Strength in techs helped offset weakness in blue chips Monday. Traders eyed more poor earnings news and weak economic data
U.S. stocks closed mixed Monday. Gains in tech stocks like Microsoft (MSFT) and Intel (INTC) helped offset drops in the broader market led by big manufacturers 3M (MMM), Boeing (BA), and General Electric (GE) and financials like JPMorgan Chase (JPM) and Bank of America (BAC).
Weakness in the manufacturing sector followed data showing U.S. factory activity remains deep in recessionary territory. Other U.S. data showed less spending activity in the consumer and construction arenas, and lower personal income levels.
On Monday, the 30-stock Dow Jones industrial average finished lower by 64.11 points, or 0.80%, at 7,936.75. The broad S&P 500 index was off 0.45 points, or 0.05%, at 825.43. But the tech-heavy Nasdaq composite index added 18.01 points, or 1.22%, to 1,494.43.
On the New York Stock Exchange, 17 stocks were lower in price for every 14 that advanced. Nasdaq breadth was 15-13 positive. Trading was moderate.
Treasuries soared on a flight to safety bid, with the yield on the 10-year note at 2.72%. The dollar index rose. Gold and crude oil futures declined.
"Strong seasonal influences, driven by huge cash flows, did not appear in January, suggesting that equity investors were making a very conscious decision not to buy stocks, a very conscious decision to hold buying power in money market funds and cash," wrote Miller Tabak strategist Phillip Roth in a note Monday.
President Obama met with lawmakers Monday on his economic stimulus plans amid Republican opposition. There have been many complaints that the Democrats loaded the House-passed plan with pork during a time when the economic recession is expanding, according to S&P MarketScope.
Facing opposition from Republican lawmakers to parts of his economic recovery plan, Obama called Democratic Congressional leaders to a meeting Monday to drive home his message of urgency, according to a Reuters dispatch. With hundreds of thousands of Americans losing their jobs, many their homes, and a rapidly shrinking economy, Obama is under pressure to move swiftly to get his nearly $900 billion plan through Congress by mid-February. Senior Republican senators warned their party was unlikely to back the stimulus bill without changes to cut waste and to ensure the package provides an immediate boost to the deteriorating economy.
Treasury Secretary Geithner was meeting with regulators over economic revival measures.
Bloomberg reports Obama will require banks to boost lending to consumers and companies in return for taxpayer aid from the $700 billion bailout fund, in a departure from Bush administration policy, a key lawmaker said. "You're going to see the Obama administration," learning lessons from the first phase of the program, "push for much more lending," House Financial Services Committee Chairman Barney Frank, who helped write the financial-rescue law, said yesterday on ABC television's This Week program. "There are going to be some real rules in there."
In economic news Monday, U.S. ISM manufacturing index edged up to 35.6 in January after falling almost 4 points to 32.9 (revised from 32.4) in December. That's better than expected and shows the contraction in activity is slowing. The index was at 50.7 a year ago. The employment index was unchanged at 29.9 (47.1 a year ago). New orders rose to 33.2 versus 22.7. Export orders edged up to 37.5 compared to 35.5. Prices paid rose to 29.0 versus 18.0 (last January). The data might suggest some stabilization in manufacturing, albeit with the indexes holding at very low levels, according to Action Economics.
U.S. construction spending dropped 1.4% in December from a revised 1.2% slide in November (from -0.6%; October's -0.4% decline was revised down to -0.7%). Residential spending remained very weak, falling 3.2% and is down over 22% year-over-year. Spending on nonresidential projects was down 0.6%. Private spending fell 1.7% in December from a revised -2.3% in November (was -1.5%), paced by a 3.2% decline in residential spending. Nonresidential private spending fell 0.4%. Public spending declined 0.8% after a 1.2% increase in November (revised from 1.4%). In that category, residential spending was down 2.5% and nonresidential spending dropped 0.8%.
"The data are a little worse than expected, but that's not a surprise given the weakness in recent housing data," says Action Economics.
