Stocks ended on a positive note Thursday after a turbulent morning that saw the indexes alternating between either side of the flat line. The catalyst appeared to be the release of the Philadelphia Fed index, which improved to -3.7 from -8.8. Buy programs kicked in and traders snapped up selected large-cap issues, particularly those in the tech, financial, retail, auto and transportation sectors.
Volume was heavy with nearly 1.5 billion shares trading on the New York Stock Exchange. Nasdaq volume topped 2 billion shares.
Standard & Poor's MMS says while most components of the "Philly Fed" revealed little improvement on the month, the overall index came in better than expected, the highest level since February 1993. This bodes well for an improvement later in the year. However, the prices paid index jumped to 17.8 from 1.5, while prices received dropped to -4.0 from -2.2. This diverging trend does not bode well for near-term profit margins, according to MMS. Finally, the six-month outlook of capital expenditures fell to 0.1 from 8.4, suggesting that the outlook for capital spending, at least in this region, continues to remain a weak footing.
Art Hogan, chief market analyst at Jefferies & Co., says the early session reversal in the indexes seems to be the pattern this week. He says that investors are not focusing on corporate news, but instead on the belief that the Fed is going to cut rates again, and probably by 50 basis points. "We got that kind of buzz yesterday both with [Fed chairman Alan] Greenspan speaking and the price per barrel of oil really taking a whack and taking away some inflation fears."
The analyst says equities are factoring in the beliefs that the economy is starting to turn and the Fed is still going to cut rates again at the June 26-27 FOMC meeting. Hogan also points out that many of the large companies, such as Intel, Oracle and Cisco Systems, who have made negative pre-announcements have been relatively upbeat about the future. "Nobody thought the second quarter would be any better than the first quarter," he says, adding that he believes the market has gotten to a point where it has priced in some of the bad news and is looking ahead to the future.
Heading into the Fed meeting, Hogan expects this sort of choppy trading to persist amid a crosscurrent of news between economic data and its related conjecture on how the Fed's decision will be affected along with corporate news.
In other economic news, the U.S. trade deficit for April fell to $32.18 billion from $33.08 billion in March and the first quarter current account deficit narrowed to $109.56 billion. Meanwhile, initial jobless claims fell 34,000. Standard & Poor's MMS says while the headline data will surprise the market, fixed income traders are likely to turn their attention to the rising continued claims figures and take solace from them.
Among the stocks in the news Thursday, Sanmina Corp. (SANM) expects to report $0.10 third quarter EPS on $760 to $775 million in revenues. The company cites a continued slowdown in its end-markets. Other confessors include Transmeta Corp. (TMTA) and Exodus Communications (EXDS).
Friday's market action will likely be dictated by more corporate earnings news with a slew of announcements, including one by tech heavyweight Micron Technology (MU) due before the market opens.
The Dow Jones Industrial Average gained 68.10 points, or 0.64%, to 10,715.43. The technology-laden Nasdaq Composite added 27.50 points, or 1.35%, to 2,058.74. The broader S&P 500 index rose 13.83 points, or 1.13%, to 1,236.97.
Treasuries ended mostly higher. Chairman Greenspan's comments Thursday on stable inflation levels gave the long bond a boost.
European markets closed mixed. In London, the Financial Times 100 Index was down 58.20 points, or 1.02%, to 5641.40. In France, the CAC 40 Index ended lower by 35.52 points, or 0.69%, to 5,134.97. In Germany, the DAX Index gained 39.75 points, or 0.68%, to 5,915.79.
Asian markets ended higher. In Japan, the Nikkei gained 287.79 points, or 2.27%, to close at 12,962. In Hong Kong, the Hang Seng Index added 268.74 points, or 2.08%, to close at 13,187.45. By Alan Hughes in New York