Finishing a dramatic week that saw the Federal Reserve enact big rate cuts, major stock indexes rose Friday as upbeat first-quarter earnings from Oracle (ORCL) -- and a big share buyback from Texas Instruments (TXN) -- provided respite from ongoing concerns about a slowing economy and rising inflation.
On Friday, the Dow Jones industrial average gained 53.49 points, or 0.39%, to 13,820.19 -- just 180 points shy of its all-time record reached in July. The blue-chip benchmark's gains Friday were limited by a 2.4% decline in Home Depot (HD).
The broader S&P 500 index rose 7 points, or 0.46%, to 1,525.75. The tech-heavy Nasdaq composite index advanced 16.93 points, or 0.64%, to 2,671.22.
Trading was active, reports Standard & Poor’s MarketScope, with 21 shares rising in price for each 12 falling on the NYSE. Nasdaq breadth was 16-13 positive.
Friday's heavy trading volume came on a "quadruple witching" day for Wall Street -- the day every three months on which contracts for stock index futures, stock index options, stock options and single stock futures all expire.
Traders will look to data reports next week for clues to the economy's direction. Releases scheduled for next week include includes some closely watched housing numbers with the July S&P/Case-Shiller home price index, along with August existing and new home sales figures. Other reports include durable goods, income, consumption, September Chicago PMI, construction spending, and consumer sentiment. Federal Reserve chairman Ben Bernanke will give opening remarks at a Fed conference in Chicago.
In the absence of new economic data Friday, comments from Fed officials garnered attention amid growing concerns about the central bank's watch against inflation. Speaking at a Bundesbank conference in Frankfurt, Governor Frederick Mishkin said "the most severe business cycle downturns are always associated with financial instability."
Fed Vice-Chairman Donald Kohn, speaking about inflation targeting and asset bubbles at the same conference, suggested that low interest rates did help feed the initial rise in home prices. Fed Chairman Ben Bernanke denied the low rates were a factor while answering questions from Congressional representatives on Thursday.
The uncertain economic outlook is prompting Lehman Brother economist Drew Matus to expect the Fed to add to the surprise Sept. 18 rate cuts next year. “We believe the cuts give the Fed a head start in containing economic weakness that will likely necessitate a further 75 basis points of easing by mid-2008,” he wrote in a Sept. 20 note. Matus is looking for three 25 basis point rate cuts -- in December, March, and June -- which would bring the Fed funds target rate down to 4.00%.
Goldman Sachs economist Jan Hatzius also sees the Fed easing by an additional 75 basis points by early 2008. Earlier in the week, Goldman downgraded its outlook for U.S. growth in 2007 and 2008. "This next step down in growth reflects our view that spillovers from the recession in housing are now set to occur," wrote Hatzius in a Sept. 21 note.
Crude oil for November delivery in New York, the new front-month futures contract, was down 16 cents at $81.62 a barrel as traders booked profits after a strong run-up. Before it expired on Thursday, the October contract set a new intraday high of $84.10 a barrel.
Among stocks in the news Friday, Oracle shares rose 4.4% after the company reported a 25% increase in first-quarter profit to 16 cents a share from 13 cents a share a year earlier on 26% higher revenues. A 35% rise in licensing revenues was especially robust. For the second quarter, the company expects sales to grow 18% to 21% and sees earnings between 19 and 21 cents a share. Standard & Poor's raised its fiscal 2008 earnings estimate to $1.21 a share and its 12-month target price to $26 and reiterated its buy rating.
Nike Inc. posted earnings of $1.12 a share for its first quarter, up 51% from 74 cents a share in the prior-year period on a 11% gain in revenue. The company said future orders for athletic footwear and apparel are nearly 12% higher than they were a year ago. Sales outside the U.S. were stronger than domestic sales. Nike said it's considering selling its Nike Bauer Hockey business and sets a revenue target of $23 billion by 2011. Shares declined 1.8%.
Texas Instruments (TXN) shares climbed 2.4% after it said it was boosting its dividend by 25% to 10 cents a share and announced a $5 billion stock buyback, which equates to almost 10% of its outstanding shares. That's likely to lift technology names on Friday.
Kohlberg Kravis Roberts & Co. and Goldman Sachs' private-equity arm have soured on their proposed $8 billion leveraged buyout purchase of Harman International (HAR) amid the credit crunch and lackluster financial results from the audio equipment maker, according to the Wall Street Journal. Harman shares fell 24%.
World equity indexes were mostly higher on Friday. In London, the FTSE 100 index rose 0.43% to 6,456.7. Germany's DAX index advanced 0.77% to 7,794.43. In Paris, the CAC 40 edged higher 0.21% to 5,700.65.
In Japan, the Nikkei 225 index fell 0.62% to 16,312.61. In Hong Kong, the Hang Seng index gained 0.56% to 25,843.78. The Shanghai composite index was off 0.28% to 5,454.67.
Treasuries rallied on back of short covering ahead of the weekend, following steep losses Thursday driven by inflation concerns amid higher oil prices and a falling dollar. The 10-year note climbed 16/32 in price to 100-30/32 for a yield of 4.63%. The 30-year bond surged 38/32 to 101-23/32 for a yield of 4.89%.