U.S. stocks finished higher Wednesday in light pre-Labor Day holiday trading, following a report July durable goods orders rose by a more than expected 1.3% after surging 1.3% in June. Oil stocks rallied with oil futures, as Tropical Storm Gustav headed for the Gulf of Mexico's oil rigs.
On Wednesday, the Dow Jones industrial average finished higher by 89.64 points, or 0.79%, at 11,502.51. The broader S&P 500 index gained 10.15 points, or 0.8%, to close at 1,281.66. The tech-heavy Nasdaq composite index rose 20.49 points, or 0.87%, to end the session at 2,382.46.
On the New York Stock Exchange, 24 stocks rose in price for every seven that declined. The ratio on the Nasdaq was 18-10 positive.
Shares of Fannie Mae (FNM) and Freddie Mac (FRE) continued to recover after the U.S. Treasury denied rumors of an announcement regarding the government-sponsored enterprises, with a department spokeswoman saying the Treasury has "no plans" to take any such action on Wednesday.
"That still leaves Thursday, Friday, Saturday, and Sunday, however, according to the rumors this week of another chapter in the housing agency story towards government-sponsored recapitalization this weekend," wrote Action Economics analysts in a website posting Wednesday.
Meanwhile, Dow Jones reported that U.S. Federal Reserve Bank of Atlanta President Dennis Lockhart said: "The recent news on balance has been positive," noting Fannie's recent successful debt financing. He also said recent developments looked positive for Freddie as well. The comments seem to further support investors recent beliefs that their shareholdings would not be wiped out by government intervention. Also, a Bloomberg story noted the companies are enjoying profits at 10-year highs thanks to widening spreads and fees.
Other financial stocks were making headlines as well. Lehman Brothers (LEH) is still mulling the sale of its asset management unit to three private equity firms, according to an FT.com report. Meanwhile, Singapore’s Temasek Holdings won U.S. antitrust approval to raise its holdings in Merrill Lynch (MER) to as high as 14%.
Shares of Goldman Sachs (GS) were lower after a JPMorgan analyst cut EPS estimates on Goldman.
Orders for durable manufactured goods rose 1.3% in July, the second consecutive 1.3% rise. The jump was much better than the 0.1% increase expected by the market. The rise came in spite of a 25.7% drop in defense orders (after a 1.50% June increase). Civilian aircraft orders rebounded 28.0% after dropping 21.3% in June; this is always a volatile series and will swing on a single big order. Orders for nondefense capital goods excluding aircraft, the key indicator for capital spending, rose 2.6% after a 1.3% June increase. Durable shipments, a more stable indicator than orders, jumped 2.5% in July after a 0.9% June rise.
"The data are much stronger than expected for manufacturing, probably showing continued strong export demand," wrote S&P senior economist Beth Ann Bovino in a note Wednesday. S&P says the data should add to upward pressure on bond yields, but will be good for stocks.
"Manufacturing continues to do remarkably well given the weakness in the labor market and stresses in the financial system and likely continues to benefit from overseas growth," wrote John Ryding, an economist for RDQ Economics in New York. “However, this does not indicate strength in the overall economy and we do not see the Fed hiking rates in the second half of the year."
Traders were looking ahead to Thursday’s reports on second-quarter U.S. gross domestic product, which was expected to be revised to 2.4% from 1.9%; and initial jobless claims for the week ended Aug.
23, which were seen rising to 435,000 from 432,000 the previous week.
The SEC floated a plan that could require U.S. companies to switch to international accounting rules, starting in 2014, and permit others to make the switch even sooner, according to a Wall Street Journal report. The SEC voted unanimously to seek public comment for 60 days on a "road map" to move from U.S. to international accounting. The plan calls for early, voluntary use of international accounting standards by large U.S. multinational firms in 2010, followed by an SEC vote in 2011 on whether to require all U.S. companies to make the switch. The decision would rest on whether key changes occur by then, including international accounting standard-setters obtaining independent funding.
October West Texas Intermediate crude oil futures were up $1.39 to $117.59 per barrel amid indications Tropical Storm Gustav was aiming for oil rigs and pipelines in the Gulf of Mexico. A weekly Energy Dept. report showed little change in U.S. inventories.
Among Wednesday’s other stocks in the news, J.Crew Group (JCG) posted second quarter EPS of 28 cents, vs. 32 cents one year earlier, on slightly lower same-store sales and a narrowed gross margin. Total revenue rose 10%. The company cut its $1.70-$1.75 fiscal 2009 EPS guidance to $1.44-$1.54, and sees third quarter EPS of 28 cents to 33 cents.
SI International (SINT) agreed to be acquired by Serco Group in a $423 million deal. Terms: $32 cash per SI share.
Pfizer (PFE) and Bristol-Myers Squibb (BMY) report that an early evaluation of results from a Phase III study of apixaban for the prevention of venous thromboembolism (VTE) in patients undergoing total knee replacement indicates that the primary endpoint of this study was not met. The companies are considering further studies with different protocols in preventing VTE in knee surgery and will not submit the U.S. filing for VTE prevention in the second half of 2009, as previously communicated.
CNOOC Ltd. (CEO) said its first-half oil and gas sales increased 64% from last year, and net profit was up 89% to 27.54 billion yuan.
Solarfun Power Holdings (SOLF) entered into a letter-of-intent for a three-year supply agreement with Q-Cells International. Q-Cells intends to purchase from Solarfun a minimum of 100 megawatts of photovoltaic (PV) modules per annum using PV cells supplied by Q-Cells from 2009 through 2011.
Hain Celestial Group (HAIN) posted fourth-quarter adjusted EPS of 34 cents, vs. 25 cents one year earlier on a 25% sales rise. The company sees fiscal 2009 sales of $1.2 billion to $1.3 billion and EPS of $1.54 to $1.61.
Major European stock indexes ended mixed Wednesday. In London, the FTSE 100 index was up 1.05% to 5,528.10. In France, the CAC 40 index rose 0.1% to 4,373.08. Germany's DAX index shed 0.31% to 6,321.03.
Asian markets finished mixed. Japan’s Nikkei 225 index fell 0.2% to 12,752.96. In Hong Kong, the Hang Seng index rose 1.94% to 21,464.72.
Treasury yields were flat to mixed. The 10-year yield was little changed at 3.77%, after moving up to 3.83% after the durable goods data. The market continues to reflect expectations for a steady policy stance through the rest of the year, with only about a 25% risk of a hike, according to Action Economics.