Financials Lead Stocks to a Higher Finish
Welcome to late-August trading. Can you feel the breeze blowing in your hair?
Stocks finished higher in feather-light trading Wednesday, boosted by a rise in financials and energy stocks, as well as a better-than-expected durable-goods report.
The Dow Jones Industrial Average gained 89.64 points, or 0.8 percent, to close at 11502.51. The S&P 500 added 0.8 percent, while the Nasdaq rose 0.9 percent. Trading volume on the New York Stock Exchange was about 819 million shares, less than half the daily average.
Traders are watching Tropical Storm Gustav, which is threatening to slam the Gulf Coast by Monday as a Level 3 Hurricane, as well as developments with Fannie Mae and Freddie Mac. But they're also keeping an eye on the election polls.
"It will be interesting to see how the market reacts going into the election," said Tom Schrader, managing director for U.S. equity trading at Stifel Nicolaus Capital Markets. "Will Obama's lead continue to fade or will he drop behind? He's certainly not pro-business, so if those things did happen, the market would react favorably."
Crude oil jumped nearly $2, settling $118.15 a barrel, due to Gustav jitters, as well as dollar weakness and tension between Russia and the West after Russia recognized breakaway regions in Georgia also supported energyprices.
Crude inventories fell by 177,000 barrelsto 305.8 million barrels, the EIA reported. Analysts had expected crude supplies to jump by 1 million barrels.
Energy stocks, which make up a big chunk of the S&P, helped to buoy the market, climbing 1.2 percent. Sunoco and Valero Energy were among the biggest S&P gainers.
Atlanta Fed Presdent Dennis Lockhart offered some comforting words to the market, saying inflation should moderate through the end of the year and into next year.
Durable-goods orders, which are items such as cars and appliances meant to last three years or more, rose a surprising 1.3 percentin July amid strong aircraft sales. However, when you strip out the volatile transportation category, orders rose 0.7 percent, when analysts had expected a drop of 0.5 percent. Nondefense capital goods orders excluding aircraft, seen as a barometer of business spending, jumped 2.6 percent, the sharpest gain since April. That category was expected to drop 0.1 precent.
Boeing advanced 1.7, boosted by the 28-percent jump in aircraft orders in the July durable-goods report.
Financials rose 1.7 percent, helped by the increasing belief that Fannie Mae and Freddie Mac might not need a bailout.
Fannie Mae and Freddie Mac were the biggest gainers on the S&P 500, gaining 15 and 20 percent, respectively, after Merrill Lynch issued a note saying all this bailout talk is premature and that capital depletion at the firms is unlikely for several quarters. Merrill is at least the third big bank to say a bailout isn't inevitable. The sentiment was also echoed by Rep. Barney Frank.
A Treasury spokeswoman batted down market rumors that it would be making any announcement regarding Fannie and Freddie. The buzz was that Treasury Secretary Henry Paulson would announce a rescue package.
U.S. mortgage applications rose for the first time in three weeksas interest rates declined, the Mortgage Bankers Association reported.
Homebuilder stocks also buoyed the S&P, with Hovnanian , KB Home and Lennar all finishing up more than 8 percent.
Goldman Sachs slipped after Morgan Stanley cut its profit forecast for the firm nearly in half, saying it expects a third-quarter profit of just $1.65, compared with the prior view of $3 a share.
Meanwhile, the New York attorney general's office is probing the relationship between Fidelity Investments and Goldman Sachsover the sale of auction-rate securities, a person familiar with the investigation told the Wall Street Journal.
Lehman Brothers continued its rally, rising 5.4 percent. The brokerage has asked three private-equity firms to remain in the bidding for its asset-management division even though it hasn't decided whether or not to sell it yet, the Financial Times reported.
Morgan Stanley slashed its third-quarter estimate for Lehman to a loss of $2.80 a share from its prior view of a profit of eight cents a share.
Citigroup rose 1.6 percent. The firm may consolidate some midtown Manhattan offices and ordered employees to pare expenses such as unnecessary color copies, as the largest bank in the United States struggles to cut costs.
The FDIC reported that the number of problem banks on its watch list rose to 117 in the second quarter from 90 in the first. Combined assets increased to $78 billion from $26 billion, which indicates that there probably isn't a really big bank on the watch list.
The FDIC doesn't name names but CNBC's Jim Cramer does, listing three banks as potential candidates for failure.
Nine U.S. banks have failed so far this year, the latest of which was Kansas-based Columbian Bank and Trust Co. on Friday.
The FDIC itself might have to borrow money from the Treasury to cope with the wave of bank failures, according to a Wall Street Journal report. And, the FDIC would need something to the tune of half a trillion dollars in borrowing authority to do it, said Chris Whalen, managing director of Institutional Risk Analytics.
Elsewhere, Amylin Pharmaceuticals shares plunged 25 percent after several brokerage firms downgraded the stock following news that four more people died taking the company's diabetes drug Byetta, bringing the total to six.
Bristol-Myers Squibb and Pfizer declined after the companies said their apixaban blood-clot medication failed to achieve its primary goal in a late-stage trial and now they no longer plan to apply for marketing approval next year.
Shares of Borders Group shot up more than 19 percent after the bookseller posted a smaller-than-expected loss, helped by tight inventory and cost controls.
J.Crew was a different story: The stock skidded 2.9 percent after the clothing retailer missed its earnings target and slashed its full-year outlookto $1.44 to $1.54 a share from its previous view of $1.70 to $1.75 a share. J.Crew was among the first retailers to notice the slowdown in consumer spending but didn't pare its inventories as well as other retailers to keep pace.
Shares of Talbots shot up 28 percent amid signs of a turnaround at the chain, which sells classic clothing targeted at women over 30. Talbots backed its full-year forecast that was far above Wall Street forecasts and analysts said the chain could be headed for a better second half as it improves its merchandise selection and keeps a tight lid on inventory.
Close-out retailer Big Lots reported its earnings rose 11 percent, beating forecasts, as shoppers scooped up bargains on furniture, food and paper products. The company also raised its full-year forecast. Wedbush raised its price target on Big Lots to $42 from $40 and kept its "strong buy" rating on the stock. Still, the stock fell 4.1 percent.
Dollar Tree shares skidded after the dollar store reported its net income rose 15 percent, in line with expectations, but delivered a forecast that fell short of expectations.
Meanwhile, a jury awarded $100 million in damages to Mattel in a federal copyright lawsuit that pitted the house of Barbie against MGA Entertainment, the maker of the Bratz dolls.
MONDAY-THURSDAY: Democratic National Convention in Denver
THURSDAY: Jobless claims; GDP, corporate profits; natural-gas inventories; Earnings from Sears Holdings, Tiffany and Dell; Barack Obama's acceptance speech
FRIDAY: Personal income and spending; Chicago manuf. report; consumer sentiment; farm prices
WATCHERS: McCain VP announcement
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