Stocks Jump Despite GE Downgrade

Traders Thursday took news that news that S&P cut the conglomerate's credit rating from AAA to AA+ in stride

U.S. stocks closed higher for a third straight session Thursday, with the Dow Jones industrial average moving back above the 7,000 level. The market was led by gains in General Electric (GE) and General Motors (GM).

On Thursday, the 30-stock Dow Jones industrial average finished higher by 239.66 points, or 3.46%, at 7,170.06. The broad S&P 500 index was up 29.38 points, or 4.07%, at 750.74. The tech-heavy Nasdaq composite index added 54.46 points, or 3.97%, to 1,426.10. NYSE breadth was 28-3 positive, while Nasdaq breadth was 22-5 positive.

The dollar index was lower. Treasuries were higher. Gold and crude oil futures were also higher.

Traders eyed a mixed batch of economic data. January business inventories fell 1.1%. February retail sales fell a less than expected 0.1% thanks to high gasoline sales, and actually rose 0.7% excluding autos. Weekly initial jobless claims rose 9,000 to 654,000, while continuing claims rose 193,000 to a record 5,317,000.

Treasury Secretary Timothy Geithner defended the Obama Administration's economic and financial rescue plans in front of the Senate Banking Committee. Geithner said President Obama would cut the deficit in half by 2013.

Shares of GE were 12% higher Thursday as investors took Standard & Poor's Ratings Services downgrade of the conglomerate's credit rating -- from AAA to AA+ -- in stride. In downgrading GE and its GE Capital unit's long-term ratings, S&P Ratings said it believes that GE Capital "is under increasing earnings pressure, due to the recent sharp deterioration in general economic conditions around the globe." S&P said the ratings outlook for GE was stable.

In response, GE said the ratings downgrade does not affect its and GE Capital's short-term funding ratings of A-1+, which was affirmed by S&P. In addition, the company said GE Capital is one of the only financial services companies in the world with a rating as high as AA+. GE said it does not anticipate any significant operational or funding impact from this change.

General Motors (GM) shares were 17% higher on a report the company's CFO has advised the U.S. government's auto industry task force that $2 billion of funding requested for March was not immediately needed. The automaker noted companywide cost cuts have allowed GM to defer an immediate aid request.

Pfizer (PFE) shares jumped 9% after the company announced that a Phase III clinical trial of Sutent has been stopped early after the drug showed significant benefit in patients with advanced pancreatic islet cell tumors, also known as pancreatic neuroendocrine tumors.

In economic news Thursday, U.S. business inventories fell 1.1% in January, and sales declined 1.0%. December's 1.3% drop in inventories was revised lower to -1.6%. The 3.2% decline in sales in December was revised down to -3.4%. Retail inventories were down 1.7%. The inventory-sales ratio was steady at 1.43 (December's figure was revised from 1.44). The ratio was at 1.24 in July, and 1.26 a year ago.

U.S. retail sales dipped 0.1% in February, while sales, ex-autos, rose 0.7%. Both are better than the -0.5% and -0.3% expected by markets. Moreover, January figures were revised higher to 1.8% from 1.0% previously; December's previously reported -3.0% was revised down to -3.1%. The January ex-auto sales figure was revised up to 1.6% from 0.9% previously. The data were mixed. Vehicle sales declined 4.3%, while gas station sales climbed 3.4%. Excluding autos, gas, and building materials, sales were up 0.5%. Clothing sales rose 2.8% and department store sales jumped 1.1%, but food and beverages were down 0.7%. Furniture sales rose 0.7%, while building materials dipped 0.2%.

U.S. jobless claims were up 9,000 at 654,000 for the week ending March 7, larger than the 645,000 that markets expected. More importantly, continuing claims surged 193,000 to a record 5,1317,000 the previous week, from the preceding week's 5,124,000 reading (upwardly revised from 5,120,000). The insured unemployment rate rose 0.2% at 4.0%.

The headline was a little bit worse than expectations, and together with the record continuing claims reading, will weigh on the market's mood, according to S&P senior economist Beth Ann Bovino. "However, the better than expected retail sales data may take away some of the sting."

Among companies in the news Thursday, biotech giant Genentech (DNA) agreed to be acquired by Roche for $46.8 billion or $95 per share in cash.

CV Therapeutics (CVTX) agreed to be acquired by Gilead Sciences (GILD) for $20.00 a share in cash, in a deal valued at about $1.4 billion.

HanesBrands (HBI) announced that it has successfully amended its first-lien credit agreement with debt holders and set a goal to reduce its long-term debt in 2009 by at least $300 million. With its new interest-rate structure, the company expects 2009 net interest expense to be about $165 million, compared with $155 million in 2008.

Federal Home Loan Mortgage Corp. (FRE) posted a $7.37 fourth-quarter loss per share vs. a $19.44 loss in the third quarter. Fourth-quarter 2008 results include net mark-to-market losses of $13.3 billion on the company's derivative portfolio, guarantee asset and trading securities, $7.2 billion in credit-related expenses, and $7.5 billion in security impairments on the company's available-for-sale securities. Pursuant to Treasury's funding commitment, the Director of the Federal Housing Finance Agency (FHFA) has submitted a request to Treasury for funding in the amount of $30.8 billion. Freddie expects to receive such funds in March 2009.

Smithfield Foods (SFD) posted a $0.72 third-quarter loss per share, vs. $0.41 EPS one year earlier, as record high feed costs and other expenses offset a 7.3% revenue rise. The company posted a $0.15 third-quarter non-GAAP loss from continuing operations; Wall Street was looking for a loss of $0.27. Smithfield expects the fourth quarter to be another difficult quarter with continued substantial losses in hog production, but is reasonably optimistic about fiscal 2010 in spite of the current recession. The company said its restructuring plan is expected to improve pre-tax results by $55 million in fiscal 2010 and $125 million in fiscal 2011.

Imax Corp. (IMAX) posted an $0.11 fourth-quarter non-GAAP loss per share vs. a $0.21 loss as lower costs and expenses offset a 13% revenue drop. Wall Street was looking for an $0.08 loss.

Men's Wearhouse (MW) posted $0.03 vs. $0.28 fourth-quarter GAAP EPS on 11% lower total company sales and a narrowed gross margin. The company sees fist-half fiscal 2010 GAAP EPS of $0.45-$0.65 on 6%-10% lower same-store sales and 4%-7% lower total company sales.

Jo-Ann Stores (JAS) posted $0.74 (excluding a $0.05 gain) vs. $1.10 fourth-quarter EPS on 2.9% lower same-store sales, 2.4% lower total sales, and narrowed gross margins. For fiscal 2010, the company expects to open approximately 20 new stores and close approximately 30 stores. It sees fiscal 2010 EPS of $0.70-$0.85 on a 2%-4% decline in same-store sales.

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