Major U.S. stock indexes finished higher Thursday, snapping their recent losing streak. Gains were led by a rally in chip issues after Banc of America upgraded the semiconductor sector. Further support for equities came from other analyst upgrades and some positive earnings guidance reports. The rebound occurred even though U.S. retailers as a group posted their worst March sales in 13 years, gasoline futures continued to climb, and both Treasury Secretary Paulson and Federal Reserve Chairman Bernanke acknowledged the weakness of the economy in speeches. Wall Street also weighed data reports showing a decline in first-time jobless claims fell last week and an expansion in the U.S. trade deficit in February.
Also Thursday, Microsoft's (MSFT) attempts to buy Yahoo (YHOO) continued to get the market's attention. Among the many negotiations in progress, Yahoo is reportedly discussing a deal with Time Warner's (TWX) AOL, a combination of their Internet operations designed to thwart Microsoft's bid. Yahoo is also getting help from Google (GOOG) to make its Web-search more profitable. Finally, Microsoft was reportedly exploring make a new joint bid for Yahoo with Rupert Murdoch's News Corp. (NWS).
On Thursday, the Dow Jones industrial average finished higher by 54.72 points, or 0.44%%, at 12,581.98. The S&P 500 index gained 6.06 points, or 0.45%, to close at 1,360.55. The Nasdaq composite index rose 29.58 points, or 1.27%, to end the session at 2,351.70.
Activity in the broader market was positive, with 19 stocks rising in price for every 11 that declined on the New York Stock Exchange. The ratio on the Nasdaq was 17-12 positive.
The Nasdaq got a boost from a positive analyst call on the semiconductor group. Banc of America Analyst Sumit Dhanda upgraded the firm’s rating on Intel (INTC), Analog Devices (ADI), National Semiconductor (NSM), PMC-Sierra (PMCS), LSI Logic (LSI), and Semtech (SMTC), saying that indicators are signaling that a bottom is near for the group.
U.S. jobless claims fell 53,000 to 357,000 last week, bringing the weekly gauge of the job market below the dangerous 400,000 mark. The number is lower than expected, Action Economics said, but "the Easter holidays likely continued to distort the data."
The U.S. trade deficit widened in February to $62.3 billion from $58.95 billion in January. Imports jumped 3.1%, a number likely boosted by higher commodity prices. The weaker dollar helped push exports 2% higher. The trade deficit with China narrowed to $18.4 billion from $20.3 billion in January.
Bernanke acknowledged strain in financial markets and called for stronger nationwide standards for mortgage brokers. "We do not have the luxury of waiting for markets to stabilize before we think about the future," Bernanke told a luncheon in Richmond, Va. The Fed chairman also called for more consistent oversight for lenders and better consumer protections. Lenders must consider a borrower's ability to repay loans, Bernanke said. "We are addressing those financial strains and their potential economic consequences with a number of tools, including the provision of extra liquidity to the system and reductions in our target for the federal funds rate."
Bank regulators, including the Federal Reserve, should help firms manage their risk, he said. "
The turmoil in financial markets has also revealed significant weaknesses in the risk-management practices of some large, globally active financial institutions; these weaknesses have exacerbated the problems in the markets by compromising the abilities of these key firms to absorb risk."
Bernanke is confident about the collateral used in its lending operations as well as the quality of firms that borrow, and he noted that the Fed is "extremely careful" about those factors. It has a number of safeguards to ensure its loans, and in fact believes the Fed has "never lost a cent" on its collateralized loans.
Treasury Secretary Henry Paulson said on Thursday that the U.S. economy had "turned down sharply" and still faced risks from the housing and finance sectors. But he refused to call it a recession. Paulson, in a speech to the Council of Institutional Investors, criticized Congress for not passing bills reforming the Federal Housing Administration (FHA) and regulation of Fannie Mae (FNM) and Freddie Mac (FRE).
Standard & Poor's says the market is "drifting amid many economic, financial [and] political uncertainties." One uncertainty is the state of the U.S. consumer. On Thursday, a wide range of retailers reported results, with many showing significant weakness.
Gap (GPS), for example, saw same-store sales plunge 18% last month. Sales fell 27% at its Old Navy chain and 14% at its Gap-brand stores in North America.
Wal-Mart (WMT), however, posted 0.7% higher same-store sales not including fuel. Same-store sales were up 1.1% including fuel, and total sales jumped 7.9%.
Other retailers reporting sales figures include Target Corp. (TGT), which saw same-store sales fall 4.4% and total sales rise 1.4%.
J.C. Penney (JCP) saw 12% lower same-store sales in March, while total sales dropped 10%.
Kohl's Corp.'s (KSS) same-store sales fell 16%, while total sales dropped 7.9%.
Abercrombie & Fitch (ANF) reported a 10% drop in same-store sales.
After climbing above $112 Thursday morning, NYMEX May WTI crude oil futures fell 79 cents to $110.08 per barrel on profit taking from Wednesday's rally on unexpected declines in inventories.
In earnings news Thursday, Bed Bath & Beyond (BBBY) reported earnings of 66 cents per share, vs. 72 cents a year ago, as same-store sales fell slightly. The retailer expects earnings of 26 to 30 cents per share next quarter.
DuPont (DD) raised its first quarter guidance from a range of $1.14 to $1.19 to $1.29 per share. The firm cited strong growth in its agriculture businesses and in emerging markets.
Major European indexes were lower Thursday as the European Central Bank left its key interest rate unchanged at 4.00%, as expected. The Bank of England cut its benchmark repo rate by 25 basis points to 5.00%, also in line with expectations. In London, the FTSE 100 index fell 0.31% to 5,965.10. Paris' CAC 40 index fell 0.32% to 4,859.42, and Germany's DAX index lost 0.25% to 6,704.32.
Stocks were mixed in Asia, with Japan's Nikkei 225 down 1.27% to 12,945.30 and Hong Kong's Hang Seng index up 0.84% to 24,187.10.
Treasuries fell as investment capital flowed back into equities despite weak same-store sales numbers from retailers. The 10-year note fell 13/32 to 99-25/32 for a yield of 3.52%. The 30-year bond fell 14/32 to 100-17/32 for a yield of 4.34%.
It is not clear yet whether Thursday’s moves in both markets will generate any follow-through in the days ahead, given ongoing concerns over stress to the financial sector and the possibility of an economic recession, says S&P MarketScope.