U.S. stocks closed higher Tuesday, led by basic materials issues, after the release of stronger-than-expected New York manufacturing and U.S. retail sales data.
Another big gainer was Yahoo (YHOO) after reports of an analyst upgrade of shares of the Web giant.
Also supporting the rally were comments from Federal Reserve chairman Ben Bernanke, who said the recession is likely over, although he sees a slow recovery.
Some traders were apparently positioning their portfolios for the Quadruple Witching expiration of futures and options later in the week, says S&P MarketScope.
On Tuesday, the 30-stock Dow Jones industrial average finished higher by 56.61 points, or 0.59%, at 9,683.41. The broad Standard & Poor's 500-stock index gained 3.29 points, or 0.31%, to 1,052.63. The tech-heavy Nasdaq composite index added 10.86 points, or 0.52%, to 2,102.64.
On the New York Stock Exchange, 21 stocks were higher in price for every nine that declined. Breadth on the Nasdaq was 16-11 positive.
Among sectors on the move Tuesday, the S&P Food Retail index was down 5.0% after Kroger (KR) posted lower sales and earnings. The Computer & Electronics Retail group fell 4.2% after Best Buy (BBY) posted disappointing results.
On the upside, the S&P Aluminum index gained 7.9% after Alcoa's World Alumina and Chemicals (AWAC) joint venture with Alumina Limited (in which Alcoa holds a 60% share) opened the Juruti bauxite mine in Brazil.
The S&P Broadcasting index gained 4.7% after Wells Fargo upgraded CBS (CBS) to outperform from market perform. The S&P Office Electronics index added 3.8% after Barclays upgraded Xerox (XRX) to overweight from equal-weight.
The S&P Industrial Conglomerates index rose 3.3% on a sharp rebound in shares of General Electric (GE).
Treasuries and the dollar index fell. Gold and crude oil futures moved higher.
Traders weighed mixed economic data Tuesday. The New York Fed's September Empire State index of manufacturing conditions rose to 18.88 from 12.08 in August; U.S. retail sales rose 2.7% in August after a 0.2% decline in July, while retail sales excluding autos rose 1.1%; and the August producer price index (PPI) rose 1.7% after falling 0.9% in July. The PPI core rate, which excludes volatile food and energy prices, rose 0.2%. Also, July business inventories fell 1.0% after contracting 1.1% in June.
Meanwhile, Federal Reserve chairman Ben Bernanke indicated that the U.S. recession "is very likely over," at a Brookings Institution conference, but he cautioned it may not feel like it's over. "I've seen some agreement among the forecasting community that we are in a recovery," Bernanke said, "But the general view of most forecasters is that the pace of growth in 2010 will be moderate."
The next big TARP fund repayment will be approved as a group rather than piecemeal, according to an "anonymous" U.S. government source reported on Reuters earlier. The next large group of banks to repay the borrowed funds will will be near the end of the year, said the source.
Citigroup (C) is working on a plan to reduce the U.S. government's 34% stake in the bank holding company, according to a Wall Street Journal report. Top Citigroup executives have been devising plans for a possible multibillion-dollar stock offering in which the New York company would issue new shares to the public, while the Treasury Dept. would sell at least a portion of its Citigroup holdings, according to people familiar with the matter cited in the Journal report.
The Associated Press reported a federal judge on Monday rejected a $33 million settlement between the SEC and Bank of America (BAC), saying the SEC's accusations of inadequate disclosure by the bank over bonuses paid at Merrill Lynch must now go to trial. Separately, New York Attorney General Andrew Cuomo's office is preparing to file charges within the next couple of weeks against several high-ranking executives at Bank of America, claiming they failed to disclose details about the bank's acquisition of Merrill Lynch, according to a person familiar with the investigation. The ruling in the SEC case comes one month after the agency and Bank of America thought they had put a thorny issue behind them, and leaves the SEC with the task of mounting a case against BofA over one of the most sensitive issues of the financial crisis -- executive pay on Wall Street.
Markets are back to being greedy, according to influential banking analyst Richard Bove of Rochdale Securities. Investors have already forgotten about the lessons of the past year by aggressively putting money to work, and the biggest sign of greed is the yield on junk bonds, Bove told "Squawk Box Asia."
"In the midst of the crisis, about a year ago, I think it was last November, the yield on junk bonds were over 25% and today the yield on junk bonds is 11.5%," Bove said. "What that's telling you is that the appetite for risk has returned pretty dramatically on Wall Street."
CNBC.com reports banking analyst Meredith Whitney, in a CNBC interview, said the economy remains weak and will face a big test next month when the government starts winding down its massive support programs. Despite avoiding a worst-case scenario, the economy continues to languish under weak job growth and home sales, Whitney said. "There's not a lot of new job creation going on on Main Street and the liquidity to the consumer and small business is still contracting," she said. "And it's very difficult to get the engine moving without a lot of government support within that. So when you slowly wean government supports, that's going to be the test that I think everyone's going to be watching starting in October."
