Stocks closed higher Tuesday in a volatile session with the market teetering up and down. Better-than-expected earnings from Goldman Sachs and Best Buy were among the highlights, while the Federal Reserve approved new rules that would protect subprime borrowers from shady lending practices. And the European Central Bank flooded money markets with $500 billion as part of coordinated central bank actions to ease credit tensions.
Short-covering, end-of-year portfolio adjusting, and trading tied to Friday's expiration of stocks, futures, indices and options exacerbated the volatility as investors continued to debate the outlook for the economy, says Standard & Poor's MarketScope.
By the end of the session, investors put aside the gloomy views of the economy. The Dow Jones industrial average rose 65.27 points, or 0.50%, to 13,232.47. The broader S&P 500 index was up 9.08 points, or 0.63%, to 1,454.98. The tech-heavy Nasdaq composite index added 21.57 points, or 0.84%, to 2,596.03.
In the morning, investors seemed to like what they heard from Goldman Sachs (GS), which escaped the fourth quarter with nary a scratch from the subprime crisis. Goldman reported earnings of $7.01 per share in its fourth quarter, vs. $6.59 a year ago and the $6.87 that analysts were expecting according to Thomson Financial. Revenue was $10.74 billion, up 19% from $9.41 billion a year ago.
But this was offset by conference call comments by Goldman's CEO, who reportedly said that the subprime market is closer to reaching a bottom, but is not there yet. Goldman shares fell 3%.
Among other financials, Merrill Lynch (MER) may preannounce more write-downs, according to reports on CNBC. As new CEO Thain has attempted to get his arms around the subprime-related losses at the company, speculation is that he could announce more multi-billion dollar write-downs over the next several weeks prior to their formal fourth quarter earnings results, reports Action Economics. Merrill shares lost 1%.
Morgan Stanley (MS) reports quarterly earnings on Wednesday, followed by Bear Stearns (BSC) on Thursday.
Best Buy (BBY) also reported higher profits, but its fouth quarter guidance may be lower than some analysts expected. The consumer electronics retailer posted earnings of 53 cents per share, vs. 31 cents a year ago as same-store sales moved 6.7% higher. Total sales jumped 17%. The electronics retailer said its expects 2008 earnings of $3.10 to $3.20 per share. Best Buy shares rose nearly 1%.
Adobe Systems (ADBE) reported earnings of 38 cents, vs. 30 cents a year ago, as revenue rose 34%. The software maker expects earnings of 34 to 36 cents in the first quarter, and reaffirmed its goal of 13% revenue growth next year. Also, Adobe increased its share buyback program by 30 million shares. Adobe shares rose nearly 3%.
In economic news Tuesday, U.S. housing starts fell 3.7% to a 1.187 million pace in November, from 1.232 million the month before. Starts are down 24.2% year over year. Building permits fell 1.5%. Single-family starts fell 5.4% to 829,000, the weakest level since 1991, but multi-family starts edged up 0.6%. The data demonstrate the weakness of the housing sector, but offered no surprises, Action Economics says.
Oil prices fell on Tuesday. In NYMEX trading, oil for January delivery was down 83 cents at $89.80 per barrel. Action Economics says a likely catalyst for the sharp sell-off was reports that Turkish troops have withdrawn from northern Iraq, after an earlier incursion.
Among other stocks in the news Tuesday, Waste Industries (WWIN) plans to go private in a deal led by the firm's founder and top executives and other investors including Goldman Sachs and Macquarie Infrastructure Partners. As part of the $544 million deal, the group will offer shareholders a buyout of $38 per share, a 28% premium.
Cherokee (CHKE) said it is considering the sale of the company.
Visicu (EICU) agreed to be acquired in a $430 million deal by Royal Philips Electronics. The terms are $12 per share, a 35% premium.
Sprint Nextel (S) named Daniel Hess, former chairman and chief executive of Embarq EQ, as its president and CEO.
European stocks finished mixed Tuesday. In London, the FTSE 100 index was up 0.02% to 6,279.3. Paris' CAC 40 index fell 0.1% to 5,509.37, and in Germany the DAX index moved 0.32% higher to 7,850.74.
In Asia, Tokyo's benchmark index, the Nikkei 225, was off 0.27% to 15,207.86. In Hong Kong, the Hang Seng index rose 0.51% to 26,732.87, while on the Chinese mainland, the Shanghai Composite was down 2.62% to 4,876.76.
Treasury prices strengthened, extending a rebound that began yesterday amid technically oversold conditions. The 10-year note edged up 04/32 to 100-31/32 for a yield of 4.13%. The 30-year bond climbed 14/32 to 107-08/32 for a yield of 4.55%.
Like today, volatility could be low until data on personal income and consumption expenditures come out Friday morning.