Stocks Climb, Led by Banks; Intel Slides
Stocks rallied across the board Thursday after some positive economic news, a draft document showing plans for a wide-ranging response to the euro zone debt crisis, in addition to a handful of positive earnings news.
The Dow Jones Industrial Average gained at the open led by Cisco and Disney , after ending lower in the previous session. The Dow is approximately 100 points away from the year's intraday high.
Meanwhile, Intel was the only decliner on the blue-chip index.
The S&P 500 and the tech-heavy Nasdaq also opened higher. The CBOE Volatility Index, widely considered the best gauge of fear in the market, tumbled below 18.
All 10 key S&P sectors were higher, led by financials and energy.
Europe is willing to let Greece default under a crisis response that would involve a bond buyback, a debt swap but no new tax on banks, EU sources said as euro zone leaders began a crucial emergency summit.
The euro zone bailout fund, the EFSF, will provide loans to Greece, Ireland and Portugal at a lower interest rate and for longer maturities, according to draft document.
Loans from the European Financial Stability Facility will be extended from 7.5 years to at least 15 years and the interest rate will be lowered from around 4.5 percent currently, in the case of reece and Portugal, to around 3.5 percent, the draft document said.
The euro rose to a two-week high against the U.S. dollaras optimism surrounding a euro zone debt deal prompted short covering.
European banks including Barclays , Deutsche Bank and Banco Santander rallied sharply following the news.
“I'm negative on Europe—You have countries that have the biggest problems being subject to shrink monetary policy at a time they need more growth, so it’s a recipe for disaster,” according to Richard Campagna, managing director of 300 North Capital. “The ECB at some point has to do what the Fed did and add more liquidity, but they’re not doing that until there’s a bigger crisis.”
“What’s more likely is that you get another periodic blowups, or mini crises, every few months,” he added. “And this time, it’s going to center on Italy and Spain.”
Campagna said the market is going through a "mid-cycle slowdown."
"In the environment where the economy is slowing globally and where you have unresolved issues in U.S. and Europe, it’s only a matter of time before we see another one of these fear-induced crises that will take the markets back down," he said. "We’ve been in a trading range—1,250 to 1,350 [on the S&P]. We may rally to a new high, but at the same time, we could see that 1,250-level again sometime this fall."
On the earnings front, AT&T gained after the telecom company posted a higher-than-expected revenue increase, as customer growth improved even as the firm lost exclusive U.S. rights to sell Apple's iPhone.
Morgan Stanley also rose after the financial giant reported a loss that was smaller than forecastsand revenue that beat expectations.
The banking sector led the market for a second session, with firms such as Citigroup and BofA up more than 2 percent each.
Nokia advanced after the world's largest phone maker posted a better-than-expected quarterly profitafter it was able to settle a patent dispute with Apple.
Meanwhile, PepsiCo tumbled even after the beverage giant reported higher earnings, thanks to an increase in the firm's snack sales and its acquisition of a Russian beverage company.
And Travelers swung to a loss, as the property insurer suffered more than $1 billion in catastrophe losses because of record-breaking tornadoes in April and May.
On the tech front, Intel slipped after the Dow component lowered its outlook for the PC market, even after the firm posted earnings and revenue that topped estimates on Wednesday afternoon. Meanwhile, analysts were mixed on the stock—Nomura reduced its price target from $23 to $18, while Barclays raised its price target to $26 from $25.
Shares of hard-drive maker Seagate Technology plunged sharply after Seagate's dismal report, which included a disappointing outlook. Rival Western Digital also tumbled.
Microsoft, AMD and Western Digital are slated to report earnings after-the-bell tonight.
On the M&A front, Express Scriptsagreed to buyrival Medco Health Solutions for $29.1 billion, combining two of the largest U.S. pharmacy benefit managers.
On the economic front, factory activity in the U.S. Mid-Atlantic region bounced back in July, but still remained at a weak level. The Philly Fed said its business activity index rose to 3.2 from minus 7.7 in the prior month, topping expectations for 2.0, according to a Reuters poll.
Meanwhile, the Conference Board said leading economic indicator index rose 0.3 percent in June, suggesting that the recent slowdown in growth won't worsen into a recession over the next few months.
Investors seemed to largely shrug off a disappointing weekly jobless claims, which rose more than expected last week, according to the Labor Department, pointing to a employment market that is struggling to regain momentum.
Initial claims for unemployment benefits increased 10,000 to a seasonally adjusted 418,000. Economists polled by Reuters had forecast claims rising to 410,000. The prior weeks figure was revised up to 408,000 from the previously reported 405,000.
President Barack Obama and top lawmakers face growing pressure to find an agreement on raising the US debt ceiling.
Charles Plosser, president of the Philadelphia Federal Reserve Bank, told Reuters in an interview Wedneday that the US central bank has for the past few months been working closely with Treasury to decide what to do if the world's biggest economy runs out of cash on August 2.
European shares advancedafter a draft document showed plans for a wide-ranging response to the sovereign debt crisis at a meeting of euro zone leaders.
Coming Up This Week:
THURSDAY: Money supply; Earnings from Mircrosoft, AMD and SanDisk
FRIDAY: No major econ. news expected; Earnings from Caterpillar, GE, McDonald's, Schlumberger, Verizon, Honeywell
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