In economic news Tuesday, U.S. business inventories fell 1.0% in July after a downwardly revised 1.4% decline in June (revised from -1.1%). Retailer inventories were down 1.0% after a 1.2% drop in June (revised from -1.0%). Manufacturers' inventories declined 0.7%, while wholesalers' dropped 1.4%. Business sales inched up 0.1% following a 1.1% gain (revised from 0.9%). The inventory-sales ratio dipped to 1.36 from 1.38. The data are in line with expectations.
The New York Fed announced that its Empire State survey of manufacturers jumped to 18.9 in September from 12.1 in August. The level is the highest in almost two years, and well above the consensus estimate of 14. Expectations also improved sharply, rising to 52.3, the highest in five years. This is the second consecutive positive reading for the index, suggesting that manufacturing, at least in New York, is turning around, according to S&P Economics.
U.S. producer prices jumped 1.7% in August, mostly because of an 8.0% rise in energy prices. Excluding food (up 0.4%) and energy, prices were up a modest 0.2%. The market had expected a 0.8% rise in the PPI (0.1% for the core rate). The energy price rise was much sharper than expected based on oil and other spot prices, but the exact timing of the surveys always makes this projection difficult when prices are moving sharply, notes S&P. The core rate was near expectation, despite a 0.7% jump in new car prices, as dealers took off incentives because they could sell under the clunker program. The PPI is up 1.7% from a year ago, but only 0.2% excluding food and energy.
U.S. retail sales jumped 2.7% in August, led by a 10.6% jump at motor vehicle dealers and a 5.1% jump at gas stations. Excluding motor vehicles, sales were up 1.1%, still much better than expected. The consensus was for an overall 1.8% rise and 0.3% excluding motor vehicles. The motor vehicle increase reflects the "cash for clunkers" program, and should reverse over the next two months. The rise in the non-auto component was heavily influenced by the price-related jump in gas station sales, but every sector except furniture and building materials was up sharply. Apparel jumped 2.4%, and department stores also rose 2.4%. Food was up a modest 0.5%, with restaurants up 0.3%, as we were too busy shopping to eat. The numbers are a major surprise given the weak chain store sales report last week.
Bloomberg News reported San Francisco Fed President Janet Yellen said prospects for a "tepid" recovery require that policy makers boost employment and guard more against inflation becoming too low rather than too high. "We face an economy with substantial slack, prospects for only moderate growth, and low and declining inflation," Yellen said. Until the time comes to raise interest rates, "we need to defend our price stability goal on the low side and promote full employment," she said.
The British economy has probably started growing again but recovery will be slow and risks to inflation are still to the downside, Bank of England Governor Mervyn King said, according to a Reuters dispatch. In company news Tuesday, Lubrizol Corp. (LZ) raised its 2009 earnings per share (EPS) guidance to $5.87-$6.17, including restructuring and impairment charges of $0.23 per diluted share, from $5.47-$5.77. Excluding these charges, guidance for adjusted EPS is $6.10-$6.40, up from $5.70-$6.00. The specialty chemical maker cited improving volume trends in the current quarter, ongoing margin management, and its maintenance of cost reduction initiatives.
Filtration-products maker Pall Corp. (PLL) posted $0.57 vs. $0.61 fourth-quarter pro forma EPS on 9.9% sales drop. Wall Street was looking for EPS of $0.52.
Chemical and engineered materials maker Solutia (SOA) raised its 2009 adjusted EBITDA guidance from continuing operations to a range of $340 million-$360 million, and its full-year 2009 cash from operations less capital expenditures guidance to about $125 million. Previous guidance was an adjusted EBITDA range of $325 million-$350 million and cash from operations less capital expenditures of around $100 million. Notes improving sales volumes, increased manufacturing utilization rates and focus on reducing operating costs.
Synovus Financial (SNV) announced an underwritten public offering of up to $350 million of shares of its common stock. The bank holding company also announced an offer to exchange up to 50 million newly issued shares of common stock for any and all of its outstanding 4.875% subordinated notes due 2013.
Cracker Barrel Old Country Store (CBRL) reported $0.99 vs. $0.91 fourth-quarter EPS from continuing operations despite 1.4% lower same-store restaurant sales and 1.0% lower total sales. Wall Street was looking for EPS of $0.94-$0.95.
Smithfield Foods (SFD) announced that it has commenced an underwritten registered public offering of $250,000,000 of shares of its common stock.
Parallel Petroleum (PLLL) agreed to be acquired by an affiliate of Apollo Global Management, in transaction valued at about $483 million, including the assumption or repayment of about $351 million of net indebtedness. Terms: $3.15 cash per Parallel share.
Home Depot (HD) and Martha Stewart Living Omnimedia (MSO) announced an agreement to develop an exclusive Martha Stewart Living brand of home improvement products in select categories including Outdoor Living, Home Organization and Home Decor.
In response to unusual trading activity in its stock and marketplace rumors, Genesis Lease Ltd. (GLS) announced that it is in discussions with another party concerning a possible M&A transaction.
Broadcom (BRCM) announced that it has commenced litigation against Emulex (ELX) for infringement of Broadcom patents related to networking and communications technologies. Broadcom is seeking both monetary damages and injunctive relief.