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Stocks Rise As Investors Await Fed Meeting

Published: Monday, 9 Aug 2010 | 3:35 PM ET

Text Size

By: Abby Schultz
Special to CNBC.com

Stocks gained Monday as investors continued to find reasons to support the market, although trading was light as most investors awaited news from the Federal Reserve's meeting on Tuesday.

Major U.S. Indexes

.DJIA

.NCOMP

.SPX

The Dow Jones Industrial Average rose more than 40 points after trading up more than 60 earlier. Most of the day the blue-chip index stuck to a fairly narrow trading range, led by Cisco [CSCO Loading... () ], McDonald's [MCD Loading... () ]and IBM [IBM Loading... () ].

Shares of Dow component Hewlett-Packard [HPQ Loading... () ] tumbled following former CEO Mark Hurd's resignation late Friday, which occured after an investigation found he had falsified expense reports to conceal a relationship with a female contractor. HP fell more than 7 percent Monday.

The S&P 500 and Nasdaq were also higher. The CBOE volatility index, widely considered the best gauge of fear in the market, rose above 22.

Verizon [VZ Loading... () ] rose as the company held a joint press conference with

Google [GOOG Loading... () ] to discuss new Internet traffic rules.

Trading volume was light ahead of the Federal Reserve's meeting Tuesday. Many expect the Fed to keep rates near zero for "an extended period. "

Investors are wondering if Fed officials are more concerned about a recovery or an economy is heading toward deflation and slower growth. A sign of Fed's leanings will be if officials decide to renew purchases of mortgages and Treasurys.

The central bank is expected to release a statement at 2:15 p.m. on Tuesday.

"The problem today is is there isn’t any significant news to latch on to," said Bruce McCain, chief investment strategist at Key Private Bank.

McCain believes the Federal Reserve is likely to "re-up" its efforts at quantitative easing by redeploying cash from maturing mortgage-backed securities into purchases of Treasurys and mortgage securities. If the Fed takes this action, markets will be reassured, he said.

"It simply gives us a policy indication that they recognize the weakness they’ve been talking about and are providing a little bit of extra support for the economy when it may be needed," McCain said.

McDonald's reported same-store sales globally rose 7 percent and were up 5.7 percent in the US after strong sales for new drink products helped increase business. McDonald's results boded well for consumer stocks, which were slightly higher overall.

Banks were trailing with JPMorgan Chase [JPM Loading... () ] and Bank of America [BAC Loading... () ] among those leading financials lower.

FOR INVESTORS:

Goldman Sachs [GS Loading... () ] rose slightly after reporting it had $100 million in trading losses in three days in the second quarter. The investment firm had 10 days of trading losses in all, although its trading operations were mostly profitable in the period. Morgan Stanley [MS Loading... () ] reported 11 days of trading losses in the second quarter.

As second quarter earnings season nears a close, Goldman Sachs issued a report saying a weak U.S. economic forecast has prompted the firm to raise its 2010 EPS estimate for the S&P 500 to $81 from $78, but to lower its 2011 EPS estimate to $89 from $93.

Goldman also lowered its 2010 forecast for the S&P 500 index to 1200 from 1250. The firm's 12-month target for the S&P is 1250, about 11 percent higher than today.

Home builders rose as investors grew more comfortable that record-low interest rates would help the industry through a slow recovery. In another piece of incrementally good news, Zillow.com said Monday that fewer homeowners owed more than their homes were worth—commonly referred to as being "underwater" on a mortgage. KB Home [KBH Loading... () ] and D.R. Horton [DHI Loading... () ] rose more than 4 percent.

Freddie Mac [FMCC Loading... () ] meanwhile, was down more than 5 percent after posting a large loss for the second quarter. The company is requesting $1.8 billion in additional federal aid.

Sara Lee [SLE Loading... () ] was down modestly after the company announced Chairman and CEO Brenda Barnes is stepping down following a stroke. CFO Marcel Smits, who has been handling the CEO duties since Barnes took a medical leave in May, will continue in that role until a new CEO is named.

Apple [AAPL Loading... () ] was slightly higher after news that a company executive in charge of iPhone engineering, left the firm weeks after complaints of poor reception on the company's latest smartphone.

Research in Motion [RIMM Loading... () ] rose after a Saudi official said on Sunday that the BlackBerry maker and Saudi mobile firms were testing three servers to send communications and data through Saudi Arabia before Canada to address Riyadh's concerns over security. The Gulf state of Oman said Monday it has no plans to bar Blackberry service.

Tyson Foods [TSN Loading... () ] said its profit nearly doubled to 65 cents a share, ahead of Wall Street estimates, but its shares fell after Goldman Sachs issued a "conviction sell" for the company.

The dollar rose against major currencies Monday ahead of the Fed meeting.

On Tap This Week:

TUESDAY: FOMC meeting, NFIB Small Business Optimism Index, Wholesale Trade data, Treasury 3-year note auction; Earnings after the bell the bell from Disney
WEDNESDAY: MBA purchase applications, international trade data, oil inventories; 10-year note auction; Earnings before the bell from Macy's and after the bell from Cisco
THURSDAY: Dell's annual meeting, jobless claims, import and export prices, 30-year bond auction; Earnings before the bell from Kohl's and after the bell from Nordstrom and Nvidia FRIDAY: CPI, retail sales, consumer sentiment, business inventories; Earnings before the bell from JC Penney

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