Closing Bell: Sea Of Green

Mar 17, 2009 2 Comments ›› Pat Dollard

FOX Business:

Dow Jumps 179

by Matt Egan

Even Wall Street was Irish on Tuesday as the typically-bullish St. Patrick’s Day lived up to the hype thanks to a round of bargain-hunting in financial and technology stocks.

Today’s Markets

The Dow Jones Industrial Average rose 178.73 points, or 2.48%, to 7396.65, the S&P 500 added 24.23 points, or 3.21%, to 778.12 and the Nasdaq Composite Index picked up 58.09 points, or 4.14%, to 1462.11. The consumer-friendly FOX 50 gained 17.72 points, or 3.13%, to 584.50.

Tuesday’s sizable rally sent the markets to their fifth win out of the past six sessions, a notable feat for what has been an otherwise atrocious 2009. The St. Patrick’s Day rally was nothing new as the Dow has risen about 60% of the time the holiday has fallen during the week, including eight of the last 11.

The rally comes after the markets closed in the red Monday, ending Wall Street’s four-day win streak. Even with Monday’s late-day slide, the Dow is still up roughly 14% from its 12-year low set on March 9 and on pace for its first monthly gain since August.

“The sentiment has changed over the past several days from panic selling to cautiously optimistic and maybe cautiously opportunistic,” said Art Hogan, chief market strategist at Jefferies & Co.

That optimism came despite Alcoa (AA: 5.59, -0.53, -8.66%) slashing its dividend for the first time in more than 25 years, controversy continuing to swirl over bonuses paid by bailed-out insurer American International Group (AIG: 0.95, 0.1699, 21.78%) and a new report that failed to stop deflation fears. Then again, the markets were boosted by crude oil’s highest close of 2009 and home builder and financial stocks rallied around a report showing housing starts unexpectedly surged last month.

The Nasdaq Composite, which plunged nearly 2% a day ago, was the big winner on Tuesday, soaring 4% as tech heavyweights like Apple (AAPL: 99.66, 4.24, 4.44%) and Cisco (CSCO: 16.14, 0.69, 4.47%) made gains. Almost all 30 components of the Dow ended in the green, led by Home Depot (HD: 21.47, 1.34, 6.66%) and Citigroup (C: 2.53, 0.33, 15%). Alcoa and General Motors (GM: 2.47, -0.05, -1.98%) failed to join the rally, adding to their steep 2009 losses.

Market observers were mixed on whether or not the recent gains will be a quick reprieve from the meltdown or something more lasting. Either way, few were complaining.

“Whether it’s the start of something big or a bear market rally, we’ve tacked on 14% [from recent lows]. We still have legs, even if it’s a near-term event,” said Hogan.

“Today is certainly a decent day, especially in light of the way they closed yesterday,” NYSE trader Ted Weisberg of Seaport Securities told FOX Business. However, “I think it would be a mistake to confuse a technical rally with the beginning of a new bull market. Stocks were way, way oversold. I think people are doing a little bit of bargain-hunting.”

Wall Street was also boosted by solid gains from the energy sector as stocks like Chevron (CVX: 65.32, 2.36, 3.75%) and ConocoPhilips (COP: 37.53, 1.43, 3.96%) rallied around a $2 jump in oil prices. A day before the release of a key inventory report, crude jumped $1.81 per barrel to $49.16 — its highest close in three months. On the other hand, gold fell for the second straight day, settling at $916.40 per ounce, down $5.20 on the day.

Home builders like Lennar (LEN: 8.49, 0.66, 8.43%) and KB Home (KBH: 11.12, 0.95, 9.34%) rose sharply after the Commerce Department said U.S. housing starts unexpectedly soared 22.2% in February following seven straight declines. Still, housing starts are off nearly 50% from year-ago levels.

Financial stocks returned to the green even after a series of mostly negative analyst notes. Merrill Lynch downgraded Morgan Stanley (MS: 23.88, 0.91, 3.96%) to “underperform” from “buy,” UBS said it expects Morgan to post a first-quarter loss and KBW downgraded Goldman Sachs (GS: 98.9348, 5.3748, 5.74%) to “market perform.”

Tuesday also marked the start of a two-day meeting for the Federal Open Market Committee, the Federal Reserve’s policy arm, which can’t lower rates any lower but could unveil plans to step up purchases of mortgage-backed securities or buy Treasuries.

Corporate Movers

Alcoa (AA: 5.59, -0.53, -8.66%) led a selloff in metals stocks after announcing plans late Monday to cut its dividend by 82% to save $400 million per year. Alcoa also said it plans to raise $1.1 billion in part by issuing new common stock, cut more costs and post a quarterly loss.

American International Group (AIG: 0.95, 0.1699, 21.78%) paid 73 employees $1 million or more in bonuses last year despite receiving $180 billion in bailout money, the New York Attorney General said Monday. Amid widespread outrage, the Treasury Department may modify the insurer’s bailout plan to recoup the payments or Congress might attempt to claw back the funds.

General Motors (GM: 2.47, -0.05, -1.98%) CEO Rick Wagoner told reporters he’s confident the struggling auto maker can restructure outside of bankruptcy and repeated his concerns about a bankruptcy filing, according to The Wall Street Journal. He also reportedly said the supplier situation is getting “more precarious.”

