Investors sought bargains after an initial sell-off Thursday, shaking off downbeat reports on jobless claims and factory orders
U.S. stock indexes, which plunged at the start of trading Thursday, finished higher as early price drops led to late-session bargain hunting. Leading the rally were financials like Bank of America (BAC) and Master Card (MA); tech names like Apple (AAPL) and Yahoo! (YHOO); and retailers including Wal-Mart (WMT).
On Thursday, the 30-stock Dow Jones industrial average finished higher by 106.41 points, or 1.34%, at 8,063.07. The broad S&P 500 index was up 13.56 points, or 1.63%, at 845.79. The tech-heavy Nasdaq composite index was higher by 31.19 points, or 2.06%, at 1,546.24.
On the New York Stock Exchange, 19 stocks were higher in price for every 11 that declined. Nasdaq breadth was 18-10 positive.
Treasuries finished higher in price as the Bank of England cut its key rate to 1%, while the European Central Bank held rates steady. The yield on the 10-year note fell to 2.92%. The dollar index, gold futures, and crude oil futures all moved higher.
Data released Thursday showed mixed retail sales, higher jobless claims, and lower factory orders. Friday brings January nonfarm payrolls data, which is expected to be weak.
There is much discontent over President Obama's economic stimulus plan, reports S&P MarketScope, as a Senate vote nears. Obama yesterday said the recession will turn into "a catastrophe" if the economic stimulus is not passed quickly. IMF says stimulus plans could boost economy next year. The Senate advanced a homebuyer tax break as part of the stimulus package.
Investors continue to hope Washington will
soon agree on plans to shore up the economy and the banking industry. Sen Christopher Dodd (D-Conn.) says mark-to-market accounting rules could be modified.
Cisco Systems (CSCO) posted better-than-expected $0.32 vs. $0.38 second-quarter non-GAAP earnings per share (EPS) on a 7.5% sales decline. Wall Street was looking for $0.30. However, the company said total product order growth fell 20% in the second quarter as trends continued to deteriorate throughout the period. Cisco expects third-quarter revenue to fall 15%-20% from the prior-year period. It noted that it is not planning for major layoffs, but headcount reductions may become necessary.
Wal-Mart reported 1.5% higher total U.S. same-store sales, including fuel, in January, and 1.8% higher total sales. Same-store sales rose 2.1% without fuel. Wal-Mart will only be giving same-store guidance on a quarterly basis. It expects U.S. same-store sales without fuel during the period from January 31 through May 1 to increase between 1%-3%.
Shares of Bank of America initially fell Thursday amid rumors of a nationalization of the bank fanned by an analyst report, according to Action Economics. The shares rebounded after Sen. Dodd later said he did not favor nationalizing the bank. Also Thursday, TARP Inspector General Neil Barofsky, in testimony at a Senate Banking Committee hearing, noted that his office is opening an audit of how BofA received $45 billion of government funds in two installments, as well as how lobbyists are influencing the application process for banks to receive capital infusions.
Goldman Sachs Group (GS) said it is determined to repay the $10 billion it got from the federal government as soon as possible, a move that would end the toughened scrutiny that came with the money. "Operating our business without the government capital would be an easier thing to do," David Viniar, Goldman's chief financial officer, said at a Credit Suisse Group conference in Naples, Fla. "We'd be under less scrutiny and under less pressure."
The Senate voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession. The vote to add the tax credit, at a cost of about $18.5 billion, came as Senate leaders seemed to be nearing completion of negotiations. The majority leader, Sen. Harry Reid of Nevada, suggested that a final vote on the stimulus plan could come today. Moderate lawmakers in both parties are pushing to reduce the overall cost of the measure and to focus it more tightly on provisions that will quickly spur spending and create jobs. The vote came as President Obama met with centrist lawmakers to address concerns about the package.
Earlier, the Senate voted to soften a "Buy American" plan in its $900 billion stimulus bill after Obama expressed concern the original language could trigger a trade war. The Associated Press said the senators, on a voice vote, approved an amendment requiring the Buy American provisions be "applied in a manner consistent with U.S. obligations under international agreements." The change gives Canada, Mexico, the European Union and certain other major trading partners some comfort they would be exempted from a strict requirement in the bill that all public works projects funded by the stimulus package use only U.S.-made iron, steel and manufactured goods. The House has passed a nearly identical Buy American provision without such a guarantee.
