Stocks Finish Higher
U.S. stocks finished higher Thursday after economic data beat Wall Street's low expectations. The U.S. gross domestic product fell 0.3%, about in line with economists' forecasts and confirmed predictions the nation is heading for a recession. An unchanged reading for weekly initial jobless claims exceeded expectations.
On Thursday, the Dow Jones industrial average rose 189.73 points to 9,180.69. The broader S&P 500 index added 24 points, or 2.58%, to 954.09. The tech-heavy Nasdaq composite index gained 41.31 points, or 2.49%, to 1,698.52.
Though stocks ended substantially higher, they wavered up and down all day, paring almost all their gains at one point at midday. Thursday's slow trading showed a lack of conviction as investors adjust portfolios at the end of month with a severe recession staring at them, S&P Marketscope says.
Bonds were lower a day after the Federal Reserve cut the benchmark U.S. interest rate a half-percentage-point to 1.0% and said it was worried about a slowdown in growth that likely to dampen inflation forces.
Stock markets in Europe advanced Thursday, with London, Frankfurt, and Paris stocks higher. Asia rallied, with Tokyo stocks soaring 9.96%, Hong Kong stocks surging 12.82%, and Shanghai stocks up 2.55%.
Investors Thursday were still considering the implications of the Federal Reserve's rate cut. "The Federal Reserve's attention is now largely on recession risk over inflation risk," says S&P chief economist David Wyss.
Citigroup's Robert Di Clemente now expects another half-point rate cut, probably in December. "The combination of a full point move in just three weeks with unanimous support and a consensus view that inflation will slow quickly represents a striking change in the Fed's posture," he wrote.
The Federal Deposit Insurance Corp. and the Treasury Dept. are working on a major program to prevent widespread foreclosures that would include government guarantees of home mortgages. The plan would use $50 billion from the recently passed bailout package to provide as much as $500 billion to $600 billion in government guarantees on up to three million at-risk mortgages. It might require banks and savings and loans to offer loans with lower interest rates for a five-year period, while shifting to the government any risk if the home doesn't recover its full mortgage value within that time.
FDIC Chairman Sheila Bair said discussions are ongoing with the Treasury Dept., according to wire reports. The proposal could be out as soon as Oct. 30, says a lobbyist familiar with both elements of the plan and negotiations. However, a Treasury Dept. spokeswoman denied that a proposal is ready.
The Federal Reserve agreed Thursday to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore.
Prime Minister Taro Aso unveiled Japan's second economic package in about two months that includes spending worth 5 trillion yen ($50.8 billion) as the global credit crisis pushes the world's No.2 economy into a recession. Reuters said the latest steps came on top of an 11.7 trillion yen ($118 billion) economic package compiled in late August which was aimed at helping ease the pain from high oil prices, including cutting highway tolls and boosting loan guarantees for small firms.
Germany's government plans to introduce a range of steps worth up to €25 billion ($31.87 billion) to boost Europe's biggest economy, Peter Struck, parliamentary floor leader of the SPD, which shares power with Chancellor Angela Merkel's conservatives, was quoted as saying by the Berliner Zeitung. "All together we are talking about a volume of perhaps €20 billion to €25 billion." Reuters said the package will include support for the auto sector and building renovation as well as tax breaks enabling companies to write off a share of their investments, several German newspapers reported.
In U.S. economic news Thursday, third-quarter advance GDP declined 0.3%, after posting a 2.8% rate of growth in the second quarter. Real consumer spending declined 3.1% after rising 1.2% in the prior quarter. Gross fixed investment declined 1.9%, vs. -11.5% in the second quarter, as residential construction spending declined 19.1%. Net exports rose $31 billion, while inventories added $12.1 billion to growth. The PCE price index climbed to 5.4% year-over-year last quarter vs. 4.3% in the second quarter, while the core rate, which excludes food and energy prices, accelerated to a 2.9% pace from 2.2%.
