Stocks finished sharply and broadly higher Thursday as the previous session's sell-off gave investors an opportunity to shop for bargains ahead of the extended holiday weekend. The stock market's rebound came as gold and crude oil prices retreated, which calmed inflation fears, and occurred in a session that also featured the expiration of futures and options on indices and individual stocks.
On Thursday, the Dow Jones industrial average gained 261.66 points, or 2.16%, to finish at 12,361.32. The S&P 500 index added 31.09 points, or 2.39%, to end the session at 1,329.51. The Nasdaq composite index rose 48.15 points, or 2.18%, to 2,258.11.
Activity in the broader market was positive. On the New York Stock Exchange, 23 stocks rose in price for every 8 that declined. On the Nasdaq, the ratio was 19-10 positive.
Thursday’s rally capped a wild week on Wall Street, kicked off by news over the weekend of a Federal Reserve-led effort to rescue troubled investment bank Bear Stearns (BSC) via a $2-a-share buyout by JPMorgan Chase (JPM). The week also saw a powerful rally spurred by a 75 basis point Fed rate cut on Tuesday and a dramatic last-minute sell-off in equity indexes on Wednesday.
Wall Streeters are hoping that the week to come will come up short in the drama department. The main economic data releases include February existing home sales on Monday, the S&P/Case-Shiller home price index for January and March consumer confidence on Tuesday. Reports on durable goods orders and new home sales are scheduled for Wednesday. Final fourth-quarter GDP and weekly initial jobless claims arrive Thursday, while Friday brings an update on February personal income.
Traders seemed to ignore negative news from commercial finance firm CIT (CIT). The shares plunged Thursday after the company said it is drawing upon its $7.3 billion in unsecured U.S. bank credit facilities, and will use the proceeds to repay debt maturing in 2008, including commercial paper, and provide financing to it core commercial franchises. Over the near term, CIT will continue to actively seek additional funding sources, as well as explore and execute on the sale of non-strategic assets and/or business lines. Late Wednesday, Fitch Ratings said it placed the issuer default rating and debt ratings of CIT on Rating Watch Negative.
Swiss banking giant Credit Suisse (CS) issued a profit warning because of its exposure to the US subprime loan crisis, according to an AFP dispatch, even as the nation’s finance minister said Swiss banks caught by the credit squeeze should not expect state help. CS also revised figures released last month, cutting its 2007 net profit to 7.76 billion Swiss francs from the February figure of 8.55 billion. The news sank the bank's stock price and raised questions about the health of the Swiss banking sector, coming on the heels of massive subprime-related writedowns of $18.4 billion dollars by UBS (UBS) for 2007.
Investors eyed a fresh batch of economic data Thursday. The Philadelphia Fed’s index of regional economic activity rebounded to -17.4 in March after dropping to -24 the month before and about in line with earlier expectations of a -18 reading... The employment index fell to -4.7 from +2.5 the month before, while new orders edged up to -9.3 from -10.9. Shipments rose to -6.3 from -12.2. Prices paid jumped to 54.4 from 46.6, while prices received fell to 21.2 from 24.3 in February. The 6-month ahead general business activity index improved sharply to -0.5 from -16.9 the month before.
The data will relieve markets, which started to expect much worse after the New York Fed survey disappointed earlier this week, says S&P Economics.
U.S. leading indicators index fell 0.3% in February, after a revised 0.4% decline in January (from -0.1% previously).
This is a fifth consecutive monthly decline, and the index has been negative in seven of the last nine months.
U.S. jobless claims climbed 22,000 to 378,000 the week ended March 15, following a revised 356,000 (353,000 before). Continuing claims jumped 32,000 to 2,865,000 in the week ended March 8, pushing the insured unemployment rate to 2.2% from 2.1% the week before. The claims data were stronger than expectations of 355,000, though the upside won't likely surprise markets, given the disappointing employment figures that have been released to date, according to S&P Economics.
Forecasters continue to expect weakness in the U.S. and other world economies. According to a Wall Street Journal report, the Organization for Economic
Cooperation and Development downgraded its economic forecasts for the U.S., euro-zone and Japan for the first half of 2008 and warned Europe and Japan that they don't
have room to ease fiscal or monetary policy. The OECD revised its first-quarter U.S. GDP forecast to 0.1% and predicted GDP would be flat in the second.
"The U.S. economy is now essentially moving sideways, if not contracting outright," the OECD said. "It may be premature to declare a recession, but with the pace of activity so far below potential, economic slack is widening rapidly."
According to a Wall Street Journal report, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said the Federal Reserve or another new regulatory entity should be authorized to oversee and supervise all credit-creating institutions to assess their risk in exchange for giving them access to the Fed as lender of last resort. Frank said the Fed should monitor "the health of the entire financial sector and act when necessary to limit risky practices."
May WTI crude-oil futures fell 84 cents to $101.70 per barrel in a carryover of Wednesday's plunge.
Comex April gold futures fell $25.50 to $919.50 per ounce as the dollar index rose on the perception the Fed will reduce the size of its rate cuts in coming months.
Among stocks in the news Thursday, Nike (NKE) posted third quarter earnings per share of 92 cents, vs. 68 cents one year earlier, on a 16% revenue rise. The company says a weak U.S. dollar aided sales. Nike sees low double digit revenue growth in its fiscal fourth quarter.
FedEx (FDX) reported third quarter earnings per share of $1.26 (including an 8-cent benefit from a reduction in its effective tax rate), vs. $1.35 one year earlier, as higher fuel prices and a weak U.S. economy offset a 10% revenue rise. The company sees fourth-quarter EPS of $1.60-$1.80 compared to $1.96 a year ago.
Abbott Laboratories (ABT) and Takeda Pharmaceutical will end their 50/50 joint venture in Tap Pharmaceutical, with Abbott retaining rights to the prostate cancer drug Lupron and receiving an undisclosed upfront cash payment estimated at $1.5 billion.
Borders Group (BGP) will investigate a wide range of alternatives including the sale of the company or certain units for the purpose of maximizing shareholder value. The bookseller posted fourth-quarter EPS from continuing operations of $1.44, vs. $1.45 one year earlier, despite a 2.8% rise in consolidated sales (excluding the impact of an extra week during fiscal 2007).
Borders’ archrival Barnes & Noble (BKS) posted fourth-quarter EPS of $1.79, vs. $1.83 one year earlier, on a 1.7% revenue rise. The company raised its quarterly dividend to 25 cents from 15 cents. The company expects first-quarter EPS to be in the range of 5 to 10 cents, with same-store sales slightly negative.
European indexes finished in the red Thursday, though up from earlier lows. In London, the FTSE 100 index fell 0.67% to 5,508.60. In Paris, the CAC 40 index declined 0.53% to 4,532.02. Germany’s DAX index shed 0.55% to 6,326.42.
Asian markets finished mixed. In Hong Kong, the Hang Seng index slumped 3.47% to 21,108.22. Shanghai’s benchmark index rose 1.13%. In Japan, financial markets were closed for a holiday.
Treasuries ended widely mixed amid position squaring ahead of the long weekend and the quarterly expiration of some options and futures in the equity market. The 10-year note eased 02/32 to 101-13/32 for a yield of 3.33%. The 30-year bond jumped 19/32 to 103-19/32 for a yield of 4.16%. The 10-year yield finished near its lowest level of the year, affirming the downtrend from last June that reflects fears of economic recession.