News of the worst U.S. job losses in decades Friday bolstered Wall Street expectations that the Senate would speed up passage of stimulus legislation
U.S. stocks closed sharply higher Friday, bolstered by bets that a truly awful January jobs report -- nonfarm payrolls fell 598,000, with the unemployment rate rising to 7.6% -- would hasten the government's passage of an economic stimulus package. Financials led the rally as investors also awaited details expected Monday on Obama's rescue plan for ailing banks. Speculation that mark to market accounting rules might be suspended temporarily added fuel to the rally.
On Friday, the 30-stock Dow Jones industrial average finished higher by 217.52 points, or 2.70%, at 8,280.59. The broad S&P 500 index was up 22.75 points, or 2.69%, at 868.60. The tech-heavy Nasdaq composite index was higher by 45.47 points, or 2.94%, at 1,591.71.
NYSE breadth was 26-5 positive, while Nasdaq breadth was 20-7 positive.
Treasuries skidded, with the yield on the 10-year note rising to 2.99%. The dollar index ended lower. Gold futures eased in volatile trading. Crude oil futures edged lower.
Bank of America (BAC) and Citigroup (C) were seen higher as the poor U.S. jobs report might trigger additional help from the government, says S&P MarketScope. Anticipation of Secretary Treasurer Geithner's scheduled meeting on Monday, which might give ideas on how to fix banking woes, might also be aiding in gains.
Senate Majority Leader Harry Reid of Nevada expressed optimism Friday about the prospects for Obama's economic recovery package as centrists from both parties scrambled to cut its massive, $900-billion-plus price tag. "The world is waiting to see what we're going to do in the next 24 hours," Reid said, reflecting the Democrats' fierce urgency to wrap up the bill as conservative Republicans criticize the legislation and the economic picture grows bleaker. He said a vote on the Senate bill by Friday evening was possible.
Republican leader Mitch McConnell of Kentucky said the GOP is ready to support a bill, "but we will not support an aimless spending spree that masquerades as a stimulus."
Treasury Secretary Timothy Geithner and other top officials are putting the finishing touches on a plan to overhaul the government's $700 billion financial rescue program. The AP said a Treasury official said Geithner will deliver a speech on Monday outlining the new plan. But Treasury officials would not comment on reports Thursday that changes were being considered to the current accounting standard that requires banks to carry assets such as mortgage-backed securities on their books at fair value, a process known as "mark to market." Critics of this process contend that it has made the current financial crisis worse by forcing banks to slash the value of assets that are currently depressed because of market conditions. Treasury officials said the administration's plan was not yet complete and would be revealed in Geithner's speech in Washington next week.
With its sales plummeting in every market across the globe and no signs of recovery in sight, Toyota Motor Corp. (TM) forecast a 350 billion yen ($3.84 billion) net loss in the year ending March, the first full-year loss for the Japanese auto giant in 59 years. The Wall Street Journal said just two months ago, Toyota had revised down its full-year profit projection to 50 billion yen. But plunging sales erased even the car maker's modest profit projection.
Standard & Poor's Ratings Services lowered its credit rating on Toyota to AA+ from AAA, citing its view that "significant near-term pressure on Toyota's profitability and cash flow, amid the continuous deterioration of global auto markets and the yen appreciation, has exceeded our initial expectations and is negatively affecting the company's financial profile to a limited extent."
In economic news Friday, U.S. nonfarm payrolls dropped 598,000 in January, worse than the 525,000 drop expected by markets and the worst month since 1974. It followed sharp downward revisions the prior two months (December's 524,000 drop was revised to a 577,000 decline; November's 584,000 slide was revised to -597,000). Payrolls have declined for 13 straight months, with the 2008 labor market the worst since the end of WWII. The unemployment rate climbed to 7.6% vs. 7.2% in December. Average weekly hours held at a low 33.3. Average hourly earnings rose 0.3% after a 0.4% increase in December. Manufacturing lost another 207,000 jobs, while construction employment fell 111,000. The service producing sector lost 279,000 jobs. Only the government and education/health services saw job gains, up 6,000 and 54,000, respectively.
"The jobs report was ugly, but Wednesday's dismal ADP report increased the risk of a dismal report, so markets may not be shaken as badly a result," says S&P senior economist Beth Ann Bovino.
In the UK, the Office for National Statistics said industrial production shrank by 1.7% in December, taking the annual rate down to -9.4% -- the weakest since January, 1981. On the quarter, production was down 4.5%, the sharpest contraction since Q1 1974. Manufacturing output fell 2.2% on the month. Annual output price inflation eased to 3.5% from 4.6% in December, the weakest since September, 2007.
German industrial output fell by a record 4.6% month-on-month in December, led by a sharp contraction in manufacturing activity. The seasonally adjusted fall, the biggest since German reunification in 1990, compared with the Reuters consensus forecast in a poll last week for a decline of 2.5%.
Among stocks in the news Friday, Hartford Financial Services Group (HIG) posted a $0.72 fourth-quarter core loss per share vs. $2.66 core EPS. The company sees $5.80-$6.20 2009 core EPS. Hartford intends to cut its quarterly dividend by 84% to $0.05 per share.
Pitney Bowes (PBI) posted $0.77 vs. $0.72 fourth-quarter adjusted EPS (excluding items) despite 7.2% lower revenue. The company sees 2009 $2.55-$2.75 adjusted EPS from continuing operations (excluding the estimated negative impact of $0.30-$0.35 from currency and incremental pension expense) on revenue in the range of 1% growth-to-2% decline (excluding a negative 5% currency impact). The company also announced its first-quarter 2009 dividend will increase 3% to $0.36 a share.
Biogen Idec (BIIB) posted $0.93 vs. $0.89 fourth-quarter non-GAAP EPS on a 20% revenue rise. Biogen said the revenue rise was driven primarily by the continued growth of Tysabri revenue to $156 million in the quarter, Avonex sales rising 13% to $566 million, and Rituxan revenues climbing 20% to $303 million. The company sees 2009 revenue growth in the high single-digits, and non-GAAP EPS above $4.00.
Aon Corp. (AOC) posted $0.81 vs. $0.68 fourth-quarter EPS from continuing operations (excluding certain items) despite a 4% revenue drop.