Stocks finished with strong gains on Monday as oil prices fell and short-sellers purchased shares to cover positions amid oversold market conditions. Cyclical, biotech, and semiconductor sectors led the surge.
The Dow Jones industrial average jumped 129.2 points, or 1.31%, to 9,954.55. The broader Standard & Poor's 500 index rose 14.54 points, or 1.37%, to 1,079.34. The tech-heavy Nasdaq composite index climbed 25.62 points, or 1.46%, to 1,782.84.
In the energy markets, oil futures retreated from a record price of $46.90 per barrel amid news that Venezuela's President Hugo Chavez apparently withstood the recall referendum, indicating that the country's oil supply won't be disrupted. However, many market watchers remain skeptical that the referendum will prevent oil from hitting $50 per barrel.
Tuesday brings a trio of economic reports. Action Economics expects the overall July consumer price index to reveal a 0.1% gain and for the core index (excludes food and energy prices) to expand 0.2%. Weakness in commodity prices should hold the index back during the month. "Overall, the underlying tone in inflation data for the rest of the year will be a key determinant of the pace at which the Fed reduces stimulus," says Action Economics.
The July release of industrial production is expected to show an 0.6% increase, following an 0.3% drop in June activity, and should come about due to a rebound in auto assemblies, says Action Economics. And housing starts are anticipated to expand at a 1.95 million unit clip in July, an 8% improvement over the 1.8 million unit rate in June.
The economic reports tomorrow will be a real test of the impact of one day of lower oil prices, says Paul Cherney, chief market analyst for Standard & Poor's. "Tomorrow, if crude fails to fall further and the reports on the economy are weak, equity prices might just mark time or drift lower," he says.
Also due out Tuesday are earnings from a host of retailers, including Home Depot (HD), BJ's Wholesale (BJ), J.C. Penney (JCP), Staples (SPLS), and TJX (TJX). In the tech sector, Applied Materials (AMAT) and Network Appliance (NTAP) are scheduled to release quarterly results.
Among stocks in the spotlight Monday, insurers such as St. Paul Travelers (STA) were mixed as some industry members issued details about liability exposure to claims from Hurricane Charley.
On the earnings front, retailer Lowe's (LOW) reported lower-than-expected second-quarter earnings per share of 89 cents, vs. 75 cents a year ago, on 5.1% higher same-store sales and 17% net sales rise. The home improvement chain raised its outlook to 65 cents to 66 cents third-quarter EPS on 3% to 4% higher same-store sales and 15% higher total sales. It expects $2.69 to $2.71 for fiscal year 2005 EPS.
Kmart Holding (KMRT) posted second-quarter earnings per share of $1.54, vs. a 6-cents loss a year ago, despite 15% lower same-store sales and 15% lower total sales.
Sysco (SYY) was lower after the food distributor reported fourth-quarter EPS of 43 cents, vs. 37 cents a year ago, on a 17% sales rise. BB&T Capital downgraded the stock to hold from buy.
In merger news, LifePoint Hospitals (LPNT) agreed to acquire Province Healthcare (PRV) in a $1.7 billion deal.
In economic news, the New York Fed's Empire State index plunged to 12.6 in August from 35.75 in July, significantly weaker than expected. Most of the components were below their 6-month averages. New orders collapsed to 14.9 from 28.6. The employee index rose to 17.0 from 13.1. Prices paid fell to 49.6 from 56.4.
Treasuries finished lower in price on Monday. The 10-year note yield climbed to 4.26% from last week's low of 4.20% following the blow-out trade deficit. The move was generated by positioning following last week's strong refunding and unwinding of the weekend safety premium after no security gaffes at the Athens Games, says Action Economics.
Talk also did the rounds of an asset allocation switch into stocks, which benefited from a 58 cents decline in crude oil after President Chavez survived a referendum in Venezuela. There was also speculation that the insurance industry could liquidate some fixed income assets to pay out on Hurricane Charley claims, says Action Economics.
European stock markets finished higher on Monday. London's Financial Times-Stock Exchange 100 index was up 48.7 points, or 1.13%, to 4,350.2 on short covering and lower oil prices. Lloyd's of London, Hiscox, Wellington, and Atrium were lower on worries about costs of Hurricane Charley that damaged Florida.
Germany's DAX index gained 52.12 points, or 1.43%, to 3,699.11 on bargain hunting. Some investors were encouraged that the IMF raised its growth outlook for Germany, but the Bundesbank sees a slowdown due to recent rise in oil prices and job cuts.
In Paris, the CAC 40 index rose 31.84 points, or 0.91%, to 3,516.68. EADS lost ground on worries that airlines might cut back on purchases if oil prices remain high. Alcatel was higher after winning a $24 million contract from Enterprise of Telecommunications of Laos.
In Asia, the markets finished lower on Monday amid worries about soaring oil prices. Japan's Nikkei 225 index lost 69.39 points, or 0.65%, to close at 10,687.81 as exporters such as Toyota Motor fell. Retailers, brokerages, and other shares dependent on domestic business headed south, as investors become increasingly worried over Japan's economic health after weaker-than-expected GDP growth for the second quarter.
In Hong Kong, the Hang Seng index fell 140.08 points, or 1.13%, to 12,219.75 as local blue chips fell across the board, with HSBC down 0.42% and Hutchison Whampoa down 0.44%.