After a jumbled start, stocks gradually picked up momentum to end higher on positive earnings results. Meanwhile, the market also looked ahead, awaiting Fed Chairman Greenspan's Senate Budget testimony on Thursday and the Federal Open Market Committee meeting next Wednesday, when interest rates are expected to fall.
"The market is shrugging off a weakened economy reasonably well and pricing in a more aggressive series of interest rate cuts from the Federal Reserve," Mike Holland, manager of Holland Balanced Fund, told Standard & Poor's AdvisorInsight. Holland added the market is expecting rate cuts totaling 100 basis points this year, which he feels has "at least a 50/50 chance."
A steeper economic slowdown makes deeper rate cuts more likely, Holland added. "We're definitely headed downward, and the Fed has to abort that decline," he said.
The fund manager also noted President Bush's proposed tax cut is a "decided plus for investor psychology."
Amid the tide of earnings reports, Wall Street paid particular attention to Texas Instruments Inc. (TXN ). The maker of computer chips for mobile phones said its fourth-quarter net income climbed 22%, less than what Wall Street had expected, and warned of lower revenues in the first quarter. Shares of Texas Instruments ended lower.
Techs aside, drug giants Johnson & Johnson (JNJ ) and Merck & Co. Inc. (MRK ) posted higher fourth-quarter profits on strong sales, easily surpassing Wall Street's expectations. The two drug firms dragged on the Dow. Those losses, however, were offset by gains among the financials including American Express Co. (AXP ) and JP Morgan Chase & Co. (JPM ).
Despite the pockets of higher earnings results, concerns remain that a rapidly slowing U.S. economy will further pinch corporate profits into the first quarter, according to Standard & Poor's research unit. So far, 31% of S&P 500 firms have reported with earnings off 2% from a year ago, based on First Call/Thomson Financial. S&P equity research expects the full quarter to show operating profits down 1% and off 3% for the first quarter before improving to a full year gain of 6%.
On Wednesday, the earnings parade will continue, with reports expected from Bristol-Myers Squibb Co. (BMY ) and oil giants Chevron Corp. (CHV ) and Texaco Inc. (TX ). Texaco has agreed to be acquired by Chevron.
On Tuesday, the Nasdaq Composite ended up 82.20 points, or 2.98%, at 2,840.11. The Dow Jones Industrial Average finished higher by 71.57 points, or 0.68%, at 10,649.81. The broader Standard & Poor's 500 index closed up 17.46 points, or 1.30%, at 1,360.36.
Treasuries ended lower. There was little on the economic calendar Tuesday with the exception of weekly chain store sales. Treasuries are seen staking out a position before Greenspan's Senate Banking testimony, and the Employment Cost Index report, a gauge of the economy, according to Standard & Poor's research unit. Both are scheduled for Thursday. And next week, the Fed is expected to cut interest rates by 50 basis points.
Stocks in the News
Shares of DoubleClick Inc. (DCLK ) climbed after the Federal Trade Commission concluded its inquiry into the online advertising company's privacy issues.
Brokerage Merrill Lynch & Co. Inc. (MER ) reported an 11% rise in fourth-quarter profit that topped Wall Street's estimates, as fees from advising companies on mergers climbed.
European markets ended mixed. London's Financial Times-Stock Exchange 100 index closed down 17.30 points, or 0.28%, at 6,214.70, amid uncertainty whether the Bank of England will ease credit any time soon. In Germany, the DAX Index ended up 47.41 points, or 0.71%, at 6,722.41 on profit taking. Meanwhile, France's CAC 40 finished off 43.03 points, or 0.73%, at 5,839.73, as French consumer spending unexpectedly fell 0.3% in December.
Markets in Asia finished lower. Japan's Nikkei ended down 47.76 points, or 0.34%, at 13,984.66. Sentiment was dampened by the resignation of economics minister Fukushiro Nukaga over allegations he accepted money from scandal-plagued insurer KSD. Hong Kong's Hang Seng Index finished with a loss of 55.06 points, or 0.34%, at 16,044.21.
By Heesun Wee in New York