Stocks End Higher on Earnings, Lower Oil

Good earnings news and optimism over legislation that would bolster Fannie Mae and Freddie Mac helped lift equities, while oil prices dropped

Major U.S. stock indexes finished higher on Wednesday thanks to a batch of solid earnings reports, a Congressional vote on legislation supporting the government-sponsored mortgage providers and another substantial drop in oil prices due to higher refined product supplies.

On Wednesday, the Dow Jones industrial average ended 29.88 points, or 0.26%, higher at 11,632.38. The broader S&P 500 rose 5.18 points, or 0.41%, to close at 1,282.18. The tech-heavy Nasdaq composite index finished 21.92 points, or 0.95%, higher at 2,325.98.

A more than doubling in earnings at Pfizer (PFE) from last year to 41 cents a share on cost-cutting measures and encouraging second-quarter results by AT&T (ATT), PepsiCo (PEP) and ConocoPhillips (COP) fueled investor optimism, while Boeing (BA) missed analysts' estimates by seven cents a share due to a 22-cent charge for a delayed military plane contract.

Fannie Mae (FNM) and Freddie Mac (FRE) were among the day's biggest winners, as approval by Congress of a housing bill that would allow the government to insure up to $300 billion in mortgages neared. But the equities rally was kept in check by a dismal Federal Reserve Beige Book report, which said economic activity slowed somewhat through mid-July, S&P MarketScope said.

The White House announced that President Bush will sign the housing bill, removing a veto threat over a provision to include $3.9 billion in aid to communities hit by the housing market collapse.

The agreement increases the likelihood that Treasury Secretary Henry Paulson will get the authority this week to inject capital into the government-sponsored enterprises, after he lobbied lawmakers to overcome concerns about taxpayer liability, Bloomberg News reported.

In earnings news, AT&T reported a profit of 63 cents a share, vs. 47 cents a year earlier, as stronger-than-expected growth in wireless subscribers made up for shrinking traditional landlines. Excluding special items such as merger-related costs, the company's 76-cent profit was in line with the average Wall Street forecast.

PepsiCo's second-quarter profit of $1.05 a share -- and $1.03, excluding special items -- beat Wall Street analysts' average estimate of $1.02 a share thanks to strong international sales a share, compared with $1.56 billion, or 94 cents a share, during the same period last year.

ConocoPhillips, the Houston-based company, said earnings rose to $3.50 a share from 18 cents a share a year ago, when it took a $4.5 billion charge related to its former assets in Venezuela.

Meanwhile, Costco Wholesale (COST) share plunged after the discount retailer said it expects fourth-quarter earnings to be well below the current First Call consensus estimate of $1.00 a share. Standard & Poor's Equity Research cut its profit estimates and target price but reaffirmed its hold rating, while JP Morgan downgraded the stock to neutral from overweight.

Some market observors are pointing to a sustained rally in financial stocks over the past week as evidence that the market has put in a bottom, but others, such as Barry Ritholtz, chief market strategist at New York-based asset management and research firm Fusion IQ, aren't buying it.

"There have been something like 13 rallies in financials of more than 5% [in the past year] and every one of these rallies has resulted in subsequent lower lows," says Ritholtz. "When you get a 30% to 40% rally {in just a couple weeks], that is a classic bear market rally. That is not how bottoms are made."

Financials are following the same pattern seen earlier in the homebuilders and monoline insurers, he says. "You’ll know the bear market is over once we’ve done the same thing in energy, materials and technology," he says. "Bear markets don't end until the leadership sectors are taken out and shot."

Oil prices seesawed throughout the trading session before ending sharply lower below $125 a barrel on bearish inventory data and despite Hurricane Dolly making landfall in Texas as a category 2 strength storm. Weekly data from the U.S. Energy Information Administration showed increasing stockpiles of gasoline and distillate fuels but lower crude supplies, which fell by 1.5 million barrels during the week ended July 18. Gasoline supplies were up 2.8 million barrels and dsitillate supplies climbed by 2.8 million barrels. Refinery utilization fell 2.4% to 87.1%.

