Uptick: Stocks Eke Out Gains

Mar 11, 2009 2 Comments ›› Pat Dollard

FOX:

by Matt Egan

Despite a late-day slide, the Dow and S&P 500 inched higher on Wednesday as Wall Street closed in the green for two consecutive days for the first time in more than a month.

Today’s Markets

The Dow Jones Industrial Average rose 3.91 points, or 0.06%, to 6930.40, the S&P 500 added 1.76 points, or 0.24%, to 721.36 and the Nasdaq Composite picked up 13.36 points, or 0.98%, to 1371.64. The consumer-friendly FOX 50 gained 1.76 points, or 0.32%, to 544.45.

While the Dow failed to substantially extend Tuesday’s 379-point jump — its best day since November — the index also avoided a knee-jerk selloff that could have hurt market sentiment. Still, the Dow remains near 12-year lows and deeply in the red in 2009 amid continued economic and regulatory uncertainty.

“I wouldn’t get too comfortable. I would have rather seen another 200-point move today to see if we have turned the corner,” said Frank Davis, director of sales and trading at LEK Securities. “I’m not in the camp that all is good again. I would expect more selling pressure to come back into the market.”

Hewlett-Packard (HPQ: 28.61, 1.6, 5.92%) and Citigroup (C: 1.54, 0.1, 6.94%) the two biggest percentage winners on the Dow, canceling out steep losses for General Electric (GE: 8.5, -0.35, -3.95%) and Alcoa (AA: 5.75, -0.35, -5.74%).

The Nasdaq Composite enjoyed much stronger gains than the broader market as big cap tech stocks like Apple (AAPL: 92.68, 4.0525, 4.57%) and Sun Microsystems (JAVA: 4.56, 0.36, 8.57%) stayed hot. The index enjoyed its biggest one-day rally since October on Tuesday.

There were no major economic reports released on Wednesday but the markets remained focused on the volatile financial sector and the government’s plans to fix it.

Banking stocks extended Tuesday’s big rally, closing almost 3% higher thanks in part to a positive analyst report from Goldman Sachs, which upgraded U.S. Bancorp (USB: 12.615, 1.265, 11.15%) and Morgan Stanley (MS: 22.53, 1.7075, 8.2%). Banks were also enjoying follow-through buying following Citi’s upbeat comments a day ago.

The financial sector wasn’t spooked by UBS (UBS: 8.61, 0.22, 2.62%), which on Wednesday restated its 2008 loss — already the largest in Swiss corporate history — by an additional $1 billion to account for its $780 million settlement in a U.S. tax shelter probe. The bank also warned its “balance sheet remains exposed to illiquid and volatile markets and our earnings will therefore remain at risk for some time to come.”

Meanwhile, Treasury Secretary Timothy Geithner repeated his pledge to release new details about his plan to rid banks of their toxic assets in the coming weeks, saying he has moved deliberately to minimize risks for the taxpayer. Geithner, who was interviewed Tuesday by PBS’s Charlie Rose, has been heavily criticized for announcing a plan that lacked specifics, adding to the uncertainty on Wall Street.

Wall Street also remained focused on regulatory action as Mary Schapiro, chairman of the Securities and Exchange Commission, confirmed the agency is looking at reinstating the uptick rule. Such a move would be aimed at preventing a massive plunge in a stock due to heavy short-selling.

The markets managed to shrug off weakness from energy stocks like Schlumberger (SLB: 38.82, -0.64, -1.62%) and ExxonMobil (XOM: 65.78, -1.39, -2.07%) tumbled as crude oil extended Tuesday’s losses. Down more than 10% over the past two sessions, crude closed at $42.33 per barrel on Wednesday, down $3.33.

Oil came under pressure after a new inventory report showed crude inventories jumped more than three times the amount analysts predicted last week. However, that same report showed U.S. gasoline stockpiles unexpectedly plunged by almost 3 million barrels last week.

Corporate Movers

Genentech’s (DNA: 92.04, 0.29, 0.32%) talks to sell itself to Roche (RHHBY: undefined, undefined, undefined%) have hit a snag over dueling interpretations of arcane SEC rules but the conflict is unlikely to derail the deal, The Wall Street Journal reported. The drug makers have already agreed in principle to a deal that would value the 44% of Genentech that Roche doesn’t already own at $46.7 billion, or $95 per share, the paper reported.

Ford (F: 1.97, 0.14, 7.65%) released plans to begin a new buyout offer program in April and end production at its Wayne, Mich. plant that produces the Ford Focus. The auto maker also said its recent UAW agreement reduces all-in pay to $55 an hour, compared to foreign auto makers’ pay of $48 per hour.

Merrill Lynch is being investigated by New York prosecutors over whether or not the bank gave traders an incentive to write down positions prior to its sale to Bank of America (BAC: 4.89, 0.1775, 3.77%), the Financial Times reported.

Staples (SPLS: 15.47, -0.27, -1.72%) missed expectations by posting an adjusted-profit of 36 cents per share. The office supplies retailer said sales jumped 16% to $6.17 billion but declined to give an outlook.

Freddie Mac (FRE: 0.4, 0, 0%) named John Koskinen as its interim CEO and Robert Glauber as interim non-executive chairman. The appointments are effective after the resignation of CEO David Moffett, who will leave no later than March 13.

American Eagle (AEO: 9.7, 0.16, 1.68%) met the Street’s expectations with an adjusted-profit of 19 cents per share in the fourth quarter even as sales fell 9%. The teen apparel retailer sees first-quarter results that could meet analyst estimates.

