Stocks Finish Higher

Bulls took charge, as energy prices fell. Next week, inflation reports should grab attention

Stocks rose on Friday, aided in part by a slide in crude oil to $64.08 and a 4% drop in gasoline futures. Tech stocks rose, thanks to news that Texas Instruments (TXN ) raised its earnings outlook, but any gains in semiconductors were offset by Intel, which maintained the midpoint of its third-quarter guidance.

The Dow Jones industrial average rose 82.63 points, or 0.78%, to 10,678.56. The broader Standard & Poor's 500 index was up 9.81 points, or 0.8%, to 1,241.48. The tech-heavy Nasdaq composite index added 9.48 points, or 0.44%, to 2,175.51.

The price of crude oil futures were down to about $64 a barrel on Friday. Meterologists downgraded Ophelia to a tropical storm, but said it still could be upgraded back to a hurricane, keeping traders wary.

Next week's economic release calendar will be highlighted by inflation data. Though there are plenty of other key releases on the docket, they will lose a lot of their potentcy given they are pre-Katrina, says Action Economics. With the market focus shifting to inflation concerns (note the run up in gold today, over $2, and up almost $20 on the month), the producer price index (PPI) Tuesday and consumer price index (CPI) Thursday will be timely reminders of current pressures. But while oil price gains will boost headline PPI and CPI, core rates are expected to remain benign, says Action Economics.

Along with inflation figures, the calendar includes trade, retail sales, industrial production, Empire State, Philly Fed, current account, and Treasury TIC data.

In economic news Friday, total U.S. import prices rose by 1.3% in August. Excluding petroleum, import prices were practically unchanged from July. On a year to year basis prices are up 1.8% excluding petroleum, but up 7.6% including it. Export prices fell by 0.1%.

Among sectors on the move Friday, gold stocks rose after the yellow metal was higher as the dollar weakened. Energy stocks were also strong.

Homebuilders got a push up from upgrades of Pulte Homes (PHM ) and Meritage Homes (MTH ) to strong buy by JMP Securities. JMP said upgrades reflect the companies' exposure to the Las Vegas market.

Food retailers moved higher as shares of Albertson's (ABS ) rose on a report that Kohlberg Kravis Roberts & Co., Apollo Advisors LP, Bain Capital LLC, Thomas H. Lee Partners, and Carlyle Group are interested in buying the company, which could fetch $16 billion, including debt assumption.

Semiconductors fell, on news that Intel (INTC ) stayed within its third-quaurter sales guidance. The company said it expects third-quarter revenue between $9.8 billion and $10 billion, with its gross margin percentage at 60%. Standard & Poor's reiterated its hold rating on the stock.

Fellow chip maker Texas Instruments raised its third-quarter earnings guidance to between 36 cents and 38 cents, on revenue in the range of $3.48 billion to $3.62 billion. Standard & Poor's raised its estimates for Texas Instruments, but reiterated its hold rating on the stock.

Northrop Grumman (NOC ) cut its earnings guidance for 2005 by between 6 cents and 12 cents a share, citing a negative near-term impact from Hurricane Katrina. The company said it expected its 2006 earnings to be largely unaffected by the hurricane.

Treasury Market

Long-dated Treasury prices were higher, boosted by San Francisco Fed President Yellen's comments that Fed must maintain economic stability. The benchmark 10-year yield was at 4.12%.

At the short-end of the curve, the bond market continued to unwind its Katrina rally as crude oil futures broke back below $64 a barrel and gasoline settled under $2 a gallon. The curve flattened as a result -- trading 10 basis points tighter than its post-hurricane wides last week, says Action Economics.

World Markets

European stock markets finished higher. London's Financial Times-Stock Exchange 100 index was up 18.5 points, or 0.35%, to 5,359.3.

Germany's DAX index rose 13.18 points, or 0.26%, to 5,005.93.

In Paris, the CAC 40 index was up 25.74 points, or 0.58%, to 4,491.68.

Asian markets finished mixed on Friday. Japan's Nikkei 225 index rose 158.15 points, or 1.26%, to 12,692.04 as investors speculated about whether Prime Minister Koizumi would win the country's general election Sunday. Financial markets would mostly favor a Koizumi win as he has instituted structural reforms during his tenure to help revitalize the economy after a decade of malaise in the nineties. Many are speculating that the nation has turned the corner this time, as compared with numerous false starts in the past.

In Hong Kong, the Hang Seng index lost 0.40 points, falling to 15,165.7, recovering from early weakness in the afternoon. Uncertainty over the U.S. Federal Reserve's rate policy in the wake of the Katrina disaster weighed on sentiment, much like it has in the U.S. this week. The Hong Kong dollar is pegged to the greenback, so inflation and interest rates in the U.S. can affect the local economy directly.

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