Traders Tuesday drew encouragement from better than expected profits from Merck and Schering-Plough. Lawmakers wrangled over the U.S. stimulus package
U.S. stock indexes finished higher Tuesday, led by strength in healthcare issues after Merck & Co. (MRK) and Schering-Plough (SGP) posted favorable quarterly earnings results. Other market gainers included energy stocks, jumping in concert with a rise in crude oil futures; and homebuilders, aided by stronger-than-expected pending home sales data and a favorable earnings report from D.R. Horton (DHI) .
Traders were disturbed by "politics as usual" in Washington, reports S&P MarketScope. Democrats, Republicans, and President Obama are fighting over economic stimulus and financial rescue packages. Sen. Charles Schumer, D-N.Y., said he "can live with" protectionism in the short term to help lift the U.S. out of worst recession since the 1930s.
Meanwhile, two Obama nominees withdrew their names from consideration over tax issues.
On Tuesday, the 30-stock Dow Jones industrial average finished higher by 141.53 points, or 1.78%, at 8,078.36. The broad S&P 500 index was up 13.07 points, or 1.58%, at 838.51. The tech-heavy Nasdaq composite index added 21.87 points, or 1.46%, to 1,516.30.
On the New York Stock Exchange, 18 stocks were higher in price for every 12 that declined. Nasdaq breadth was 15-11 positive. Trading was moderate.
Treasuries were sharply lower, with the yield on the 10-year note rising to 2.88%. The U.S. dollar index was skidded as sterling and the euro rose. Gold futures fell.
According to Brown Brothers Harriman strategist Marc Chandler, "markets remained concerned about the deteriorating global economic environment and this week's risk events -- the ECB meeting, US jobs data, and developments related to the US stimulus package currently in the Senate."
Merck posted fourth-quarter non-GAAP EPS of $0.87 (excluding restructuring charges) vs. $0.80 one year earlier despite a 3.4% sales drop. The drugmaker reaffirmed its expectations for 2009 revenue of $23.7 billion-$24.2 billion, adding that revenues are likely to be in the lower half of that range. It also reiterated its expectations for 2009 non-GAAP EPS of $3.15-$3.30, excluding certain items and 2009 GAAP EPS of $2.95-$3.17.
Dow Chemical posted a $0.62 fourth-quarter loss vs. $0.84 EPS (both excluding certain items) on a 23% sales decline. The company noted that volume declined 17%, and was down in all operating segments and in all geographic areas, reflecting the global economic downturn and the de-stocking that occurred through most value chains.
January vehicle sales reports released Tuesday reflected the bleak economic picture. Sales at General Motors (GM) plunged 48% year-over-year in January, which was much weaker than expected. Ford Motor Company BX Link Code to paste into copy: Ford Motor Co. (F) reported January sales down 39% year-over-year.
Former Sen. Tom Daschle withdrew his name from contention to be President Barack Obama's secretary of health and human services, bowing to the pressure that arose from his failure to pay more than $100,000 in taxes. The Wall Street Journal said the move is a blow to the administration and to one of Obama's closest friends and political allies, a man he had tapped to spearhead his push for sweeping health reform.
Another Obama nominee also withdrew from consideration, and also over tax problems. Nancy Killefer, nominated by Obama to be the government's first chief performance officer, said she didn't want her bungling of payroll taxes on her household help to be a distraction.
Top Democrats plan to add a big increase in highway and mass transit funding to President Barack Obama's economic recovery program, even as others in the president's party hope to rein in the plan's almost $1 trillion cost to taxpayers. A move by Patty Murray, D-Wash., to add $25 billion in infrastructure projects is first in line as the Senate begins thrashing through dozens of proposed changes to the sprawling $885 billion measure. Murray's plan would increase the money in the bill for highway projects by almost 50% to $40 billion, reflecting complaints from lawmakers in both parties that Obama's plan doesn't do enough to relieve a backlog of unfinished projects. Mass transit programs would get a $5 billion boost, while water projects would get $7 billion more. Republicans, for their part, readied a plan to lower mortgage costs to try to jolt the housing market out of its slump.
