed, insurer American International Group (AIG) has struck a deal to sell its aircraft leasing business to Netherlands-based AerCap. The transaction, which consists of cash and stock, is valued at roughly $5.4 billion. AIG is up slightly in the pre-market as a result. Additionally, reports have surfaced that telecommunications company Sprint (S) may be considering a bid for rival T-Mobile US (TMUS). Sprint stock is indicating a modestly higher opening this morning, while TMUS shares are moving slightly lower in the premarket. Finally, semiconductor company Avago Technologies (AVGO) has agreed to acquire industry peer LSI Corp. (LSI) for $11.15 a share in cash (a 41% premium to LSI's preannouncement closing price), for total consideration of $6.6 billion. LSI shares are soaring ahead of the bell in response. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The last fortnight of trading this year kicks off this morning with the bears hoping to thwart any possible Santa Claus rally from unfolding on Wall Street. For the most part, the bearish group had their way last week, with some profit taking in an overbought market prompted by growing sentiment that the Federal Reserve will begin to taper its accommodative bond-buying program, perhaps as early as this week. The central bank’s loose monetary policies have been credited with flushing the markets with cash in recent years and driving interest rates lower. Such an environment has been a win-win situation for equity investors. If the Fed was to pull the proverbial rug out from under the equity market, investors fear that further profit taking could ensue.
True, the Dow Jones Industrial Average and the broader S&P 500 Index showed signs of running out of gas last week, with respective five-day declines of 1.7% and 1.6%. In the process, the two large-cap indexes fell below the psychologically significant levels of 16,000 and 1,800. Meantime, the NASDAQ was barely able to finish last week above another significant level (4,000). It also should be noted that the selling was even more pronounced in the small-cap market. The dip in small-cap stocks is notable, as it is usually an indication that investors are growing a bit more apprehensive about adding further risk to their portfolios. In the same vein, the S&P 500 Volatility Index (or VIX), also known as the “fear gauge,” jumped nearly 15% last week, as concerns about what the Federal Reserve might do next pressured stocks.
Speaking of the Federal Reserve, the two-day Federal Open Market Committee (FOMC) meeting commences tomorrow, with growing sentiment that the central bank will begin to gradually step on the monetary brakes. Prompting these feelings were last week’s news that a two-year budget accord was struck on Capitol Hill and some recent favorable economic data, including another better-than-expected report on the labor market earlier this month. Our sense is that if the Federal Reserve elects to begin tapering its asset purchases this month, there will probably be some pullback on Wall Street. Investors should be aware that if the Federal Reserve was to throw the market a curve ball (i.e., a bigger than expected cutback in bond buying) it could push the market averages notably lower. Also meeting this week are the central banks of Japan and India.
As for today, the U.S. equity futures are getting a boost from some overseas news. In particular, data showing that business activity in the euro zone picked up in December, apart from France. German manufacturers recorded the fastest growth in more than two-and-half years. The European news is more than offsetting data from China showing that manufacturing activity in the world’s second-largest economy slowed to a three-month low. Not surprisingly, most of Asia’s major indexes finished lower overnight, while the European bourses are nicely higher as trading enters the second half of the session on the Continent. The dollar is weaker on the European data.
Looking ahead, in addition to the much-anticipated commentary—and possible actions—from the Federal Reserve this week (due Wednesday afternoon), investors will be getting a number of important reports on the economy, including this morning’s data on industrial production and the Empire State manufacturing survey. Also on the docket this week are reports on consumer prices (tomorrow), housing starts (Wednesday), existing home sales (Thursday), and the final revision to third-quarter GDP (Friday). Investors will have plenty of data from the economic front to scrutinize this week, none more important than the aforementioned news from the Federal Reserve. Stay tuned. – William G. Ferguson
At the time of this article's writing, the author did not have positions in any of the companies mentioned.