Stocks Eke Out Gain; Citi Jumps, Cisco Skids
Stocks eked out a modest gain Tuesday as this one-year anniversary of the March 2009 lows brought a mix of profit-taking and optimism.
The Dow Jones Industrial Average gained 11.86, or 0.1 percent, to close at 10,564.38. The S&P 500 added 0.2 percent, while the Nasdaq gained 0.4 percent.
It's hard to believe, this time last year, the Dow was at 6,547.
Traders had expected some profit-taking today — even on stocks with good news — given how far the market has come in a year. Since March 9, 2009, the Dow is up 59 percent, the S&P rose 67 percent and the NASDAQ gained more than 80 percent.
For those keeping score, the best S&P performers since the March lows are: Genworth Financial (+1830%), Office Depot (+1030%), Fifth Third (+875%), Wyndham Worldwide (719%) and Gannett (+634%).
On the Dow, the best performers were Bank of America (+346%), American Express (+273%) and JPMorgan (+168%).
The Dow is now near the top of its recent range, 10,000 to 10,500, causing further concern that traders might take a breather. But some market pros said there's still further to go.
"We think we can go higher," Patrick Becker of Becker Capital Management said on CNBC this morning. But, he added, the biggest problem a lot of investors have is: "Where do they go?" he asked.
Becker said he thinks stocks still look good for another couple of years, particularly select dividend-paying stocks. His picks include Microsoft, Intel, Electronic Arts and Symantec.
Alec Young, an equity strategist at Standard & Poor's said he also likes tech, as well as industrials — areas that have the most potential for improving profits.
Young says they're advising clients to stay away from defensive plays like consumer staples, telecom and utilities — "areas that just don't have a lot of earnings leverage in an improving economy," he explained.
The key in the next year is going to be financials, which are going to have to deliver some solid earnings. The sector now accounts for 16.5 percent of S&P earnings, more than double what it was a year ago.
In today's market action, financials made a comeback, notably the ones bailed out by the government. Citigroup surged over 7 percent. AIG , Fannie Mae and Freddie Mac also rose sharply amid speculation that the government may be planning to restrict short sales on the companies it's bailed out and currently owns stock in.
Plus, there's buzz that the government wants to sell its 27-percent stake in Citigroup, that Citi is floating a big preferred-stock offering tonight and that Barclays is shopping around for a U.S. bank.Options action on Citi was heavy.
Some traders suggested it was merely speculation — playing the beaten-down stocks.
"People are not investing in Citigroup," said Todd Schoenberger, managing director at LandColt Trading. "When you have a stock as low as it is — it's gambling," he said, adding that there's nothing technical in the charts to warrant such a move.
Alcoa and Merck were among the biggest drags on the Dow.
Cisco slipped after the company announced a router than can handle 12 times the Internet trafficof the fastest router currently on the market. To put that in perspective, Cisco said the router could deliver every movie ever made in four minutes. The stock had been at the top of the Dow pack prior to the announcement.
The company was also expected to launch tools that will allow network-service providers to build their own high-speed networks.
Cisco seems to be taking a page out of Apple's playbook, building hype in advance of the announcement, which was online — not televised. The company said yesterday that it's announcement will "forever change the Internet and its impact on consumers, businesses and government."
Texas Instruments shares fell 2 percent, and much of the chip sector was also lower, after the company late Monday raised the low end of its forecastamid strong chip demand but still managed to disappoint investors, who wanted more.
Merck and Sanofi Aventis have agreed to a joint venture to develop animal health products. The equally split joint venture is expected to be the lead the $19 billion industry in market share.
Insurers took a hit on Monday after President Obama's tough talk on health-care reform but Aetna managed to end flat today after Bank of America-Merrill Lynch upgraded the stock to "neutral" from "underperform," saying it was "positioned for favorable development."
Airline stocks rallied today as several major U.S. carriers said they would continue to look for more ways to raise fees and cut costs. Plus, several airlines, including United and US Air, have said in recent days that business travel is picking up. American parent AMR jumped more than 9 percent, while United gained 3.7 percent.
Some interesting commentary out of the Fed today: Chicago Fed President Charles Evans said policy makers may be coming to terms with higher unemploymentin the future.
A jobless rate of about 4.75 percent had been their benchmark for full employment but this recession may have pushed that mark to 5.25 percent, Evans said. He is an alternate this year but will be a voting member of the FOMC next year.
Illustrating that point: A report by temporary-hiring firm Manpower showed that the outlook for U.S. hiring is dipping in the coming quarter, casting a shadow over hopes for a recovery in jobs.
Today's three-year Treasury auction was met with decent demand: The high yield was 1.47 percent and the bid-to-cover ratio was 3.13.
In Greece, Prime Minister George Papandreou isscheduled to meet President Barack Obama and he is likely to press the U.S. to regulate hedge fund which Greece says had an important role in its debt problems.
Fitch issued a report about sovereign ratings in Europe in which it warned that Britain's credit profile has deteriorated, pushing the pound to a 1-week low against the dollar.
China's chief currency regulator reiterated the country's commitment to U.S. Treasurys for its foreign-exchange reserves, adding that China is not into short-term currency market speculation. He also said that it was "impossible" for gold to become a major investment channel for the country's foreign exchange reserves.
Volume was just shy of last year's daily average at 9.24 billion shares for the three major exchanges but a significant improvement from the past few weeks when daily trading was a good two billion below last year's average. Advancers outpaced decliners on the Big Board, roughly 4 to 3.
Still to Come:
WEDNESDAY: Obama health-care speech; weekly mortgage apps; wholesale trade; state unemployment rates; Google hearing; weekly crude inventories; 10-year auction; earnings from American-Eagle Outfitters
THURSDAY: $2B California bond sale; international trade; weekly jobless claims; 30-year auction; earnings from Nat Semi, Aeropostale
FRIDAY: Gov'ts retail-sales report; consumer sentiment; business inventories; earnings from Ann Taylor
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