U.S. stocks closed higher Monday, bolstered by unexpected December gains in sales of existing homes and the index of leading indicators. The market-friendly economic data came as a welcome surprise, given the weakness shown by other recent reports, and offset dismal earnings posted by Caterpillar (CAT) and other companies. Traders also weighed a fresh batch of U.S. layoff announcements. The mixed news led to yet another day of choppy trading on Wall Street.
Pfizer (PFE) and Wyeth (WYE) were also in the spotlight Monday after news of a merger agreement.
Investors pondered legislative action on President Obama's $825 billion economic stimulus plan and the EPA reconsidered allowing states to set auto emission standards, according to S&P MarketScope. There was some market focus on the Davos economic forum this week.
On Monday, the 30-stock Dow Jones industrial average finished higher by 38.47 points, or 0.48%, at 8,116.03. The broader S&P 500 index rose 4.62 points, or 0.56%, to 836.57. The tech-heavy Nasdaq composite index added 12.17 points, or 0.82%, to 1,489.46.
On the New York Stock Exchange, 20 stocks were higher in price for every 11 that declined. Nasdaq breadth was 17-10 positive.
Treasuries were lower before the Federal Reserve kicks off its two-day policy meeting on Tuesday, with the yield on the 10-year note rising to 2.65%.
The U.S. dollar index also fell. Gold futures rose, while crude oil futures fell in New York trading, reversing earlier gains.
Bloomberg reports former Treasury Secretary Henry Paulson's inability to restore confidence in the financial system is creating unprecedented demand for U.S. debt as his successor prepares to sell the most bonds in history. Timothy Geithner, who may be confirmed as head of the Treasury today, will have the benefit of near record-low yields as he presides over auctions of as much as $150 billion of notes and bonds the next three weeks. Goldman Sachs, one of the 17 primary dealers that are required to bid at the auctions, said last week the U.S. will likely borrow a record $2.5 trillion this fiscal year ending Sept. 30, almost triple the $892 billion in notes and bonds sold in fiscal 2008.
Supply concerns continued to weigh heavily on bonds ahead of this week's auctions in the U.S. and eurozone, and as there are fears that foreign demand will be on the wane, according to Action Economics. Meanwhile, bond traders are anxious to hear from the Federal Open Market Committee at the close of its two-day meeting on Wednesday if the Fed will start buying Treasuries.
In economic news Monday, U.S. existing home sales rebounded 6.5% to a 4.74 million unit pace in December, from a revised 4.45 million in November (was 4.49 million). That's better than expected. But sales are still down 3.5% year-over-year. Single family sales rose 7.0%, and condo/co-op sales increased 2.1%. The month's supply of homes fell to 9.3 from 11.2. The median sales price dropped to $175,400 vs. $180,300 (was $181,300). That's down 15.3% year-over-year, vs. -13.2% previously.
The U.S. index of leading indicators rose 0.3% to 99.5 in December from a revised 99.2 in November (October's originally reported 99.4 was revised to 99.6). This is the first monthly gain since April. The rate is down 5.0% on a 6-month annualized basis. Pacing the rebound was strength in money supply (up 0.99%). The yield curve also contributed positively (0.22%). The factors contributing negatively were building permits (-0.31%), the workweek (-0.25%), deliveries (-0.2%), and jobless claims (-0.15%).
"The improvement in the LEI was in line with expectations, but speaks more to the massive stimulus in the system, rather than any pick up in the economy," according to Action Economics.
The International Monetary Fund (IMF) will cut its 2009 global growth forecast to between 1% and 1.5% as economic conditions deteriorate further, said an IMF official cited in a Reuters report. The IMF's most recent forecast, made in November, was for growth of 2.2%. Since then, economic indicators have deteriorated to their worst levels in decades, with many of the world's biggest industrial economies in recession.
Caterpillar posted $1.08 vs. $1.50 fourth-quarter EPS as higher operating costs offset a 6% revenue rise. The company said current-quarter costs included transitional expenses as it moved to lower volumes and initiated production cuts. Caterpillar said economic conditions remain uncertain, and that it sees 2009 sales and revenues to be in a range of plus or minus 10% from $40 billion, and EPS of $2.50, excluding redundancy costs. The company has initiated plans to cut 20,000 jobs.
Wyeth agreed to be acquired by Pfizer in a $68 billion cash and stock deal worth $50.19 for each WYE share. Each outstanding Wyeth share will be converted into the right to receive $33 in cash and 0.985 Pfizer share, subject to terms of the merger agreement. Separately, Wyeth posted 71 cents vs. 75 cents fourth-quarter EPS on a 7.2% revenue drop. Meanwhile, Pfizer posted 4 cents vs. 40 cents fourth quarter EPS (reported) on a 4.1% revenue drop; Pfizer posted 65 cents vs. 50 cents adjusted EPS. Pfizer sees $44 billion-$46 billion in 2009 adjusted revenues, $1.34-$1.49 reported EPS, and $1.85-$1.95 adjusted EPS.
ING Groep N.V. (ING) said it intends to cut expenses by €1 billion in 2009, partly by eliminating 7,000 positions. It expects to post a loss of €1 billion in 2008 after taking a €3.3 billion loss in the fourth quarter on asset impairments and fair value adjustments. FD.nl reports ING says it wants to sell €2 billion-€3 billion in assets by 2010, and that ING's Michel Tilmant will step down from the Executive Board as of Monday.
Barclays (BCS) said is not looking for further capital from the private sector or the UK government. The company expects 2008 pretax profit to be well ahead of consensus estimate of £5.3 billion. The company may report its 2008 results earlier than planned, the Wall Street Journal quotes a person familiar with the matter as saying.
Kimberly-Clark (KMB) posted $1.10 vs. $1.07 fourth-quarter EPS on a 3.4% revenue drop. The company said overall sales volumes were below prior-year levels due primarily to lower shipments of Huggies diapers and Pull-Ups in North America, as well as the company's consumer tissue and K-C Professional products in North America and Europe. The company notes sales volumes for the quarter also trailed planned levels as customer and consumer demand was impacted by deteriorating economic conditions in those regions. Kimberly-Clark sees $4.00-$4.20 2009 adjusted EPS on a 4%-5% net sales decline.
Halliburton (HAL) posted 53 cents vs. 75 cents fourth-quarter EPS as a $308 million charge to discontinued operations, or 34 cents per share, primarily related to the prospective settlements of DOJ and SEC Foreign Corrupt Practices Act (FCPA) investigations, offset a 17% revenue rise.