Royal Dutch Shell (RDS: undefined, undefined, undefined%) said it is being probed by the U.S. for potential violations of overseas bribery rules.

Target (TGT: 30.43, 1.62, 5.62%) faces a proxy battle after activist investor William Ackman ramped up his efforts to turn around the retailer by announcing plans to nominate himself and four other candidates to Target’s board.

Nokia (NOK: 11.48, 0.13, 1.15%) unveiled plans to slash 1,700 jobs around the globe as the world’s largest mobile phone maker fights slowing demand.

Data Dump

Deflation fears likely weren’t eased Tuesday by the Labor Department’s producer price index, which rose for the second straight month but mostly due to seasonal adjustments. PPI, which measures prices at the wholesale level, grew just 0.1% in February, compared to expectations for a 0.4% jump.

Global Markets

European stocks closed in the red, led by a 1.40% decline for Germany’s DAX and a 0.87% tumble for France’s CAC 40.

Asian markets ended mixed overnight as Japan’s Nikkei 225 jumped 3.18% to 7949.13 but Hong Kong’s Hang Seng slumped 0.76% to 12878.09.

WSJ:

Markets Climb in Broad Rally

by PETER A. MCKAY, ROB CURRAN and GEOFFREY ROGOW
Stocks jumped, closing at their highs for the session after a glimmer of hope from the housing market helped continue the resurgence of beaten-down banking and consumer stocks and tech stocks jumped.

The Dow Jones Industrial Average rose 178.73 points, or 2.5%, to end trade at 7395.70, the highest close since Feb. 19. The average has now climbed in five of the last six trading sessions, and is up 4.7% this month. The S&P 500 Index jumped 24.23 points, or 3.2%, to 778.12, also its highest close since Feb. 19.

The Nasdaq Composite Index leapt by 58.09 points, or 4.1%, to 1462.11, the highest close since Feb. 18, as Google, Cisco Systems and Research In Motion bounced.

“With each round of gains that we see, the odds are increasing that we’ve seen the bear-market lows,” said Wachovia Securities strategist Al Goldman, who said he tweaked his advice to clients last week, advising them to become more aggressive and even buy into rallies if necessary.

Leslie Barbagallo, executive vice president of SunGard Trading in New York, said recent activity in the options markets suggests that institutional investors have been coming back to stocks after a period in which volumes had waned.

“The question of whether it’s a good thing or a bad thing to have the institutions back is a separate matter,” said Ms. Barbagallo, alluding to the volatility hedge funds and other large investors caused late last year. But increased participation by some of the market’s smartest players could signal the gains will continue.

The Chicago Board Options Exchange Volatility Index sank 6.6%.

Structurally the rally is encouraging because the gains are gradual and holding steady, said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. But he said Schaeffer’s is skeptical because sentiment has changed too quickly.

Financial stocks helped lead the rally, with the S&P 500′s financial sector jumping 6.5% as banks including Citigroup, U.S. Bancorp and SunTrust Banks rose. Financials led the broader market off its bear-market lows last week as a number of banks said the first two months of the year had been profitable.

Sean Simko, head of SEI Fixed Income Management, said that fixed-income spreads have tightened in particular areas, with some of the unwind of money in credit being put into bank stocks. Still, a flood of cash from Treasurys into equities, which would drive even more banking gains, is unlikely in the short term as traders await clarity from the Federal Reserve.

The Fed, which begins a two-day policy meeting on Tuesday, isn’t expected to alter interest rates. Investors will be listening for hints that the central bank will buy long-term Treasurys, though expectations that the central bank will adopt a policy of “quantitative easing” have recently been fading. Treasurys dropped as stocks rose on Tuesday; the 10-year yield rose to about 3.01%.

Investors say that they’d need to start seeing economic trends improve before buying stocks with any conviction, especially when it comes to banks. “Though we’re seeing pieces of light at the end of the tunnel with the bank disclosures in the past week, we’re nowhere near out of this yet,” said Mr. Simko.

Consumer-discretionary stocks climbed 4.8% after data showed housing starts jumped 22.2% in February. Building permits also rose. The PHLX Housing Sector Index jumped 5.7%. Home Depot shares jumped 6.7% and Wal-Mart Stores gained 2.5%.

Harry Strunk, managing director at Treflie Capital Management, which tracks shorts, said such participants remain on the defensive for now. He estimated that the typical short portfolio rose about 10% in the first two months of the year, but bearish fund managers have been taking money off the table since.

“The thing is, it doesn’t take much of a market move to lose a lot of money in short selling,” which is typically financed with money borrowed from brokers, said Mr. Strunk. “Knowing that, they’ll definitely take their profits where they can. ”

Mr. Strunk said many shorts are looking for a potential opportunity to get back into the market if first-quarter earnings reports prove worse than expected in weeks ahead or if signs of inflation begin to crop up after massive government intervention to prop up the U.S. economy.

Shares of Alcoa, which said late Monday it would cut its dividend, were down 8.7%. Mining and metals stocks slumped broadly, with Rio Tinto and United States Steel falling 3%. The S&P 500′s basic-materials sector advanced 0.9%, trailing other industries.

Companies in an array of industries have been paring dividends in an effort to weather the global economic downturn. While analysts say preserving capital is a textbook strategy to take under such circumstances, the prospect of reduced payouts has squelched some investors’ appetite to buy shares.