The Obama administration is tackling the bailout of the battered financial sector on two tracks: overhauling how the government spends the money while devising new executive compensation restrictions for banks that get it. The AP said administration officials said the pay limits could be announced this week, but said the more complicated task of setting up a new framework for rescuing the nation's ailing banks would have to wait until early next week. President Barack Obama, in a grim assessment of the financial industry, said Monday he would probably need more money to bail out troubled institutions to ease a suffocating credit crunch. Still, he added, "some banks won't make it."
In economic news Tuesday, U.S. pending home sales rebounded 6.3% to 87.7 in December, from a revised 882.5 in November (was 82.3). This bounce is off of a record low in November (the data go back to 2001), and is the first increase in the index since August. Data were mixed regionally with gains in the Midwest (12.8%) and South (13.0%), and declines in the Northeast (-1.7%) and West (-3.7%). The rebounds were largely in those areas with the biggest improvement in affordability as record foreclosures have knocked prices lower.
Traders were awaiting Wednesday's ADP employment report for January and the ISM services index for the month. The market expects Friday's nonfarm payroll report for January to be "horrendous", according to S&P.
Eurozone producer prices dropped by a more than expected 1.3% in December after falling 2.0% in November. Also, German retail sales unexpectedly fell 0.2% in December, the third consecutive monthly decline. Year-on-year, sales fell 0.3% in real terms. And Spain, hit hard by the collapse of a housing sector, said the number of registered jobless had surged by nearly 200,000 in January, the tenth straight rise and biggest since records began in 1996.
The Bank of Japan said it will buy 1 trillion yen ($11.1 billion) of shares owned by financial institutions to shore up their capital.
The Royal Bank of Australia cut rates a full points and the government unveiled a second stimulus plan.
Among other stocks in the news Tuesday, SanDisk Corp. (SNDK) posted a $1.65 fourth-quarter non-GAAP loss vs. $0.69 EPS on a 31% revenue decline. Current results exclude charges in the aggregate of $1.91 billion, due to "significant" asset impairment and inventory related charges.
Archer-Daniels-Midland (ADM) posted $0.91 vs. $0.73 second-quarter EPS on a 1.1% rise in net sales and other operating income.
Scotts Miracle-Gro (SMG) posted a $0.88 first-quarter adjusted GAAP loss vs. an $0.89 loss on a 3% sales rise. The company raised its fiscal 2009 adjusted EPS forecast to $2.10-$2.30 (up from $2.00), as a result of lower-than-expected commodity inflation, incremental volume in private label categories, and favorable interest rates. It expects to generate free cash flow of $150 million-$170 million for fiscal 2009, up approximately 20% vs. a year ago.
United Parcel Service (UPS) posted $0.25 fourth-quarter EPS vs. a $2.52 loss on a 5.2% revenue drop. The company posted $0.83 vs. $1.07 fourth-quarter adjusted EPS. UPS says it will provide guidance only for first-quarter EPS of $0.52-$0.68.
Motorola Inc. (MOT) posted a $1.57 fourth-quarter loss vs. $0.04 EPS on a 26% revenue drop. The company noted that the fourth-quarter 2008 loss included net charges of $1.56 per share for certain items; substantially all of the charges for these items are non-cash, primarily related to impairment of goodwill and an increase in deferred tax asset valuation reserves. Motorola sees a first-quarter loss of $0.10-$0.12, excluding charges associated with operating expense reduction initiatives and other items. The company suspended its quarterly dividend.
Aflac Inc. (AFL) posted $0.98 vs. $0.78 fourth-quarter operating EPS on a 6% total revenue rise. The company said results benefited from the strengthening of the yen relative to the U.S. dollar. Aflac believes flat sales to a 5% increase in both Japan and U.S. are reasonable targets for this year. It sees operating EPS for 2009 of $4.51-$4.59, excluding impact of the yen. However, the yen is currently stronger to the U.S. dollar than it was in 2008. If the stronger yen persists and averages 90-95 for the full year, Aflac expects reported EPS of $4.73-$4.96.
Emerson Electric (EMR) posted $0.60 vs. $0.65 first-quarter EPS from continuing operations on a 1.8% sales decline. Wall Street was looking for $0.57. The company sees $2.70-$2.95 fiscal 2009 EPS and a 3%-6% sales decline. Emerson targets a "strong" year in free cash flow at 11.0%-11.5% of sales for fiscal 2009.