Stocks Finish Moderately Higher

The major indexes managed to overcome mixed economic news and a fresh wave of Mideast violence

Stocks ended moderately higher Monday afternoon, after a choppy day of trading. A mixed bag of economic reports, and bombings in both Baghdad and Jerusalem kept the rally in check.

The blue-chip Dow Jones industrial average ended down 16.5 points, or 0.17%, at 9,428.90. The broader Standard & Poor's 500 index crossed back above the 1,000-mark, gaining 2.59 points, or 0.26% at 1,002.33. The tech-heavy Nasdaq composite index was higher, up 21.5 points, at 1,760.99, led by strength in semiconductor stocks. The Philadelphia Semiconductor Index was up over 2% after Monday's 5% surge. Electronic manufacturers, environmental services, electronic equipment manufacturing stocks are higher.

"Investor sentiment is remaining positive," says Michael Farr, president and chief investment officer at Washington, D.C. investment firm Farr, Miller and Washington. Though Farr -- like many other analysts -- can't explain the market's recent rally, he quips that if investors are putting their money where their mouth is, then the words must be positive.

In economic news, the August University of Michigan consumer sentiment index dipped to 90.2, down from 90.9 in July. Weakness was centered in present conditions, which fell to 100.5 from 102.1.

July U.S. housing starts were stronger than expected, rising 1.5% to 1.872 million -- the highest rate since April, 1986 -- up from an upwardly revised 1.845 million in June. Homebuilding stocks moved higher on the news. However, building permits fell 2.4% to 1.78 million.

The U.S. retail chain store sales index fell 0.5% for the week ended August 16, after a 0.1% gain the prior week. Some of the weakness was due to Thursday's blackout, as well as from sales-tax holidays in many states, says economic research outfit MMS International. "Indeed, sales have been quite healthy over the last several weeks, rising solidly in five of the last eight weeks, and are another reflection of the improving economy," notes economic research outfit MMS International.

A mixed bag of profit reports arrived from retailers. First, home-improvement chain Home Depot(HD ) posted better-than-expected second quarter earnings of 56 cents per share, versus 50 cents, on a 2.2% rise in same store sales, and an 11% total increase in sales. The company reaffirms its 9% to 14% earnings per share growth for 2003, and its 9% to 12% sales growth guidance. Home Depot was down 5.1%.

Staples(SPLS ) topped Wall Street expectations, and surged 11% higher, with second quarter earnings of 18 cents per share, versus 13 cents, on an 18% increase in sales. The company raised its fiscal 2004 EPS guidance to $1.09 (pro forma), versus the $1.05 consensus forecast.

But the picture was not so bright for other merchants. BJ's Wholesale Club(BJ ) announced second quarter earnings of 32 cents per share, versus 50 cents last year, despite a 6.6% rise in same store sales, and a 14% rise in net sales. S&P upgraded shares of BJ's to hold from avoid, saying its encouraged by BJ's turnaround efforts, and thinks its shares "have some appeal." BJ's gained 5.5%.

Saks(SKS ) posted a second quarter loss of 18 cents per share, versus a 14 cents loss on flat same store, and total sales. The company notes a 20 basis point decline in its gross margin rate, and an increase in reported selling, general, and administrative expense. The stock ended the day down slightly.

Jo-Ann Stores(JAS.A ) posted a second quarter loss of 11 cents per share, versus 10 cents despite a rise in same store sales of 2.4%, and an increase in total sales of 1.6%. The company reiterated its fiscal 2004 earnings guidance of as much as $2.10. The stock finished down slightly.

In technology, broadband communication chip outfit Broadcom(BRCM ) ended 11% higher after raising its September quarter revenue guidance to 10%, up from a maximum of 8.5%. CIBC World upgraded the stock to sector outperform, from sector perform, while S&P raised its estimates, and reiterated its a hold rating.

In National Semiconductor's (NSM ) SEC filing, the company says it has reduced the number of stock options it grants as compensation to 3.9% of shares outstanding in fiscal 2003, down from 5.4% in 2002, and 6.6% in 2001. The company also says it will examine how it pays its executives. The stock gained 6.4%.

Human Genome Sciences(HGSI ) received Fast Track Product designation from the Food & Drug Administration for ABthrax, a novel drug for the prevention, and treatment of anthrax infections. The stock gained 3.6%.

Genentech(DNA ) presented positive, preliminary, six-month data from its Phase Ib/II study of its lucentis in age-related macular degeneration. Genentech ended trading slightly higher.

Other companies reporting second-quarter earnings this week include Limited Brands (LTD ) on Thursday.

In economic news this week, traders will hear jobless claims, leading indicators, and the Philadelphia Fed Index on Thursday.

Treasury Market

Despite signs of an improving economy, demand for Treasuries picked up Tuesday as the market extended its rally, reports MMS International. There was "increased investor appetite, especially for longer-dated, higher yielding securities amid reports of a deadly terrorist bombing at the U.N. headquarters in Baghdad," says MMS, with the yield on the 30-year bond moving down over nine basis points to 5.25%.

World Markets

European markets finished mixed, but mostly higher on Tuesday. In London, the Financial Times-Stock Exchange 100 index was down 21.3 points on profit taking, or 0.50%, at 4,250.80. A Bank of England economist warned the Monetary Policy Committee to be alert to surging household debt, and rising asset prices when setting interest rates, reports S&P's Marketscope.

In Paris, the CAC 40 ended higher by 9.62 points, or 0.29% at 3,310.70. Traders on Germany's Dax index backed off from their gains late into Tuesday's session, and the Dax finished down 2.7 points, or 0.08% to 3,504.53. Earlier, the DAX was in positive territory after a ZEW Institute investor confidence index reading showed that confidence was at 52.5 in August, up from 41.9 in July.

Asian markets finished higher. Japan's Nikkei 225 index pushed ahead 1.41% to finish at 10,174.10, as investors got word of the Nikkei's Monday high, and were encouraged by Wall Street's strong finish on Monday. Sumitomo Real Estate & Development added 12.83%, while Mitsubishi Estate and Mitsui Fudosan rose 6.22% and 6.56% respectively.

In Hong Kong, the Hang Seng index slipped 15.75 points, or 0.15%, to close at 10,509.29

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