U.S. stocks mount late-day rally
By Julie Rannazzisi
CBS MarketWatch
Friday October 25, 2:50 pm ET
NEW YORK (CBS.MW) -- Stocks staged an afternoon rally on Friday and were on track to register their third consecutive weekly gain, a feat that hasn't been achieved in almost two months.
Robust gains in the chip and hardware sectors -- with the latter benefiting from a climb in storage stocks after upbeat results from Emulex -- handed the Nasdaq a 2 percent advance. The broader market was also giddy as investors brushed off a brutal warning from Cigna and a couple of unexpectedly weak economic reports.
"People are still willing to buy on dips. A lot of negatives have been built into this market, a lot of difficult news was discounted," said Peter Boockvar, equity strategist at Miller Tabak & Co.
Boockvar believes asset allocation flows have driven and will continue to drive stocks as investors realize they are not being rewarded by putting money into Treasurys.
The Dow Jones Industrial Average (CBOT:^DJI - News) rallied 93 points, or 1.1 percent, to 8,411.
Trekking higher were Intel, Hewlett-Packard, Merck, Microsoft and J.P. Morgan Chase. Topping the list of decliners were shares of SBC Communications, Alcoa, Boeing, General Motors, International Paper and McDonald's.
"People are looking around for reasons but the truth is that we got good news and bad news and the market is volatile today. The economic data [did not offer] new information and the reports that really matter - the employment report and Institute of Supply Management Index -- are due out next Friday," said Hugh Johnson, chief investment officer at First Albany.
"The answer on the economy's recovery prospects remains ambiguous and nobody's in a hurry to assume new positions [ahead o next week's data]," he added.
The Nasdaq Composite (NasdaqSC:^IXIC - News) spiked 25 points higher, or 1.9 percent, to 1,323 and the Nasdaq 100 Index (NasdaqSC:^NDX - News) added 24 points, or 2.5 percent, to 990.
The Standard & Poor's 500 Index (CBOE:^SPX - News) jumped 1.4 percent while the Russell 2000 Index (CBOE:^RUT - News) of small-capitalization stocks gained 0.9 percent.
In sector action, gains were most pronounced in the drug, biotech, financial and retail groups. And most insurance stocks managed gains despite Cigna's tumble following a crippling profit warning. But oil service issues took a drubbing following a steep decline in crude futures.
Volume came in at 974 million on the NYSE and at 1.09 billion on the Nasdaq Stock Market. Advancers took out decliners by 20 to 12 on the NYSE and by 19 to 13 on the Nasdaq.
On the fund flow front, Trim Tabs estimated that all equity funds had outflows of $1.8 billion in the week ending October 16 compared with outflows of $9.7 billion in the prior week. And equity funds that invest primarily in U.S. stocks had outflows of $900 million vs. outflows of $9.3 billion the prior week. Finally, bond funds had inflows of $1.8 billion compared with inflows of $2.2 billion in the prior week.
Inside the day's data
September durable goods orders tumbled 5.9 percent vs. expectations for a 1.8 percent decline. A plunge in civilian aircraft orders was responsible for the steep decline. Excluding transportation orders, in fact, durables fell a much milder 1 percent.
The durables numbers were disappointing since they revealed that the nascent recovery in capital spending stalled last month.
"As long as Iraq overhangs the economy, expect investment to be modest. The real question remains consumer spending. If that keeps up, the economy can get past the soft investment activity. The Fed will not act until it sees that consumption is also tanking and right now, that does not seem to be the case," said Joel Naroff, chief economist at Naroff Economic Advisors.
In other news, the final reading on the October University of Michigan consumer sentiment index improved to 80.6 from a preliminary estimate of 80.4. But the reading was well below September's level and under the 81.2 projected by economists. It's also the lowest showing in almost a decade. See story.
Economists said it was disappointing to see that sentiment did not respond to an improvement in stocks.
"The rebound in the stock market and the reopening of West Coast ports appeared to have only a limited positive impact on attitudes. Instead, the looming Iraq situation and a perception of a deteriorating jobs outlook must have continued to generate consumer worries," said RBS Greenwich Capital economist Steve Stanley. Â
But the housing market continues to power ahead, as two separate reports signaled.
September new home sales rose 0.4 percent to a 1.02 million rate, higher than the expected 986,000 level. And September existing home sales rose 1.9 percent to a 5.40 million annual rate, ahead of the 5.37 million pace that had been expected by economists. Check story and see economic calendar and forecasts.
Cigna whacked; Lockheed, Ford fall
Insurance stocks came under pressure after Cigna (NYSE:CI - News) issued a brutal warning late Thursday, signaling that third-quarter and full-year earnings would significantly miss expectations. The lowered expectations stemmed from weaker-than-expected results in the company's employee health care, life and disability segment. And on Friday, Cigna disclosed that 2003 earnings would also fall short of expectations. The stock cratered 37 percent after being halted briefly.
Banc of America Securities downgraded Cigna to a "market performer" rating from a "buy" following its warning. The firm cited Cigna's low earnings visibility, "negligible and possibly negative" enrollment growth, and the uncertainty regarding its healthcare and reinsurance operations. And Merrill Lynch lowered its rating to a "sell" from a "neutral," telling clients that it does not think the stock should be held in light of these developments.
In the meantime, CIBC World Markets upped Aetna (NYSE:AET - News) to a "sector outperformer" rating from a "sector performer" on belief that Cigna's issues are company-specific and not a sign of an industry trend. Still, Aetna lost 0.7 percent. Among other stocks in the group, WellPoint Health Networks added 0.5 percent while UnitedHealth Group eased 1.2 percent.
