Dow in rally mode; Nasdaq also heads higher
Monday October 21, 1:21 pm ET
By Julie Rannazzisi
CBSMarketWatch
NEW YORK (CBS.MW) -- The Dow sprinted Monday, extending its wining streak to three straight sessions as its financial components rallied. The Nasdaq also joined in the party thanks to aggressive buying in the chip and networking groups.
A rise in Coca-Coca following an upgrade and a rally in McDonald's shares on the back of upbeat analyst remarks also fueled the blue-chip index's advance.
On the sector front, airline, utility, natural gas, consumer and networking stocks led on the upside while drug, oil service and retail issues continued to struggle.
The Dow Jones Industrial Average (CBOT:^DJI - News) rallied 147 points, or 1.8 percent, to 8,468 after falling as much as 92 points.
Topping the list of advancers were J.P. Morgan Chase, Philip Morris, Honeywell, General Motors, Intel, Hewlett-Packard and McDonald's. Losses were clustered only in a handful or so of stocks, including Microsoft, Merck, AT&T, Home Depot and Procter & Gamble.
The Nasdaq Composite (NasdaqSC:^IXIC - News) added 15 points, or 1.2 percent, to 1,3034 and the Nasdaq 100 Index (NasdaqSC:^NDX - News) racked up a gain of 17 points, or 1.8 percent, to 973.
The Standard & Poor's 500 Index (CBOE:^SPX - News) rallied 1.2 percent while the Russell 2000 Index (CBOE:^RUT - News) of small-capitalization stocks inched up 0.8 percent.
Volume came in at 778 million on the NYSE and at 906 million on the Nasdaq Stock Market. Advancers elbowed past decliners by 18 to 13 on the NYSE and by 17 to 13 on the Nasdaq.
Second peak week for earnings kicks off
The second peak week for third-quarter earnings kicked off, with seven Dow components and about one third of S&P 500 companies scheduled to unfurl their results.
"Third-quarter earnings are tracking to slightly negative sequential growth but low double-digit year-over-year growth. The results have not been terrific, but they have reassured some investors bracing for worse," said Prudential's Ed Keon.
Thomson First Call notes that so far, actual third-quarter earnings are running 3.5 percent ahead of analysts' estimates. Over the past eight years, actual earnings for the S&P 500 have beaten final estimates by an average of 2.8 percent.
"The relatively high level of negative pre-announcements for the third quarter undoubtedly included a lot of purposely low-ball guidance that inflated the surprise factor," First Call pointed out.
Thomas Weisel Partners feels the S&P 500's advance will continue to be propelled by leadership stocks that beat expectations. The firm favors the healthcare sector and recommends selectivity within the tech and telecom services sectors.
Merrill Lynch's chief U.S. strategist Richard Bernstein continues to recommend an "underweight" position in the consumer discretionary group on belief that real wage growth -- a major driver of consumer purchasing power -- will continue to slow and perhaps turn negative in the next six to 12 months.
"Retailers most at risk to this slowdown in purchasing power might be those that sell large discretionary items in stores with sizeable square footage. We continue to believe that there may be more risk within the sector than most investors expect," he told clients in a research note.
Morgan Stanley: earnings the focal point
While strategists are focused on whether the lows reached on Oct. 9 marked the bottom for stocks, Morgan Stanley's global strategist Jay Pelosky said zeroing in on earnings is more important.
"In my view the more important point is that one can say with some confidence we have made a low in earnings, which should be supportive of stock prices [both in the U.S. and globally]," Pelosky said.
Additionally, he said rising interest rates suggest economic growth is stabilizing, which is constructive for earnings and thus stocks. The sell-off in bonds and rally in stocks could lead to pension fund re-allocations in favor of equities over the next few months, he surmised.
James Townsend of C.E. Unterberg, Towbin points out that the market's ascent is part of a predictable calendar pattern.
"The market bottom on the last day before companies actually started reporting September-quarter earnings was no coincidence. The deterioration in sentiment immediately preceding reporting season is among the most dependable patterns we have observed. That we are in a period of very unclear fundamental demand as well as much political uncertainty had to contribute to the extensiveness of the sell-off. But the key driver was the calendar," Townsend maintained.
The strategist cautions that the sustainability of the rally hinges on forward-looking commentary by companies and signs of broad economic improvement.
