Monday, August 18th
Today's market summary comes from Rob Black's MarketWrap
U.S. stocks gained, sending the Dow Industrials to their highest close in 14 months. Better-than-expected earnings from Lowe's and a forecast from Wal-Mart encouraged investors that consumer spending may boost profits. The Dow rallied 90 points (+1.0%) to 9412, the highest since June 20, 2002. The S&P 500 climbed 9 points (+0.9%) to 999. The Nasdaq Composite rose 37 points (+2.2%) to 1739 as the rally in chip stocks lifted it to its biggest gain in six weeks. Two stocks rose for every one that fell on the NYSE. About 1.1 billion shares changed hands, down 19 percent from the daily average for the past three months. Traders were also breathing a sigh of relief that the economy appears to have emerged from the darkness of last week's blackout largely unscathed. Big Board trading Friday, when power hadn't been restored fully from North America's worst power blackout, totaled about 631 million shares, the slowest of the year. Financial markets got a dose of upbeat economic news after a report from the National Association of Home Builders showed U.S. home builders in August were at their most optimistic since January 2000, indicating the housing market was proving resilient to higher borrowing costs. A pause in the recent rise in bond yields further reassured stock investors who have been nervous that the recent spike in interest rates will damage the fragile economic recovery. The yield on the benchmark 10-year note, which hit a one-year high above 4.60 percent last week, eased to 4.51 percent from 4.53 percent at the end of Friday's abbreviated session.
Strong Sectors: wireless, internet, semiconductor, general merchandise, grocery, lodging, paper, defense, steel, casino, auto, aluminum, REITs, drug
Weak Sectors: gold, tobacco
Top Stories . . . The dollar rose to a two-week high against the euro in New York amid signs the U.S. economy is strengthening and after the Bundesbank said evidence of a recovery in Germany hasn't materialized.
Lowe's, the world's No. 2 home- improvement chain, said second-quarter profit climbed 28 percent, more than forecast, as the company added stores in the Northeast and increased sales of appliances.Vivendi Universal is today accepting a second round of bids for its U.S. entertainment unit. With the ranks of potential buyers thinning, the French company has said it may consider a joint venture or public offering.
International Business Machines, the world's largest computer maker, will fire 600 workers and furlough 3,000 for one week without pay at its money-losing chipmaking business to reduce costs.
Shares of Advanced Micro Devices, which has had losses in eight straight quarters, rose as much as 12 percent after Barron's said the company's Opteron computer chip will help shore up sales.
U.S. homebuilder optimism rose to the highest in more than 3 1/2 years, an industry group said, suggesting prospective buyers are trying to lock in mortgage rates before they rise higher.
Quotes of Note . . . ``The U.S. economy is improving'' and ``profit for some companies is growing. `The worst is over.'' said Marco Blasi, who helps manage the equivalent of $10.8 billion in international stocks at HSBC Holdings. Blasi nonetheless said he prefers Asian markets such as Korea, China and Thailand because economic growth is stronger and shares are less expensive than in the U.S. and Europe.
``Optimism is growing about the U.S. economy. As long as that continues, equities will improve, which should help the dollar.'' said Ian Gunner, head of foreign exchange research in London at Mellon Financial, which has about $566 billion under management.
``The potential of energy trading is unlimited, it's like a second gold rush. With the projected demand for the next 20 years, what we saw in New York last week and in California last year won't be freak occurrences but the norm.'''' said Philip Flynn, of Alaron Trading, a commodities trader in Chicago.
“The second half of this year will be a seasonal recovery, not a fundamental one. I think the current business environment is still pretty bad. We hope that next year there will be a fundamental recovery.“ Yoon-Woo Lee, CEO of Samsung Electronics' semiconductor operations.
Earnings of Note . . . Earnings have been a solid compliment to the upbeat economic data. S&P earnings increased about 9.5% in the second-quarter, surpassing expectations of a 7.2% gain before reporting season began. The benchmark now sits atop a 24% rise from the March 11 lows.
Gurus . . . Lowry Research technical analyst Richard Dickson said that while a near-term rally cannot be ruled out, the market appears to be under "increasing risk of a potentially significant move lower." Dickson noted that while the Dow industrials closed Friday (9,321.69) just shy of its recovery closing high set on June 17 (9,323.02), Lowry's proprietary "Buying Power Index" was just 18 points off its March low. However, he would view any pullback as a correction rather than a reversal. "Investors should be on guard for a quick, sharp drop in the market, but also should understand that a break lower, rather than marking a sustained drop, could act as the catalyst for the sort of renewed demand needed to take prices to new recovery highs," Dickson said.
Merrill Lynch chief U.S. investment strategist said actual consensus earnings estimates suggest operating profits for the S&P 500 companies have already peaked. He noted that fundamentals are still not improving, as one-third of the S&P 500 reported year-to-year earnings declines, in line with the first quarter, but above the fourth quarter of 2002. "Earnings expectations might improve, but the consensus forecast already called for the strongest profit expansion in the entire post-war era," Bernstein said in a note to clients.
Barron's interviews Wally Weitz, whose Partners Value Fund has returned 15.6% a year since 1983. Wietz believes there is currently not a lot of value in the current markets environment. He cites concern over the financial sector given its popularity and spread lenders given potential surprises in interest rates. The fund managers top picks include the following stocks: Freddie Mac, Berkshire and Redwood Trust. The fund is currently 20% in cash given the sideways nature of the market were it might move 10%-25% up and back down again in six months and moves within individual stocks.