In economic news Thursday, U.S. factory orders dropped 3.9% in December. There was a big downward revision to November to a 6.5% decline vs. -4.6% initially. This is a fifth consecutive monthly decline, paralleling the dive in the economy last fall. The 2.6% decline in orders in the advance durable goods report was revised lower to -3.0%. Excluding transportation, orders declined 4.4% after a 6.0% drop in November (revised from -4.2%). Nondefense capital goods orders excluding aircraft fell 3.2% following the 1.1% November rebound (revised from 3.9%). Shipments dropped 2.9%, also a fifth straight monthly decline. Inventories shrank 1.4%. The inventory-shipment ratio rose to 1.44 after surging to 1.42 in November (revised from 1.41). The ratio was at 1.21 in July.
U.S. jobless claims rose 35,000 to 626,000 for the week ended January 31, from a revised 591,000 the week before (from 588,000 previously). Continuing claims were up 20,000 to 4,788,000 in the week ended January 17, from 4,768,000 previously (revised from 4,776,000), and are the highest on record.
Overall, the labor market remains in poor condition, and the claims report will increase focus on Friday's unemployment report, says Action Economics.
U.S. nonfarm productivity growth climbed 3.2% in the fourth quarter after a revised 1.5% increase in the third quarter (from 1.3% previously). Unit labor cost growth accelerated to a 1.8% pace from 2.6% in the third quarter (revised from 2.8%). Fourth-quarter output dove 5.5%, following a 1.9% decline in the third quarter, consistent with the 3.8% decline in the advance GDP report. Hours worked declined 8.4% following a 3.4% drop previously (revised from -3.1%). Compensation growth rose 5.0% vs. a 4.2% third-quarter increase (revised from 4.1%), but real compensation surged 15.6% after a 2.4% drop in the third quarter, reflecting the continued weakness in price measures.
"The surprising jump in productivity indicates employers are squeezing more output from their declining workforce, and is good news for the economy," says Action Economics.
The European Central Bank kept interest rates at 2.0% on Thursday after four months of cuts, but analysts expect the post-decision news conference to all but guarantee further easing in the next few months. Earlier, the Bank of England cut interest rates by 50 basis points to a record low 1%, aiming to help the British economy out of recession by getting consumers and companies spending again. Both decisions were widely expected.
In the UK, HBoS house prices surprisingly rose 1.9% in January. Meanwhile, German industry orders. which fell 6.9% in December, plunged a record 27.7% year on year.
Warren Buffett shored up weakened world No. 2 insurer Swiss Re with a 3 billion Swiss franc ($2.6 billion) investment as the Swiss group wrote down twice that amount in toxic assets. Reuters reported conversion of Berkshire Hathaway's (BRKA) investment in what the group called a "perpetual capital instrument" would take its stake in Swiss Re to over 20%, the reinsurer's Chief Financial Officer George Quinn said.
Among other stocks in the news Thursday, Visa Inc. (V) posted $0.74 vs. $0.55 (pro forma) first-quarter EPS on a 17% revenue rise.
Kimco Realty (KIM) posted $0.04 vs. $0.53 fourth-quarter funds from operations despite an 11% rise in revenues. For the fourth quarter and full-year 2008, Kimco recognized non-cash impairment charges of $111.8 million and $121.4 million, respectively, net of tax, as well as $4 million related to charges for workforce reduction. The company sees $1.70-$1.90 2009 funds from operations.
Cigna Corp. (CI) posted $0.49 vs. $1.04 fourth-quarter adjusted EPS from operations as losses of $0.71 per share from the Variable Annuity Death Benefits (VADBe) business offset an 8.1% revenue rise. The company sees 2009 consolidated adjusted EPS from operations of $3.95-$4.25, which excludes the impact of any future stock repurchases.
Buger King Holdings (BKC) posted $0.33 vs. $0.36 second-quarter EPS as a negative impact of $0.05 due to foreign currency translation offset 2.9% higher same-store sales and 3% higher total sales. The company updated its fiscal 2009 EPS guidance to $1.44-$1.49, which includes an estimated $0.10 negative impact due to forex.
Moody's Corp. (MCO) posted $0.37 vs. $0.49 fourth-quarter EPS on a 20% revenue decline. Current-quarter results were seen better than Wall Street estimates. Moody's expects 2009 revenue to decline in the low single-digit percent range and sees EPS of $1.40-$1.50.