August WTI crude oil futures settled $3.98 lower at $124.44 a barrel on Wednesday.

In an effort to curb oil speculation, the Senate voted 94-0 to proceed with a Democratic plan that clears a procedural hurdle for legislation that would require the government to set limits on trading in oil markets by investors and speculators, according to the Associated Press. Republicans said the bill would have little effect and urged Congress to lift a ban on offshore drilling along the Atlantic and Pacific coasts and the eastern Gulf of Mexico in order to boost production.

Among other stocks in the news on Wednesday, CEC Communications (CEC) shares jumped after the Chuck E. Cheese franchiser reported a second-quarter profit of 48 cents a share, vs. 26 cents a year ago, on a 5.7% rise in same-store sales and a 7.0% increase in total sales. The results beat the Street forecast of 31 cents a share. The company sees comparable store sales growth of 2% to 3% for the rest of the year and expects to earn $2.57 to $2.65 for the full year and 56 to 60 cents a share in the third quarter.

Philadelphia Consolidated Holding (PHLY) shares soared after the company agreed to be acquired by Tokio Marine Holdings for $4.7 billion, or $61.50 in cash per PHLY share. Separately, the company posted 73 cents a share in earnings for the second quarter, vs. $1.27 a year ago, as higher loss and loss-adjusted expenses offset a 5.8% rise in revenue.

C.H. Robinson Worldwide (CHRW) shares dropped after the logistics company reported lower-than-expected earnings of 52 cents a share, vs. 47 cents in the second quarter of 2007, on a 23% revenue rise. The Street was looking for 55 cents a share. The company said its truckload gross profit margins continue to be compressed in the first part of July. Standard & Poor's reiterated its buy rating, while JP Morgan downgraded the stock to neutral from overweight.

CNH Global N.V. (CNH) shares leaped after the maker of farm and construction equipment posted earnings of $1.48 a share for the second quarter, vs. 96 cents a year ago, on a 29% increase in revenue. The company expects to earn $3.40 to $3.60 for the full year, before a restructuring charge. S&P maintained it buy rating.

In economic news, the Mortgage Bankers Association's weekly mortgage applications survey for the week ending July 18 showed a 6.2% drop in the Market Composite Index, a measure of mortgage loan application volume, to 489.6 on a seasonally adjusted basis. On an unadjusted basis, the Index fell 6.1% from the prior week and was down 19.6% from same week one year earlier. The Refinance Index decreased 5.6% to 1392.7 from the week before and the seasonally adjusted Purchase Index fell 6.7% from the previous week.

The Beige Book, based on information collected from the 12 Federal Reserve districts, suggests that the pace of economic activity slowed slightly in the six weeks since the last report. Five eastern Districts cited weakening or softening in their economies, while other districts said grotwh was sluggish or stable. Only Cleveland and Minneapolis reported slight increases in economic activity, with Dallas calling growth steady or moderate.

Consumer spending was seen as sluggish or slowing in nearly all Fed districts, despite a boost in sales for some items from the rebate checks. The demand for services was also mixed across Districts, with strength in information technology and health care offsetting weakness in other service sectors. Manufacturing activity declined in many districts, although demand for exports remained generally high.

Major European indexes were higher Wednesday. In London, the FTSE 100 index gained 1.60% to trade at 5,449.90. In Paris, the CAC 40 rose 1.88% to 4,408.74, while Germany's DAX index climbed 1.45% to 6,536.09.

In Asia, Japan's Nikkei 225 advanced 0.97% to close at 13,312.93, while Hong Kong's Hang Seng index jumped 2.69% to 23,134.55.

Treasury market

Treasuries fell as equities gained strength and despite a somber Beige book report. The 10-year note was lower at 98-01/32 for a yield of 4.12% and the 30-year bond moved down to 95-07/32 for a yield of 4.67%.

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