Stocks Rise after Fed Minutes
U.S. stocks moved higher Tuesday, led by gains in technology, broadcasting and diversified chemicals companies. Traders eyed the release of the minutes of the Federal Reserve's Dec. 16 policy meeting, which painted a bleak picture of the economy and supported investor expectations for a government stimulus package. The minutes showed that the Fed intended to buy $600 billion in debt of government-sponsored enterprises, and mortgage-backed securities, by the end of the second quarter. Policymakers also discussed quantitative reserve targets.
Investors also weighed reports that showed November factory orders falling 4.6%, more than expected, after a 6.0% skid in October; a bump higher in the January ISM nonmanufacturing index to 40.6 from 37.3 in December; and a 4.0% decline in the pending home sales index in November.
The dollar index was solidly higher. Bonds were lower. Crude oil futures ended mixed. Gold futures turned higher.
On Tuesday, the 30-stock Dow Jones industrial average rose 62.21 points, or 0.69%, to 9,015.10. The broader S&P 500 index gained 7.25 points, or 0.78%, to 934.70. The tech-heavy Nasdaq composite index added 24.35 points, or 1.50%, to 1,652.38.
Traders were apparently positioning in a wide range of issues for 2009, says S&P MarketScope, as 25 stocks were higher in price for every 7 that declined on the New York Stock Exchange, while the ratio on the Nasdaq was 20-8 positive.
After the market close Tuesday, Alcoa (AA) announced it will reduce aluminum production and cut about 13,500 jobs, or 13% of its global work force, to save cash and reduce costs in the current economic downturn. The company says it will also eliminate an additional 1,700 contractor positions, and has instituted a global salary and hiring freeze.
Dow Chemical (DOW) said it will pursue legal and other options to fulfill rights under its agreement with Petrochemical Industries Co of Kuwait. Last month, Kuwait decided to scrap a deal to form a $17.4 billion petrochemical joint venture with Dow, potentially upsetting the largest U.S. chemical company's plans to buy rival Rohm & Haas. Dow had planned to use proceeds from the joint venture with Kuwait's state-run Petrochemical Industries to repay a large part of the debt financing for the $15.3 billion Rohm & Haas (ROH) acquisition. Dow said other parties had expressed interest about becoming involved in the basic plastics joint venture it was to form with the Kuwaiti company.
President-elect Barack Obama denounced "earmarks" as part of the economic recovery package that is being prepped by the incoming administration, while acknowledging that the budget deficit will top $1 trillion, which could be the rule for years until spending is brought back under control. He emphasized making tough budget choices after meeting with his economic team for the second straight day.
News services report U.S. prosecutors asked a judge to jail accused swindler Bernard Madoff, saying he sent jewelry and other items worth more than $1 million to family and friends in violation of his bail. A lawyer for investment adviser Madoff, who made his first court appearance since his Dec. 11 arrest on a charge of securities fraud in what could be Wall Street's biggest scam, said his client had already returned some of the items and argued that the 70-year-old was not a flight risk. The U.S. magistrate judge reserved decision and asked both sides for more information concerning the purported $50 billion scheme by Thursday.
In economic news Tuesday, minutes to the Dec. 15-16 meeting of the Federal Open Market Committee indicate members saw "substantial" downside risk to the economy and expected the outlook would remain weak for a time, consistent with the indications from the policy statement. Some members also saw risk of "uncomfortably low" inflation levels. Members also acknowledged the fact that the funds rate was also likely to remain low given the reliance on the expanded balance sheet to help liquefy the system.
U.S. factory orders fell 4.6% in November after tumbling 6.0% in October (revised from -5.8%). This is a fourth consecutive decline in the index. Orders were down 12.2% year-over-year vs. a better than 5% decline in October. Durable orders were revised down to -1.5% from -1.0% previously. Excluding transportation, orders declined 4.2%. Nondefense capital goods excluding aircraft rebounded 3.9% after a 6.7% decline in October (revised from -5.0%). Shipments declined 5.3% following a 3.6% decline in October (revised from -3.2%). Inventories declined 0.3%. The inventory-shipments ratio widened to 1.41 vs. 1.33.
The U.S. ISM services composite index jumped to 40.6 in December after falling 7.1 points to a record low at 37.3 in November. The index was at 53.2 a year ago. The business activity index improved to 39.6 after dropping almost 11 points to 33.0 in November, and was at 54.4 in December 2007. The employment index rebounded to 34.7 from 31.3. New orders rose to 39.9 from 35.4. Prices paid were steady at 36.0 from 36.6. Imports declined to 32.5 from 40.0, though export orders rose to 39.5 from 34.5. The manufacturing and non-manufacturing composite index climbed to 39.6 vs. 37.2.
The U.S. pending home sales index declined 4.0% to 82.3 in November from a revised 85.7 in October (was 88.9). On a year-over-year basis, sales are down 9.6% compared to a -3.9% pace in October, though that compares to a better than 20% rate of decline a year ago and still double digit declines as June. The data were lower across all four regions covered.
Among other stocks in the news Tuesday, LDK Solar (LDK) said it sees fourth-quarter revenue of $425 million-$435 million, wafer shipments between 245-255 MW, and gross margin between 10%-13% -- worse than previous guidance of $555 million-$565 million in revenue, 260-279 MW wafer shipments, and 18%-21% gross margin. LDK now sees 2009 revenue of $2.3 billion-$2.5 billion, wafer shipments of 1.57 GW-1.67 GW, and gross margin of 22%-27%.
Imation Corp. (IMN) sees lower-than-expected fourth-quarter revenue of $530 million-$540 million. The company said it could report a fourth-quarter operating loss of up to $7 million before restructuring and other charges. Imation also reports that it is finalizing its impairment testing on intangible assets including goodwill and it is likely that substantial impairments will be identified and recorded in the fourth quarter.
Oppenheimer reportedly upgraded Apple Inc. (AAPL) to outperform.
Mosaic Co. (MOS) posted $2.15 vs. $0.89 second-quarter EPS on a 37% sales rise. Current-quarter results included a writedown of 41 cents and a gain on sale of $1.03. Mosaic's gross margin narrowed. The company expects to reduce phosphate and potash production significantly during the rest of fiscal 2009. It expects results to be weak at least through the third quarter of fiscal 2009. It also expects operating cash flow to be negative at least through the third quarter as a result of the weak near-term outlook.
Logitech Intl. (LOGI) announced that it has withdrawn its fiscal 2009 growth targets for sales and operating income due to the deepening global recession. The company plans to update investors on business conditions and performance during its briefing on third-quarter results on Jan. 20, 2009. In addition to ongoing actions aimed at reducing operating expenses, Logitech plans to reduce its salaried workforce globally by approximately 15%; the associated restructuring charge will be announced with third-quarter results and booked in the fourth quarter.