U.S. stocks soar following rosy earnings
By Julie Rannazzisi
CBS MarketWatch
Tuesday October 15, 12:00 pm ET
NEW YORK (CBS.MW) -- Frenzied buying took the Dow 3.4 percent higher and dealt the Nasdaq a 4-percent advance, with better-then-expected results from Dow components General Motors, Citigroup and Johnson & Johnson fueling the interest.
All but three of the Dow's 30 components traded higher.
With the exception of gold, all market sectors were awash in green. Tech favorites included chip and hardware stocks while broad market buyers sought out shares in the retail, airline, bank, biotech and auto groups.
With so much earnings gloom priced into the market during the treacherous third-quarter pre-announcement period, strategists believe companies' actual reports will be greeted with a sigh of relief by investors.
"Today, simply making the First Call numbers seems like an awesome achievement and downward guidance appears to be expected, although the degree of the revision seems more important. Hence, simply not generating disastrous results could provide that turning point we have all been striving for," commented Tobias Levkovich, institutional equity strategist at Salomon Smith Barney, told clients in a research note.
In April 2000, by contrast, investors were banking on companies to not just beat expectations but to "blow them away," the strategist noted. He feels that stabilization in the majority of companies' revenue flows -- firms began reporting higher year-over-year profit growth earlier in 2002 -- could provide equity markets with much-needed support.
The Dow Jones Industrial Average (CBOT:^DJI - News) surged 269 points, or 3.4 percent, to 8,146, buoyed by Citigroup, J.P. Morgan Chase, Home Depot, American Express, General Motors and IBM. Only Coca-Cola, McDonald's and Procter & Gamble ticked lower.
The Nasdaq Composite (NasdaqSC:^IXIC - News) soared 49 points, or 4.1 percent, to 1,270 and the Nasdaq 100 Index (NasdaqSC:^NDX - News) jumped 37 points, or 4.2 percent, to 938.
The Standard & Poor's 500 Index (CBOE:^SPX - News) rallied 3.5 percent while the Russell 2000 Index (CBOE:^RUT - News) of small-capitalization stocks piled on 3.3 percent.
Volume totaled 820 million on the NYSE and 906 million on the Nasdaq Stock Market. Market breadth was tremendously positive, with advancers trouncing decliners by 24 to 7 on the NYSE and by 24 to 7 on the Nasdaq.
International equity markets also posted considerable gains, led by Japan's Nikkei Index overnight and by France, Germany and the United Kingdom in Europe. Read Europe Markets.
First Call worried about Q4, Q1 estimate revisions
Thomson First Call said the final growth estimate for third-quarter earnings stands at 5.4 percent, with the earnings compiler projecting final results to come in closer to 7 percent.
"Such bad news has been discounted, that almost anything will qualify as 'good news' from some companies. This is more a near-term story, and [has] nothing to do about the sustainability of earnings into 2003, overly optimistic earnings hopes for next few quarters, or what sort of revenue/cost cutting pressures remain," commented RBS Greenwich Capital's Peter McTeague.
But worries remain about fourth- and first-quarter results.
"Our worry is that, as with many of the second-quarter releases, many of those for the third quarter will contain negative comments about the outlook for the fourth quarter and first quarter of 2003," First Call said in it weekly research report.
The firm feels that "significant further negative pre-announcements" for the fourth quarter are very likely for the capital spending dependent tech and industrial sectors and for consumer spending dependent sectors such as consumer cyclicals, materials, transports and even the consumer staples.
Another cloud hanging over the earnings outlook for 2003, First Call said, is the pension fund problem. "The impact this year of having to top off pension accounts will likely be modest, but it could be significant next year. Most analysts are not factoring the likelihood of this into their earnings estimates for next year."
Biggs: Important bottom but not a new bull
Morgan Stanley's well-known global strategist Barton Biggs believes the rally that began in the U.S. last week has many of the technical characteristics that suggest it "marks an important bottom."
But Biggs said it'll take a "few more days to confirm the market is "out of the woods."
"I suspect the rally could carry further than many think, but I view it as a rebound back toward the middle of the trading range, not the start of a new bull market," he told clients in a research note.
John Roque, senior vice president at Arnhold & S. Bleichroeder, still believes we're in a bear market and does not think the action from last Thursday to date signals that "it's over." He said the market breadth numbers have been good, but still not good enough to encourage him.
"There are still a ton of bad charts that need major repair and don't figure that it will happen in a 'V' bottom scenario. That said, we believe last week's move can extend higher and look for the S&P 500 to work to its 50-day moving average next (currently 876) but don't believe it will work above the 910 level without some consolidation," the strategist said, adding that every rally since October 2000 has seen the S&P move to, or just above, its 50-day moving average.
Roque feels the "best thing" that can happen to stocks is a sideways move as he thinks another sharp leg higher would produce a game of "chasing stocks" -- which he views negatively.