3M turns up; Coke rallies after upgrade
3M (NYSE:MMM - News) added 0.9 percent, reversing early losses, after checking in with an in-line third-quarter profit. Going forward, however, the Dow component acknowledged that there were "no clear signs of improving global economic conditions."
For the full-year, 3M expects earnings, excluding non-recurring items, to fall in the range of $5.22 to $5.27 a share while fourth-quarter earnings are expected to be between $1.25 and $1.30 a share. Thomson First Call currently pegs fourth-quarter earnings at $1.29 a share and 2002 EPS at $5.25 a share.
Amgen shares (NasdaqNM:AMGN - News) backpedaled 0.7 percent after an arbitrator awarded the biotech titan $150 million in damages late Friday related to its attempt to stop a Johnson & Johnson subsidiary from selling its anemia treatment in the U.S. Amgen will post its quarterly results on Wednesday.
Dow company J&J (NYSE:JNJ - News) said it would take a charge of 3 cents a share in the third quarter to reflect the effect of the damage award and saw its stock climb 2.4 percent. SG Cowen noted that the monetary damages of $150 million was far less than the $1.2 billion Amgen was seeking and added that the decision removed a "significant overhang" from J&J.
Fellow Dow component Merck (NYSE:MRK - News) dropped 2.1 percent following a downgrade from UBS Warburg to a "hold" rating from a "buy" on belief the stock is "fully valued" given its recent the run-up. "Merck does not suffer from the inventory and manufacturing issues that plague some of the other pharmaceutical companies but lacks leverage in its pipeline," Warburg told clients.
In analyst actions, Thomas Weisel Partners upped Dow component Coca-Cola (NYSE:KO - News) to a "buy" from an "attractive" on belief the recent sell-off in shares since the company released its third-quarter earnings has created a buying opportunity. Coke shares put on 3.4 percent.
And McDonald's (NYSE:MCD - News) heaped on 3.7 percent after Merrill Lynch told clients that recent discussions with frachisees in the U.S. suggest the fast food giant's recently unveiled value program is "starting to move the needle" despite continued consumer uncertainty. The brokerage added that it expects Mickey D's to match recently lowered earnings expectations when it releases its third-quarter results on Tuesday.
Siebel rallies; TI shares fumble
Software firm Siebel Systems (NasdaqNM:SEBL - News) jumped 4.4 percent after announcing a multiyear technology and marketing agreement with Microsoft. Siebel's stock got pummeled on Friday after releasing its third-quarter results late Thursday.
On its part, Microsoft (NasdaqNM:MSFT - News) shaved 1.6 percent after rallying on Friday. Over the weekend, Microsoft's chief executive told Australia's Nine Network that the company's first-quarter sales surge was likely a one-time event that would not be sustainable, reiterating comments from the firm's chief financial officer late last week. See story.
Shares of Texas Instruments (NYSE:TXN - News) slid 3.4 percent after CS First Boston lowered its 2002 earnings and revenue estimates for the chip company to reflect a challenging near-term outlook and expectations that margins would come under pressure.
Check Movers & Shakers for the latest individual stock news.
Government bonds fumble
Treasury issues resumed their downward trajectory after a one-day reprieve on Friday. Yields on a benchmark 10-year note have risen about 52 basis points since the start of the month.
The 10-year Treasury note slumped 22/32 to yield (CBOE:^TNX - News) 4.195 percent while the 30-year government bond declined 25/32 to yield (CBOE:^TYX - News) 5.11 percent.
In economic news, September leading economic indicators fell by an as-expected 0.2 percent in the fourth straight month of declines. The decline stemmed primarily from the stock market's slide in August.
"These indices reflect the slew of already released data suggesting that the economy essentially stalled [in the] summer. Whether the four-month slide is a harbinger of a renewed contraction in activity, however, remains to be seen given the large role played by the stock market plunge in the decline. There is hope that the leading index will bounce in October, driven primarily by the latest stock price rally and the recent dip in initial employment insurance claims," commented Jade Zelnik, chief economist at RBS Greenwich Capital.
This week's economic calendar is sparse, with September durable good orders, the Fed's Beige Book report on economic conditions, the final reading of the October University of Michigan consumer sentiment index and September new home sales among the highlights.
In the currency sector, the dollar weakened against its major rivals. In recent exchanges, the buck erased 0.7 percent to 124.66 yen while the euro rose 0.2 percent to 97.32 cents. |
