Stocks ended Monday on an upbeat note, as sentiment on the prospect for an economic recovery turned positive in the last hour of trade.
On Monday. the Dow Jones industrial average added 25.67 points, or 0.26%, to 9,865.75. The Nasdaq Composite index gained 6.22 points, or 0.32%, to 1,943.92. The broader Standard & Poor's 500 index diped 0.22 points, or 0.02%, to 1,133.06.
Positive comments from investment banks on key stocks including Dow component General Motors (GM) and Texas Instruments (TXN) offset worry over earnings and the Federal Reserve's policy announcement Wednesday.
But choppy trading may continue through the Fed's meeting on Jan. 29 and 30. Investors are waiting to learn the latest on the Fed's interest rate policy. The FOMC is expected to leave interest rates on hold on Wednesday, while keeping the door open to further cuts if they become necessary, says Standard & Poor's MMS. Not cutting rates sends a signal that the central bank sees the U.S. is recovering from its current economic woes.
Fourth-quarter earnings season continues this week with a number of big-name companies set to release results, including results from financial services giant American Express Co. (AXP). The Dow component reported its fourth-quarter net income fell 56%. A slump in travel and the U.S. recession were to blame for weakness in its charge card, travel and money management units.
Texas Instruments, the world's top maker of computer chips for cellular phones, posted a fourth-quarter loss on weakened demand for cell phones and other communications equipment. Credit Suisse First Boston raised its rating on TI to buy earlier Monday, on expectations that it will see a bottom during the fourth-quarter or the first quarter of 2002, as macro-economic conditions improve.
A slew of companies will report earnings on Tuesday. They include beverage giant The Coca-Cola Company (KO), foodmaker Kraft Foods (KFT), financial services company FleetBoston Financial (FBF), telecom provider Qwest Communications (Q) and software maker Veritas Software (VRTS)
Among stocks in the news Monday, Morgan Stanley raised its rating on carmakers General Motors and Ford Motor Co. (F) to outperform, citing low valuations on the stocks in light of continued demand for cars and lower inventories.
Retailers were also in the news. Liz Claiborne (LIZ) said that it expects earnings per share to beat analysts' current estimates for the fourth quarter and full year. Meanwhile, Toys R Us (TOY) plans to cut 1,900 jobs and take a $213 million pre-tax charge in the fourth quarter in an effort to boost profits.
Among high-profile tech stocks, office equipment maker Xerox Corp. (XRX) reported a surprise profit, before unusual items, for the fourth quarter and said it expects a profit for the full year 2002 as well.
Handheld device maker Palm Inc. (PALM) gained ground after it introduced a wireless device that can surf the Web and check e-mail that would be targeted toward corporate buyers.
Former highflier Global Crossing (GX), an operator of fiber-optic networks, became the latest to file for Chapter 11 protection Monday.
Another closely-watched event will be President Bush's State of the Union address Tuesday. There has been speculation that Bush will express support for a cap on asbestos liability. Many of the country's biggest companies have seen their stocks crumble on worry that class-action suits involving asbestos claims could cause bankruptcies.
Treasuries finished lower in a volatile session ahead of the Fed's interest rate decision Wednesday. The two-year note was flat, while the five- and 10-year notes were lower after the U.S. Treasury estimated first-quarter borrowing at $52 billion. This suggests increased issuance of Treasury bills and 5- and 10-year notes as part of Wednesday's refunding announcement, MMS predicts. An increased supply of Treasury securities in the market tends to raise yields and lower prices.
New home sales data for December were much stronger than anticipated, but put pressure on bond prices just briefly. Sales rose 5.7% to a 946,000 annual unit pace. The data reflect continues strength in the housing market. MMS had expected new home sales to dip 14,000 in December to a 920,000 unit annual pace, amid higher mortgage rates and a dampening effect from winter weather. Attractive rates and rebounding confidence, along with a healthy pace of permits, provides little reason to expect any protracted weakness in housing during the new year, MMS says.
Some economic data at the end of the week could help support the case for a recovery. The ISM (formerly NAPM) index for January, slated for release on Friday, is expected to come in above the 50 boom-bust mark. The gauge has never failed to sign a sustained recovery in the economy. Also on Friday, investors will mull the employment report for January. Consensus forecasts are for a small drop of 50,000 in non-farm payrolls, which should not impact hopes for a rebound.
European markets ended higher amid better-than-expected data reported in Germany. An index of business confidence showed a rise for a third month in Europe's largest economy. The data raises expectations that Germany will recover this year and bring the rest of the region along with it.
In London, the Financial Times-Stock Exchange 100 index ended up 30.60 points, or 0.59%, to 5,223.60. In France, the Paris CAC 40 gained 56.85 points, or 1.27%, to 4,541.16. Germany's DAX index ticked up 2.39 points, or 0.05%, to 5,159.02, after initial enthusiasm over data on business confidence faded. And Deutsche Telekom weighed on stocks in the country lower on worries that German authorities will block its sale of cable units.
Asian markets ended mixed. Japan's Nikkei 225 index added 76.71 points, or 0.76% to 10,220.85, on hopes for global economic recovery. Hong Kong's Hang Seng index slipped 5.50 points, or 0.05%, to 10,767.46.