Today's market summary comes from Rob Black's MarketWrap
U.S. stocks gained, sending the Dow Industrials to their highest close in 14 months. Better-than-expected earnings from Lowe's and a forecast from Wal-Mart encouraged investors that consumer spending may boost profits. The Dow rallied 90 points (+1.0%) to 9412, the highest since June 20, 2002. The S&P 500 climbed 9 points (+0.9%) to 999. The Nasdaq Composite rose 37 points (+2.2%) to 1739 as the rally in chip stocks lifted it to its biggest gain in six weeks. Two stocks rose for every one that fell on the NYSE. About 1.1 billion shares changed hands, down 19 percent from the daily average for the past three months. Traders were also breathing a sigh of relief that the economy appears to have emerged from the darkness of last week's blackout largely unscathed. Big Board trading Friday, when power hadn't been restored fully from North America's worst power blackout, totaled about 631 million shares, the slowest of the year. Financial markets got a dose of upbeat economic news after a report from the National Association of Home Builders showed U.S. home builders in August were at their most optimistic since January 2000, indicating the housing market was proving resilient to higher borrowing costs. A pause in the recent rise in bond yields further reassured stock investors who have been nervous that the recent spike in interest rates will damage the fragile economic recovery. The yield on the benchmark 10-year note, which hit a one-year high above 4.60 percent last week, eased to 4.51 percent from 4.53 percent at the end of Friday's abbreviated session.
Strong Sectors: wireless, internet, semiconductor, general merchandise, grocery, lodging, paper, defense, steel, casino, auto, aluminum, REITs, drug
Weak Sectors: gold, tobacco
Top Stories . . . The dollar rose to a two-week high against the euro in New York amid signs the U.S. economy is strengthening and after the Bundesbank said evidence of a recovery in Germany hasn't materialized.
Lowe's, the world's No. 2 home- improvement chain, said second-quarter profit climbed 28 percent, more than forecast, as the company added stores in the Northeast and increased sales of appliances.Vivendi Universal is today accepting a second round of bids for its U.S. entertainment unit. With the ranks of potential buyers thinning, the French company has said it may consider a joint venture or public offering.
International Business Machines, the world's largest computer maker, will fire 600 workers and furlough 3,000 for one week without pay at its money-losing chipmaking business to reduce costs.
Shares of Advanced Micro Devices, which has had losses in eight straight quarters, rose as much as 12 percent after Barron's said the company's Opteron computer chip will help shore up sales.
U.S. homebuilder optimism rose to the highest in more than 3 1/2 years, an industry group said, suggesting prospective buyers are trying to lock in mortgage rates before they rise higher.
Quotes of Note . . . ``The U.S. economy is improving'' and ``profit for some companies is growing. `The worst is over.'' said Marco Blasi, who helps manage the equivalent of $10.8 billion in international stocks at HSBC Holdings. Blasi nonetheless said he prefers Asian markets such as Korea, China and Thailand because economic growth is stronger and shares are less expensive than in the U.S. and Europe.
``Optimism is growing about the U.S. economy. As long as that continues, equities will improve, which should help the dollar.'' said Ian Gunner, head of foreign exchange research in London at Mellon Financial, which has about $566 billion under management.
``The potential of energy trading is unlimited, it's like a second gold rush. With the projected demand for the next 20 years, what we saw in New York last week and in California last year won't be freak occurrences but the norm.'''' said Philip Flynn, of Alaron Trading, a commodities trader in Chicago.
“The second half of this year will be a seasonal recovery, not a fundamental one. I think the current business environment is still pretty bad. We hope that next year there will be a fundamental recovery.“ Yoon-Woo Lee, CEO of Samsung Electronics' semiconductor operations.
Earnings of Note . . . Earnings have been a solid compliment to the upbeat economic data. S&P earnings increased about 9.5% in the second-quarter, surpassing expectations of a 7.2% gain before reporting season began. The benchmark now sits atop a 24% rise from the March 11 lows.
Gurus . . . Lowry Research technical analyst Richard Dickson said that while a near-term rally cannot be ruled out, the market appears to be under "increasing risk of a potentially significant move lower." Dickson noted that while the Dow industrials closed Friday (9,321.69) just shy of its recovery closing high set on June 17 (9,323.02), Lowry's proprietary "Buying Power Index" was just 18 points off its March low. However, he would view any pullback as a correction rather than a reversal. "Investors should be on guard for a quick, sharp drop in the market, but also should understand that a break lower, rather than marking a sustained drop, could act as the catalyst for the sort of renewed demand needed to take prices to new recovery highs," Dickson said.
Merrill Lynch chief U.S. investment strategist said actual consensus earnings estimates suggest operating profits for the S&P 500 companies have already peaked. He noted that fundamentals are still not improving, as one-third of the S&P 500 reported year-to-year earnings declines, in line with the first quarter, but above the fourth quarter of 2002. "Earnings expectations might improve, but the consensus forecast already called for the strongest profit expansion in the entire post-war era," Bernstein said in a note to clients.
Barron's interviews Wally Weitz, whose Partners Value Fund has returned 15.6% a year since 1983. Wietz believes there is currently not a lot of value in the current markets environment. He cites concern over the financial sector given its popularity and spread lenders given potential surprises in interest rates. The fund managers top picks include the following stocks: Freddie Mac, Berkshire and Redwood Trust. The fund is currently 20% in cash given the sideways nature of the market were it might move 10%-25% up and back down again in six months and moves within individual stocks.