Household International (NYSE:HI - News) jumped 5.5 percent, erasing earlier declines that came after the company announced the issuance of 18.7 million in new common shares, with net proceeds of $400 million, and issuance of mandatory units with net proceeds of about $500 million.
Defense company Lockheed Martin (NYSE:LMT - News) lost 5.9 percent after reporting a third-quarter profit that marginally surpassed analysts' expectations. The company said 2002 sales are now expected to be about $26 billion vs. the prior range of $25.4 billion to $26.0 billion and backed its 2003 sales expectations. Read story.
Shares of automakers declined as they digested another credit downgrade in the group.
Standard & Poor's lowered its long-term ratings on both Ford Motor (NYSE:F - News) and Ford Motor Credit Co. to reflect concerns about the adequacy of restructuring measures being implemented by the automaker. The rating agency also noted that Ford's financial leverage has increased as a result of growth in its unfunded pension liability. Ford shares fell 3.4 percent in recent trades while Dow component General Motors lost 2.2 percent. See related story.
Starbucks (NasdaqNM:SBUX - News) piled on 3.5 percent after boosting its earnings target for its fourth quarter and telling investors it's on track to reach the high end of its goals in 2003. See story.
Amazon backpedals, Verizon slides and chips rally
Internet stocks backpedaled following Thursday's rally. Amazon.com (NasdaqNM:AMZN - News) , for one, fell 3.9 percent after reporting late Thursday much better-than-expected third-quarter results. The online retailer also upped its fourth-quarter sales target. Analyst downgrades from Prudential, RBC Capital Markets and US Bancorp Piper Jaffray hit Amazon. See story.
Among other companies in the sector, AOL Time Warner fell 0.7 percent after surging Thursday following its profit report while Yahoo retreated by 1 percent.
In other earnings news, Verizon Communications (NYSE:VZ - News) fell 3.1 percent after posting a third-quarter profit, excluding onetime items, that was right in line with the consensus expectation. Verizon also backed its 2002 targets but added that it might slice capital spending further. Dow component SBC Communications eased 4.9 percent and Sprint declined 2.8 percent.
A rally in storage issues boosted the hardware sector. The move was enabled by Emulex's (NYSE:ELX - News) 24.4 percent surge. The company posted late Thursday a fiscal first-quarter profit that cruised past Wall Street's estimate. Additionally, Emulex upped its second-quarter profit target. Shares were upped by Deutsche Bank Securities. See story. Checking other stocks in the group, QLogic advanced 3.2 percent and Broacde Communications swelled 7.6 percent.
Chip and chip equipment stocks rallied, shrugging off a negative call from UBS Warburg. Group leader Intel, up over 4 percent, was among the Dow's biggest advancers.
Warburg reduced its 2002 chip shipment estimate to reflect the lack of near-term recovery in the end markets and declining semiconductor capacity utilization. The firm noted that the continued slowdown in end market demand has pushed out its recovery projections to the second half of 2003 at the earliest.
As part of the call, Warburg cut it ratings on Cypress Semi (NYSE:CY - News) and National Semi (NYSE:NSM - News) . Cypress rose 3 percent and National Semi 0.1 percent.
Warburg also slashed ratings on the following equipment stocks, based on price: Applied Materials (NasdaqNM:AMAT - News) , KLA-Tencor (NasdaqNM:KLAC - News) , Novellus Systems (NasdaqNM:NVLS - News) , Varian Semi (NasdaqNM:VSEA - News) and Photronics (NasdaqNM:PLAB - News) .
"We are downgrading these stocks solely on the basis of valuation [as] many of our stocks have reached, or are approaching our 12-month target prices. We are not signalling a fundamental problem related to strategy or execution within the group," Warburg told clients in a research note. Among the mentioned names, Varian jumped 8.3 percent, AMAT 4.8 percent and KLA 3.6 percent.
Security software firm VeriSign (NasdaqNM:VRSN - News) charged 8 percent higher after the company reported late Thursday a third-quarter profit, excluding charges, that was in line with the Wall Street consensus estimate. SG Cowen called the quarter "solid" but said a turn still seems "several quarters away." Among other stocks in the group, Check Point rose 3.1 percent and Entrust added 5.3 percent.
In the broader software market, BMC Software (NYSE:BMC - News) was hit with a 4.1 percent loss even after checking in late Thursday with a better-than-expected fiscal second quarter profit. Downgrades from Merrill Lynch and Deutsche Bank followed. Merrill expressed disappointment with the company's second-quarter sales.
JDS Uniphase (NasdaqNM:JDSU - News) slid over 8 percent after lowering its fiscal second-quarter sales projections and indicating that further jobs cuts were expected. For its fiscal first-quarter, the company reported late Thursday a loss-per-share that was in line with Wall Street's view. Both UBS Warburg and CIBC World Markets lowered their view on the stock.
Check Movers & Shakers for the latest individual stock news.
Treasurys trek higher
Government bonds traded mostly higher, with intermediate maturities witnessing the best buying interest while the 30-year bond fell behind.
The 10-year Treasury note added 6/32 to yield (CBOE:^TNX - News) 4.095 percent while the 30-year government bond inched up 1/32 to yield (CBOE:^TYX - News) 5.085 percent.
In the currency sector, the dollar was lower vs. its major rivals, weakening 0.2 percent to 124.16 yen while the euro rose 0.1 percent to 97.81 cents. |