Another strategist feels the market is in the midst of another powerful bear market rally.
"While vigorous bear market rallies have been our forecast for months, one does seem to be forming currently. The economic backdrop still remains challenging and the risks have grown, but that does not restrain our belief that the market can post powerful rally efforts," Levkovich said.
Financials fly after Citi, BAC and Schwab results
A better-than-expected profit from operations from Citigroup, a bellwether among financial stocks, helped to stoke investor interest in the bank sector. The Dow component (NYSE:C - News) managed to best Wall Street's expectations in its third quarter thanks to strength its it consumer business and aggressive cost-cutting efforts. See story. Merrill Lynch analyst Judah Kraushaar said Citi continues to post strong results despite its legal and regulatory issues.
Shares of Citi headed 8.3 percent higher, infusing the entire financial sector with a positive tone. Fellow Dow component J.P. Morgan rose 8 percent ahead of its profit report on Wednesday while American Express surged 8.5 percent.
Bank of America (NYSE:BAC - News) also helped with its 7.6-percent gain after reporting a third-quarter profit that handily surpassed Wall Street's projections. Among the regional banks, Bank One (NYSE:ONE - News) reported an in-line third-quarter profit and saw its shares rise 6.3 percent.
And home mortgage financing titan Fannie Mae (NYSE:FNM - News) cruised past Wall Street's targets in its third quarter while also indicating that 2002 earnings growth would be above the long-term trend. The stock ascended 4 percent. See story.
Among the brokers, Charles Schwab (NYSE:SCH - News) reported an in-line third-quarter profit and said opened 160,000 new accounts in the period, up 3 percent. The stock cruised 8.2 percent higher.
IBM, GM rally aids Dow
Dow stock General Motors (NYSE:GM - News) rallied 5.2 percent after reporting third-quarter earnings that bested the Wall Street consensus estimate. Additionally, the automaker upped its outlook for next year. Rival Ford put on 5.8 percent. Read story.
IBM (NYSE:IBM - News) swelled 6.4 percent ahead of its earnings release Wednesday. SoundView Technology feels the Dow component will top current forecasts and sees business stabilizing in the U.S. and in the Asia/Pacific region, which is helping to offset weakness in Europe. USB Warburg believes Big Blue will meet consensus expectations on flat revenues and that its performance should be "well received by investors and stand out in stark contrast to competitors."
And Microsoft (NasdaqNM:MSFT - News) tacked on 4.2 percent after Goldman Sachs said it expected the software bellwether "to meet or slightly exceed" the broker's earnings and revenue estimates when it reported fiscal first-quarter results on Thursday thanks to strong licensing activity.
Drug behemoth Johnson & Johnson (NYSE:JNJ - News) added 1.8 percent after checking in with a better-than-expected third-quarter profit.
Airline issues took off, propelled by the quarterly results of Delta Air Lines (NYSE:DAL - News) , which tallied a 13-percent gain after posting a much narrower-than-expected third-quarter loss that was also smaller vs. the year-ago period. Among other stocks in the group, Continental flew 4.9 percent and AMR Corp. 11.8 percent.
Among high-profile analyst moves on Tuesday, AOL Time Warner (NYSE:AOL - News) rose 5.3 percent after being upgraded by SoundView Technology Group to an "outperform" rating from a "neutral." The firm said Tuesday's release of AOL's 8.0 version is "accompanied by a new mindset for the AOL unit: profitability and stability."
And Dow component Philip Morris (NYSE:MO - News) sprinted after Goldman Sachs upped the tobacco colossus to its "recommended for purchase" list from a "market outperformer" due to improved valuation and the belief that concerns about U.S. cigarette fundamentals will abate over the next six to 12 months.
Check Movers & Shakers for the latest individual stock action.
Treasurys walloped by stock gains
Government bonds -- which were shuttered in observance of the Columbus Day holiday on Monday -- began the new trading week on an extremely downbeat note, adding to the mammoth losses posted late last week amid a galloping equity market.
The 10-year Treasury note slid 1 7/32 to yield (CBOE:^TNX - News) 3.95 percent while the 30-year government bond plunged 1 20/32 to yield (CBOE:^TYX - News) 4.915 percent.
The yield on a bellwether 10-year note has risen about 11 basis points since the start of the month.
On the data front, businesses inventories fell 0.1 percent in August, the first decline in four months vs. expectations for a 0.1 percent increase, according to economists surveyed by CBS.MarketWatch.com.
The week's main data consists of the September industrial production and capacity utilization figures, the October Philly Fed Index and the September consumer price index.
In the currency sector, the dollar followed stocks higher, rising nicely against its major rivals. The greenback put on 0.3 percent to 124.66 yen while the euro declined 0.5 percent to 98.20 cents. |
