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Stocks Turn Positive; Telecom Falls; CAT Rises

CNBC.com
Thursday, 27 Jan 2011 | 12:46 PM ET

Stocks turned slightly positive in the wake of mixed economic and earnings news, after the major indices hit psychologically important benchmarks earlier in the session.

The Dow Jones Industrial Average rose a handful of points after closing just shy of 12,000on Wednesday. The last time the Dow closed above 12,000 was June 19, 2008.

Home Depot and United Technologies led blue-chips higher, while AT&T and P&G fell.

The S&P 500 traded flat after touching 1,300 earlier. The last time the broad market index closed above that level was Aug. 28, 2008. The Nasdaq also rose slightly. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 16.

Among key S&P 500 sectors, consumer discretionary, industrials and financials gained, while telecom and consumerstaples fell.

The dollar traded flat against a basket of currencies, while gold prices slumped to a three-month low.

The market seemed to stall as it hit the major thresholds, but a sell-off doesn't appear to be in the offing.

"There are some signs the market may be ready for a pause or a brief pullback in the next few weeks, this can also be causing some hesitation among buyers who are a little bit nervous after the significant runup over the last few months," says Michael Sheldon, chief market strategist at RDM Financial Group.

But Sheldon adds, "generally speaking, the environment remains positive. Any pullback that we see will mostly be short term in nature."

The earnings from Caterpillar, which serves as both an economic bellwether and a major weight on the Dow 30 in terms of market capitalization, helped give the day a positive tone. The company's profit of $1.47 a share easily beat analyst estimates.

The market gained on Wednesday following the Fed's decision to maintain its $600 billion bond-buying plan. The Fed said the economy is improving, but not enough.

AT&T and Procter & Gamble were pressured after AT&T's reported profits that narrowly beat estimates, while P&G reported earnings that beat expectations, but were hurt by rising commodity costs.

Colgate-Palmolive also sank after reporting earnings that fell short of expectations, due to higher promotion costs and lower sales.

Several tech companies released earnings after the market closed Wednesday, including Netflix , which surprised with a surge in quarterly profits and an upbeat outlook for the current quarter. Shares of the entertainment distribution company soared. At least half a dozen brokerages raised their price targets for Netflix, with Cannacord Genuity striking the highest target of $250 a share. Another four brokerages raised their ratings for the stock.

Motorola Mobility Holdings fell, however, after warning it would revert to a loss in the current quarter because of competition from Apple's iPhone, after posting a profit in the fourth quarter. This was the wireless company's first earnings release as a separate company.

Starbucks also reported results after the market closed Wednesday,and was slightly higher Thursday.

The world's largest coffee chain said it expects rising coffee prices to hit profits more than it previously thought. The news sent shares lower even though earnings came in above analyst forecasts.

Earnings reports from Microsoft and Amazon.com were scheduled for release after the closing bell.

In U.S. economic news, pending home sales rose 2 percent in December, which was more than expected, the National Association of Realtors reported Thursday. The trade group's pending home sales index rose to 93.7 from a downwardly revised 91.9 in November. Economists surveyed by Reuters expected the index to rise 1.0 percent.

Jobless claims soared 51,000 to 454,000, according to the Labor Department. That's far more than the slight rise to 405,000 expected by economists surveyed by Reuters. Claims from the week before were revised slightly lower to 403,000 from 404,000.

The surprising jump was likely due to the relentless snowfall in various parts of the country, which, among other things, slowed down the processing of claims, the government said. The less volatile four-week moving average of initial claims rose 15,750 to 428,750 last week.

Meanwhile, durable goods fell 2.5 percent, the Commerce Department reported. That was far worse than the 1.5 percent rise expected by economists surveyed by Reuters. When volatile transportation orders were stripped out, durable goods orders rose 0.5 percent, although this was also less than expected.

Investors were also concerned about Standard & Poor's decision to cut Japan's credit rating, as it points to potential weakness in the finances of developed economies.

Stronger-than expected new-home sales in the U.S. and President Barack Obama's call for lower corporate taxes also boosted the Dow 30, which breached 12,000 for the first time in almost three years during Wednesday's session. The index failed to close above that psychologically important threshold, however.

On Thursday, monetary policy will remain in focus as U.S. Treasury Secretary Timothy Geithner traveled to the World Economic Forum’s annual gathering in Davos where he was due to meet European Central Bank President Jean-Claude Trichet.

Geithner told the Wall Street Journal that he will reassure the global movers and shakers there that the U.S. has the political will and capacity to address its fiscal deficit and deliver on the program President Barack Obama outlined in his State of the Union address Wednesday.

Davos 2011 - See Complete Coverage
Davos 2011 - See Complete Coverage

Trichet told CNBC in Davoslate on Wednesday that solving the euro zone crisis was “a work in progress” and repeated his call for the euro zone's rescue fund to be extended and made more flexible.

Investors are watching several key economic reports on Thursday, including weekly jobless claims—expected to rise to 410,000 for initial claims—and durable goods, both at 8:30 a.m.

On the Calendar This Week:

THURSDAY: Seven-year Treasury note auction, money supply; after-the-bell earnings from Microsoft.
FRIDAY: GDP (first reading), consumer sentiment; NBCU/Comcast deal closes; before-the-bell earnings from Chevron and Honeywell.

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