"The contraction in growth was about as expected, while the acceleration in price pressures will be overlooked as the FOMC continues to expect the slowdown in economic activity to moderate prices," wrote Action Economics analysts in a website posting Thursday.
Initial jobless claims were unchanged at 479,000 in the week ended Oct. 23. The 4-week moving average slipped to 475,000, vs. 480,500. Continuing claims fell 12,000 to 3,715,000 in the week ended Oct. 18, from a revised 3,727,000 (3,720,000 previously). The data continue to reflect erosion in the labor market, says Action Economics.
In other U.S. markets Thursday, the 10-year Treasury note was lower in price at 100-10/32 for yield of 3.96%, while the 30-year bond fell to 102-30/32 for a yield of 4.32%.
The dollar index, which plunged to an 83.10 low Thursday morning, was up 0.55 to 84.73 by evening. December gold futures fell $19.60 to $734.40 per ounce.
December West Texas Intermediate crude oil futures were down $2.17 to $65.33 per barrel.
Among Thursday's stocks in the news, Motorola (MOT) reported a third quarter loss from continuing operations of 18 cents per share, vs. 2 cents EPS one year earlier (both GAAP), on a 15% sales decline. Current results included net charges of 23 cents per share. The company sees EPS from continuing operations of 2 cents-4 cents in the fourth quarter and 5 cents-7 cents for all of 2008.
Deutsche Bank AG (DB) posted third-quarter EPS of €0.83, vs. €3.31 one year earlier. Mark-downs of €1.2 billion were recorded on leveraged loans and loan commitments, residential mortgage-backed securities, monoline insurers, commercial real estate and on available for sale positions. The company's Tier 1 capital ratio, reported under Basel II, was 10.3% vs. 9.3% at the end of the 2008 second quarter.
AstraZeneca (AZN) reported third-quarter core EPS of $1.32, vs. $1.04 one year earlier, on an 8.7% actual sales rise an a 3% rise at constant exchange rates. The company raised its 2008 core EPS target to reflect stronger operational and financial performance as well as additional currency benefit. It now sees $4.90-$5.05 core EPS.
BJ Services (BJS) posted third-quarter EPS of 57 cents, vs. 64 cents one year earlier, as higher operating expenses offset a 20% revenue rise. Wall Street was looking for 56 cents third-quarter EPS. The company says the recent drop in commodity prices, coupled with uncertainty in credit markets, will likely result in lower drilling activity during 2009. It expects drilling activity in North America to begin to decline during the 2009 first quarter, and anticipates moderate reductions in certain international markets; as a result, it expects first-quarter EPS of 48 cents-51 cents.
Alcatel-Lucent (ALU) posted third-quarter EPS of 3 cents, vs. a 16 cents loss per share one year earlier, on a 6.6% revenue drop. The company notes it achieved a positive cash flow from operating activities in the third quarter through reduction of operating working capital requirements. Alcatel-Lucent reiterates that 2008 revenue, expressed in current Euro rate, should be down in low to mid single-digit range.
Biogen Idec (BIIB) says in 8-K that relevant regulatory agencies were notified of a confirmed case of progressive multifocal leukoencephalopathy (PML) in a multiple sclerosis (MS) patient treated with Tysabri in the commercial setting in the United States.
Target Corp. (TGT) confirmed that Pershing Square has asked the company to consider the spin-off of a separate publicly-traded real estate investment trust (REIT) that would own substantially all of the land currently owned by the company. While Target has not yet reached a conclusion regarding the merits of these ideas, its analysis raises serious concerns on a number of important issues.
Foundry Networks (FDRY) and Brocade Communications Systems (BRCD) announced that they have reached an agreement in principle to amend the agreement and plan of merger previously announced on July 21, between the two companies relating to Brocade's proposed acquisition of Foundry. Under the agreement in principle, Foundry's shareholders would be entitled to receive $16.50 of cash for each share of Foundry common stock. The revised transaction would have an aggregate purchase price of about $2.6 billion.
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