News Article
BusinessWeek.com
June 21, 2006
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Stocks Rally on Earnings News

Higher profits at Morgan Stanley and FedEx boosted sentiment as investors hunted for bargains

Stocks rallied Wednesday, boosted by solid earnings reports. Upbeat comments about the economy from FedEx (FDX ), which posted firm quarterly results, calmed recent fears that economic growth is slowing too quickly, says Standard & Poor's Equity Research. Morgan Stanley (MS ) also announced strong numbers, lifting sentiment.

On Wednesday, the Dow Jones industrial average rose 104.62 points, or 0.95%, to 11,079.64, paced by Hewlett-Packard (HPQ ), DuPont (DD ) and Caterpillar (CAT ). The broader Standard & Poor's 500 index added 12.08 points, or 0.97%, to 1,252.2. The tech-heavy Nasdaq composite climbed 34.14 points, or 1.62%, to 2,141.2.

Trading volume was higher Wednesday. Price strength on the session likely reflected some bargain hunting, notes S&P.

Market players are keeping an eye on commodities prices, as well as corporate earnings, some analysts say. "If the sell-off in commodities continues, I think we're going to see more of a sell-off in the global markets," says Quincy Krosby, chief investment strategist at The Hartford. "Obviously, we're all getting ready for the Fed meeting, but ultimately the earnings are going to be crucial in this because if you believe that we're in the midst of a global slowdown you're going to have to expect that earnings are going to come in."

Investors had little economic news to go on Wednesday. Reports on leading indicators and durable goods are due later in the week. Neither is likely to affect the outlook for an expected interest-rate hike at the Fed's June 28-29 meeting, says Action Economics.

On the company side, Morgan Stanley was higher after the investment bank said its second-quarter net income more than doubled.

Also in earnings, FedEx was up after the express transporter reported a 27% increase in fourth-quarter profit.

Among other stocks in the news, shares in Ford (F) rose despite reports the automaker said it may fail to meet its goal of returning to profit in North America by 2008, citing falling sales of sport-utility vehicles.

Chipmaker Texas Instruments (TXN) was modestly higher following a report that Moody's raised its rating on company's long-term debt to A1 from A2, citing more predictable profitability.

In broker calls, J.P. Morgan Chase (JPM ) was higher despite an analyst downgrade. Prudential lowered the stock from overweight to neutral weight and trimmed its price target from $51 to $45.

In the energy markets Wednesday, August West Texas Intermediate crude oil futures climbed to $70.37 a barrel, contributing to bullish stock sentiment since recent weakness in crude has been taken as a sign the energy market was pricing in economic weakness.

European markets finished modestly higher. In London, the Financial Times-Stock Exchange 100 index rose 6.8 points, or 0.12%, to 5,665. Germany's DAX index was up 9.8 points, or 0.18%, to 5,503.41. In Paris, the CAC 40 index edged higher 4.31 points, or 0.09%, to 4,774.73.

Asian markets finished mixed. Japan's Nikkei 225 index edged down 4.15 points, or 4.15%, to 14,644.26. In Hong Kong, the Hang Seng index rose 50.39 points, or 0.32%, to 15,659.36. Korea's Kospi index crept higher 1.36 points, or 0.11%, to 1,227.19.

Treasury Market

Treasuries closed little changed Wednesday, keeping yields stable ahead of the FOMC meeting next week. The 10-year note was unchanged in price at 99-13/32 for a yield of 5.159%, while the 30-year bond ended flat at 89-19/32 for a yield of 5.19%. The Treasury curve remained inverted, with the yield on the 2-year note topping the 10-year by 4 basis points. An inverted yield curve is taken by some forecasters as a sign of impending recession.