Tech stocks helped major indexes post gains on Wednesday, while Federal Reserve Chairman Alan Greenspan lent support with an optimistic tone in his opening remarks to the House Budget Committee, but voiced concerns about budget deficits and entitlement programs.
The Dow Jones industrial average gained 35.25 points, or 0.33%, to 10,601.62. The broader Standard & Poor's 500-stock index added 4.58 points, or 0.4%, to 1,143.67. The tech-heavy Nasdaq composite index ended 17.54 points higher, or 0.87%, to 2,022.98.
Brokerage, cyclical, semiconductor, biotech, and financial sectors helped boost the markets, after Greenspan warned Congress to implement reforms to protect Social Security and Medicare. Gold stocks were lower on profit taking as the dollar gained strength.
After a string of five losing sessions, did the market reach its bottom on Tuesday? Tuesday's price and volume action "probably improved chances the market has reached a minor bottom," says Richard Dickson of Lowry's Reports.
As Wednesday's market pop demonstrates, there may still be room for buyers. Michael Farr, president and chief financial investment officer at Farr, Miller & Washington, says "there are a lot of cheap stocks out there," pointing specifically to the financial and pharmaceutical sectors.
In his prepared comments to the House Budget Committee, Greenspan says that the economy is moving to a more "vigorous" expansion, but that progress in job creation has been "limited," reports economic research firm Informa. Greenspan also says that tax hikes pose considerable risk to the economy.
A report on sales of existing homes in January showed that sales slowed by 5.4% in January to 6.04 million, the weakest showing in seven months. "But again, these are the seven strongest months on record, so the drop isn't a sign that home sales are actually weak," notes Informa. "Overall, volatile winter housing data should not be given too much weight, and the pace of sales in January still looks very healthy."
In corporate news, high-end jewelry retailer Tiffany & Co. (TIF) posted fourth quarter earnings per share of 74 cents, vs. 60 cents one year earlier, on 10% higher same store sales. Tiffany maintains its fiscal 2005 guidance of 11% to 13% growth in net sales, and 12% to 15% growth in net earnings. Tiffany shares rose 6.5%.
At the other end of the retail spectrum, Dollar Tree (DLTR) shares slipped 4% lower after the company posted fourth quarter earnings per share of 69 cents, vs. 54 cents, on a 15% rise in net sales. The discount retailer sees its first quarter same store sales growth of slightly positive 3%. S&P has reiterated its hold rating.
Weight Watchers (WTW) posted fourth quarter earnings of 35 cents, vs. 26 cents, on a 14% net revenue rise. The company says it's confident that it will still deliver on its track record of superior performance, and expects 2004 EPS as high as $2.00. CS First Boston has downgrades its rating of the stock to neutral. Weight Watcher shares shed 1.8%.
Tax-preparer H&R Block (HRB) posted third quarter earnings of 59 cents per diluted share, vs. 73 cents despite a 2% revenue rise. Barrington Research cut its rating of the stock to market perform from outperform. The stock ended 7% lower.
Express Scripts (ESRX) gained 6.3% after posting fourth quarter earnings of 86 cents, vs. 72 cents on a 4% revenue rise. The company, which manages pharmacy benefits for HMOs, among others, expects its first quarter earnings to fall between 87 cents and 89 cents, and remaining quarters are expected to accelerate to achieve 20% to 25% growth for year. Wachovia upgraded its view of the stock to outperform, from market perform.
Chipmaker Rambus (RMBS) finished 7.2% higher on a report from an administrative law judge, who last week dismissed a government antitrust suit against the company, and sided with the company on almost every point.
In semiconductors, Semtech (SMTC) posts fourth quarter earnings of 16 cents per share, vs. breakeven on a 25% sales rise. The company sees its first quarter EPS as high as 18 cents on 7% to 10% higher sequential sales. Semtech shares were 2.1% higher.
This week's earnings calendar continues on Thursday with restaurant chain IHOP (IHP) followed by Introgen Therapeutics (INGN) on Friday.
The rest of the week's economics news slate is busy. On Thursday, a report on new home sales in January is seen easing to a 1 million annualized pace from 1.06 million in December. Traders will also get a read of initial jobless claims. Friday delivers preliminary gross domestic product figures for the fourth quarter of 2003. Early GDP data are expected to show the economy grew 4.1% vs. 4.0% in previous estimates.
Treasuries made gains Wednesday, in a narrow range, helped by strength in the U.S. dollar. The huge dollar intervention over the past two days translated into a very strong $26 billion, two-year note auction, says Informa. The market barely flinched early in the session, as weaker-than-expected home sales arrived, and Greenspan reiterated the strong economy theme.
"He remains optimistic that the expansion will be sustained but warned as in earlier testimony that tax increases pose a threat to growth," reports Informa. "As such, spending cuts should be the focus on how to reign in the budget deficit. On rate policy, he repeated that it is accommodative, but [gave] no hint as to when that would change."
Regarding Social Security, Greenspan has said that reforms are needed soon, as the the trust fund is projected to go into the red in future years. "Either way, the reality is that the Congress faces a huge shortfall between future benefit payments against payroll taxes collected to fund the program," says Informa.
Elsewhere in Fedspeak, St. Louis Fed President Bill Poole says that when economic signals are unclear, the central bank shouldn't rush into policy action. According to MarketScope, Poole said that the FOMC is paying "more emphasis on appropriate policy responses to surprises and potential surprises and much less emphasis on forecasts." Marketscope adds that "Fed officials are really trying to take the emphasis off of the timing of rate hikes, insisting that the Fed will respond to events."
The dollar was higher, following German chancellor Gerhard Schroeder's calls for a European Central Bank rate cut. Among the major currencies, the euro was trading at $1.249, the pound sterling was at $1.869, and the dollar was at 109.04 yen.
European stock markets finished mixed on Wednesday, but off earlier lows. London's Financial Times-Stock Exchange 100 index moved higher by 10.7 points, or 0.24%, to 4,507.50. There was little reaction to a report that fourth quarter U.K. GDP grew at an unrevised 0.9%, according to S&P's MarketScope. GDP for year grew at a 2.3% rate, the largest in three years.
In Paris, the CAC 40 finished 19.19 points higher, or 0.52%, to 3,702.63. The French consumer price index rose 0.1% in January. Alstom and Euronext were higher, while Michelin was lower.
Germany's DAX index closed down 3.92 points, or 0.1%, to 3,995.34, as the GfK AG consumer confidence index came in little changed for March. According to MarketScope, the German market research company said the report suggested higher health care costs offset German chancellor Schroeder's tax cuts. Allianz was lower after Morgan Stanley cut its price estimate for the stock.
Asian markets finished mixed on Wednesday. In Japan, the Nikkei 225 index gained 14.6 points points, or 0.14%, to 10,658.73. Exporters fell after Tuesday's U.S. consumer confidence dip, but drug stocks rose, after Yamanouchi Pharmaceutical agreed to buy Fujisawa Pharmaceutical to form the nation's second largest drug maker, reports MarketScope.
In Hong Kong, the Hang Seng index slipped 156.94 points lower, or 1.14%, to 13,599.47.