Stocks finished mixed Monday, led lower by semiconductor issues. The major indexes vacillated all day as investors weighed a number of countervailing factors: continued worries over inflation and possible interest rate hikes; strong March-quarter corporate earnings; and better-than-expected new home sales in March.
The Dow Jones industrial average ended down 28.11 points, or 0.27%, to 10,444.73. The broader Standard & Poor's 500-stock index gained a mere 0.67 point, to finish at 1,140.6. The tech-heavy Nasdaq composite index lost 13 points, or 0.64%, to 2,036.77.
Semiconductor losses led to a 2.7% drop in the Philadelphia Semiconductor index (SOX.X). Biotech shares led the gainers, with homebuilders benefiting from the outstanding new home sales report. Weighing on the Dow, Wal-Mart (WMT) fell 1.4% on weak April sales data. Oil stocks rose on supply concerns following terrorist attempts to damage offshore drilling platforms in Iraq.
Market fundamentals -- good earnings news, above-the-bar guidance, and strong reads of the economy -- seem to be a call to the bulls, but the market won't lift. While many analysts point to fears of interest rate hikes, Peter Cardillo, chief market strategist at S.W. Bach, thinks that sellers are fretting more about geopolitical concerns. "There's a little bit of a chill running though the market space, as we continue to see insurgence in Iraq and the possibility of further geopolitical problems down the road," he says.
UBS Financial chief bond strategist Ian Douglas notes that the market sees a 46% chance of the Federal Reserve hiking interest rates in August, up from around 12% at the beginning of April. S&P's MarketScope reports Douglas saying that a sharp spike in this week's GDP report or personal consumption expenditure deflators "is all that will be needed to take the probability from minority to majority view."
In economic news, new home sales data for March arrived stronger than expected, surging 8.9% to a 1.228 million annual pace, up from last month's downwardly-revised reading of 1.128 million. Inventories of new homes for sale slipped to a tight 3.7-months worth, while the median price rose 8.8% year-over-year. Strong demand remains, despite expected interest rate hikes, "while better employment growth ahead could also offset some of the impact of higher mortgage rates from an income view," reports economic research firm, Informa Global Markets.
Investors got word of a proposed merger of global drug giants on Monday. France-based Aventis (AVE) accepted a sweetened bid from another French drug maker, Sanofi-Synthelabo, to acquire Aventis for a mix of stock and cash, valuing Aventis at $65.6 billion. The new company will be called Sanofi-Aventis. S&P has maintained its hold rating of Aventis. Meanwhile, Novartis (NVS) says it will not submit a bid for a potential combination with Aventis. Aventis shares dipped 7.3%, while Novartis gained 5.3%.
In drug research, Roche, OSI Pharmaceuticals (OSIP) and Genentech (DNA) report that the phase three study of Tarceva, an compound for previously treated patients with advanced lung cancer, has met the primary endpoint of improving overall survival. OSI Pharmaceuticals surged 139% to $91.1 in heavy volume, while Genentech added 12%. S&P cut its opinion of Genentech to avoid from hold.
In other company news, Morgan Stanley (MWD) and Credit Suisse First Boston will share in a pool of investment banking fees worth almost $100 million as lead underwriters for the initial public offering of Internet-search outfit Google, according to the Wall Street Journal. Shares of Morgan Stanley finished higher.
Humana (HUM) dipped 6.8% after posting first-quarter earnings per share of 41 cents, vs. 19 cents, on a 12% revenue rise. The health insurance company sees its 2004 EPS falling between $1.60 and $1.65.
Boeing (BA) ended higher, helping to buffer the downside in the Dow, following a decision by Japan's All Nippon Airways to buy 50 of the company's planned 7E7s for $6 billion.
Power producer TXU (TXU) says it expects first-quarter operating EPS of at least 60 cents, vs. previous guidance of 45 cents, and has increased its 2004 operating EPS guidance to a range of $2.45 to $2.55 per share. TXU cites a series of deals totaling about $8 billion, including the sales of TXU Australia, and TXU Fuel. S&P upgraded the stock to hold from avoid. Shares jumped 13%.
The earnings calendar this week includes releases from Hilton Hotels (HLT) and Dynegy (DYN) on Wednesday. Thursday's schedule is busy, including the likes of ExxonMobil (XOM), Duke Energy (DUK), and Gillette (G), while Friday's lineup includes Cigna (CI).
Tomorrow's economic calendar includes March existing home sales, and a read of April consumer confidence at 9:00 a.m. EST. Informa expects a slight drop in consumer confidence with gains in gas prices and unsettling headlines from Iraq offsetting better jobs news and a recent rebound in presidential approval ratings.
The rest of the week's economic calendar includes an advance report of first quarter GDP, and initial jobless claims for the week ended Apr. 24 on Thursday. Friday brings the Chicago PMI release for April.
Treasuries finished slightly higher in price Monday, with the 10-year note yield at about 4.44%. Yields attracted buyers throughout the session, but a tight range ensued, says Informa. Bonds paid little attention to the larger than expected 8.9% surge in March new home sales, notes MarketScope.
In foreign exchange, the dollar slipped somewhat from its gains last week. The euro was at $1.18, the pound sterling was at $1.78, and the dollar was trading at 108.67 yen.
European stock markets finished mixed on Monday. London's Financial Times-Stock Exchange 100 index added 1.2 points, or 0.03%, to 4,571.2, as the U.K. CBI quarterly survey showed that business confidence rose to 18 from 13 in January, the largest quarterly gain since April 1995. The business confidence index fell a bit, but was in line with expectations, reports MarketScope.
In Paris, the CAC 40 index finished down 25.88 points, or 0.68% at 3,785.55, amid controversy over the Aventis and Sanofi merger, which reportedly agreed to the merge following pressure from Jacques Chirac's government.
Germany's DAX index finished off its daily highs, up 22.21 points, or 0.54%, to 4,125.83, following a report that the IFO business confidence index surprisingly rose in April, the first increase in three months.
Asian markets began the week mixed. In Japan, the Nikkei 225 index added 43.23 points, or 0.36%, to close at 12,163.89, led by gains in exporters such Fujitsu, Japan's top computer maker, amid optimism over earnings prospects. Fujitsu added 3.08% after it raised its profit forecast for the past year to March.
In Hong Kong, the Hang Seng index shed more than its Friday gains on SARS fears. The index finished down 251.26 points, or 2.03%, to close at 12,132.68.