Apple (AAPL: 92.68, 4.0525, 4.57%) is rumored to be developing a device with a touch screen as big as 10 inches that could be a shrunken notebook computer or a multimedia device that could challenge Sony’s (SNE: 18.42, 0.1, 0.55%) PlayStation Portable and Amazon’s (AMZN: 68.54, 2.83, 4.31%) Kindle e-book reader, The Wall Street Journal reported.

J Crew (JCG: 10.43, 0.72, 7.42%) saw its shares jump a day after the upscale retailer reported a better-than-expected net loss of 22 cents per share. The company also sees first-quarter earnings that could top estimates.

E*Trade Financial (ETFC: 0.68, -0.06, -8.11%) may need more capital support, according to a “stress test” conducted by Fox-Pitt Kelton. The firm predicted Stifel Financial (SF: 33.88, 0.99, 3.01%) would remain well-capitalized.

Take-Two Interactive (TTWO: 6.41, -0.44, -6.42%), the publisher of controversial video game “Grand Theft Auto,” beat the Street with an adjusted-loss 52 cents per share as sales jumped 6.8%. While the company backed its 2009 outlook, it issued a disappointing second-quarter forecast.

Global Markets

European markets closed mixed following their big rally on Tuesday. London’s FTSE 100 slipped 0.58% to 3693.81 while Germany’s DAX gained 0.71% to 3914.40 and Paris’ CAC 40 rose 0.39% to 2674.20.

Asian stocks mostly rallied around Tuesday’s big gains in the U.S. as Japan’s Nikkei 225 gained 4.55% to 7376.12 and Hong Kong’s Hang Seng jumped 2.02% to 11930.66. However, China’s Shanghai Composite fell 0.91% to 2139.02.

WSJ:

Stocks Climb as Banks Advance

By PETER A. MCKAY, KEJAL VYAS and ROB CURRAN

Stocks crept higher Wednesday, leaving markets with the first two-day winning streak since early February.

The Dow Jones Industrial Average rose 3.91 points, or 0.06%, to end trading at 6930.40. The modest gain followed a 379-point surge Tuesday. Stocks had not put together two straight sessions of gains since Feb. 5 and Feb. 6.

The S&P 500 rose 1.76 point, or 0.24%, to 721.36. The Nasdaq Composite Index gained 13.36 points, or 1%, to 1371.64.

Phil Roth, chief technical analyst at Miller Tabak & Co., said that major indexes on Wednesday flirted with levels that would send an initial signal of a lasting rally, though he would want to see more confirmation in days ahead before calling outright for a sustained gain. He pointed to the S&P’s intraday high above 725 and the Dow’s peak above the 7000 level.

“Today’s action is actually pretty encouraging, since the market isn’t just giving everything back [from Tuesday's run-up],” said Mr. Roth. “Now what we need to see as confirmation is another good day soon without any intervening bad days.”

Financial stocks again led the market upward. Citigroup, whose statement on Tuesday that it was profitable in the first two months of this year was a major catalyst for previous session’s big gains, rose 6.2%. J.P. Morgan Chase shares climbed 4.6% after CEO James Dimon said that his bank, too, was profitable in January and February.

But skeptics say there’s still a lot of cleaning up to do in the sector.

“So far we’ve (mostly) seen the degradation of asset values in housing and derivatives of housing, but you still have corporate credits deteriorating, (and) commercial-mortgage credits are still deteriorating,” said Daniel Alpert, a founder of boutique investment bank Westwood Capital.

Generally, business loans and mortgages take longer to fall into default than consumer loans, but many are likely headed that direction, Mr. Alpert said. For example, occupancy rates and prices in hotels have just recently begun to “tank,” he said, likely bringing some hotel companies into distress.

Uri Landesman, portfolio manager at ING Investment Management in New York, said that he considers all the firms that have accepted government bailout money somewhat “tainted.” But he has held on to shares of J.P. Morgan Chase, which has clearly suffered but not been subject to rumors of mergers or flat-out nationalization akin to those surrounding its rivals.

“They’re still the one big bank I’d want to own,” said Mr. Landesman.

Mr. Landesman’s outlook for the broader market remains cautious. “There’s a chance we’ve put in a low, maybe even a 50% chance,” he said. “But most of the smart money is not yet reaching the conclusion that we’re there yet.”

Strategist Bruce Bittles, of R.W. Baird & Co., believes the market could enjoy a bounce lasting perhaps through the summer, though he doesn’t think a long-term bull market has begun.

His premise is that a full-blown economic recovery is still too far off to sustain a market rally beyond a few months. But he also believes that consumers are overdue to get over what has been an initial bout of shellshock in which they’ve made deep cuts in spending beyond anything warranted by even the harsh recession that the U.S. is now undergoing.

“I could see people reverting to their old spending patterns for a short period of time, maybe buying some things they really need,” said Mr. Bittles. “But it won’t be sustainable.”

Oil prices declined $3.38, or 7.4%, to settle at $42.33 after government data showed that U.S. crude supplies remain ample, suggesting demand for fuel remains weak as the economy sputters.

Matt Simmons, chairman of Simmons & Co., an energy investment bank in Dallas, said that the oil-futures market seems to be returning to a more normal balance after several months in which participants were often forced to sell oil to raise cash to cover losses in other illiquid assets, including credit securities.

But over the longer term, Mr. Simmons’s outlook is more bleak. He said a major oil-supply crunch could develop over the next two years, driven largely by the maturation of existing oilfields that aren’t being replaced by new discoveries. Relatively low prices and the long lead times required to begin new drilling projects also work against rising output, he said.

“When prices were at $150 last year, it wasn’t bringing additional supply online,” he said. “I don’t think it’s going to happen if we’re starting at $45, either.”

The drop in oil helped rallied air carriers and trucking stocks. The Dow Jones Transportation Average climbed 2%.