U.S. personal income fell 0.2% and spending dropped 1.0% in December. November's 0.2% decline in income was revised lower to -0.4%, while the 0.6% drop in spending was revised to -0.8%. Disposable income was down 0.2% from -0.3% in November (revised from -0.1%). The savings rate rose to 3.6% from 2.8% (not revised). The PCE deflator declined 0.5% on the month, compared to -1.1% in November, while the core rate was unchanged for a third consecutive month.
The German manufacturing PMI was confirmed at 32.0, unchanged from the preliminary reading and down from 32.7 in the previous month. The French reading was revised down to 37.9 from 38.1 reported initially, but still higher than the 34.9 in December. The Italian PMI also improved, to 36.1 from 35.5 in December. The U.K. January manufacturing PMI unexpectedly improved to 35.8 from 34.9 in the previous month.
The market was dogged by more poor earnings news Monday.
Hitachi Ltd. (HIT) said it sees a fiscal 2009 net loss of 700 billion Japanese yen. The company expects to record 140 billion yen in losses from equity-related investments at its semiconductor-related affiliates, along with 150 billion yen in expenses on structural reforms, 80 billion yen in losses upon revaluation of its fixed assets and marketable securities, and 330 billion yen in accumulated tax expenses. S&P Ratings placed its A- long-term corporate credit and long-term senior unsecured debt ratings on Hitachi on CreditWatch with negative implications.
Humana Inc. (HUM) posted $1.03 vs. $1.43 fourth-quarter EPS as higher stand-alone prescription drug plan claim expenses and lower net investment income including $0.04 per share in other-than-temporary investment impairments in the current quarter offset an 18% revenue rise. The company continues to see 2009 EPS of $5.90-$6.10 vs. $3.83 in 2008.
Mattel Inc. (MAT) posts $0.49 vs. $0.89 fourth-quarter EPS on 11% sales drop.
Rockwell Automation (ROK) posted $0.81 vs. $1.04 first quarter EPS from continuing operations on an 11% revenue decline. Organic sales fell 5%, while currency translation contributed 6 percentage points to the total 11% decline. Given the abrupt fall-off in sales volume and increasing uncertainty, the company says it ispreparing for a fiscal 2009 revenue decline of 12%-17%, excluding effects of currency. The company now sees EPS of $1.55-$2.25.
Piper Jaffray Companies (PJC) posted a $9.76 fourth quarter loss per share from continuing operations vs. $0.37 EPS on a sharp revenue drop. The company notes all of the fourth-quarter loss was attributable to a number of significant items that totaled $146.3 million after-tax, or $9.33 per share. The company said operating conditions further deteriorated in the fourth quarter, affecting nearly all of its business.
Applied Materials (AMAT) expects a net loss in the range of $0.09-$0.11 for the first quarter, which includes charges that decreased earnings by $0.09, vs. previous guidance of breakeven to $0.04 EPS (excluding charges). Net sales for the quarter are expected to be down 35% from year-ago levels, and at the low end of previously provided target of down 25% to 35%.
Corn Products Intl. (CPO) posted $0.61 (including $0.09 negative impact from reimbursement of expenses in connection with the termination of the proposed merger with Bunge Ltd.) vs. $0.61 fourth quarter EPS on a 1% sales rise. The company sees 2009 EPS of $2.10-$2.60. Corn Products says its outlook for lower 2009 EPS is primarily due to anticipated reduced year-over-year co-product credits, particularly from corn oil, which would significantly increase net corn costs, foreign currency devaluations, and uncertainty over volumes and pricing strength.
Goldman Sachs reportedly downgraded NYSE Euronext (NYX) to sell from neutral and Nasdaq (NDAQ) to neutral from buy. Keefe Bruyette also reportedly downgrades NYSE Euronext to market perform.
Pfizer Inc. (PFE) announces discontinuation of a Phase III study of its investigational agent axitinib for treatment of advanced pancreatic cancer. Based on interim analysis, independent Data Safety Monitoring Board found no evidence of improvement in primary endpoint of survival in patients treated with axitinib and gemcitabine, compared to gemcitabine alone, the current standard of care for patients with advanced pancreatic cancer.
Imation Corp. (IMN) announced that it has suspended its quarterly cash dividend, saying the suspension will preserve approximately $3 million of capital per quarter.