Tuesday, September 26, 2006

Dow Nears Record as Confidence Climbs

News Article
September 26, 2006

Business Week Online 

Dow Nears Record as Confidence Climbs

A key gauge of consumers' mood came in higher than expected. Lowe's warned on profits and Lennar posted lackluster earnings

Stocks advanced to multi-year highs Tuesday, as investors drew confidence from stronger-than-expected consumer confidence numbers despite a flurry of earnings warnings.

The Dow Jones industrial average rose 93.85 points, or 0.81%, to 11,669.39, a new six-year closing high and within 55 points of its all-time best of 11,722.98, reached Jan. 14, 2000. The broader Standard & Poor's 500 index added 9.97 points, or 0.75%, to 1,336.34, its highest close in five and a half years. The tech-heavy Nasdaq composite gained 9.97 points, or 0.55%, to 2,261.34, hampered by a revenue warning from chipmaker PMC-Sierra (PMCS ). 

NYSE breadth was decidedly positive, with 22 issues advancing for every 12 declining. Nasdaq breadth was 16-14 positive.

Rebounding consumer confidence was in the spotlight Tuesday. Consumer confidence rose to 104.5 in September, from an upwardly revised 100.2 in August. The improvement isn't surprising given recent recent bullish headlines and falling gas prices, says Action Economics.

In other economic data, the Richmond Federal Reserve's manufacturing index rose to 9 in September, from 3 in August. The solid reading came as traders look for data to corroborate the Philadelphia Fed index's recent slump.

The Richmond Fed index number helps offset the worries sparked by the Philly Fed index, some analysts say. "It negates some of the pessimism about the economy perhaps slowing too much," says Peter Cardillo, chief market analyst at SW Bach. "It's also the end of the quarter, so we're seeing willingness on the parts of institutions to take this market higher on window-dressing. That's the combination."

Others say the markets are prematurely pricing in a soft landing for the economy. "I just don't think we have enough data at this point to be pricing in a perfect scenario for 2007," says Steve Sachs, director of trading at Rydex Investments.

Economic reports later in the week could determine whether major indexes can hold their new record levels. Figures on durable goods orders and new homes sales are due Wednesday, followed Thursday by a final reading on second-quarter economic growth.

Oil prices resumed their recent slump following an uptick Monday. In the energy markets, November West Texas Intermediate crude oil futures fell 44 cents to $61.01 a barrel.

Major indexes withstood a new batch of profit warnings. Home-improvement retailer Lowe's (LOW ) cut its full-year earnings outlook, citing a slowing housing industry.

Meanwhile, homebuilder Lennar (LEN ) reported a 39% drop in third-quarter profit and lowering its guidance for the fourth quarter.

Another profit warning came from Pentair (PNR), which makes pool and spa equipment. Shares skidded after the company lowered its third-quarter and full-year earnings estimates.

Elsewhere, General Motors (GM ) was higher on reports that talks on a potential alliance with fellow automakers Renault and Nissan (NSANY ) have been productive.

Health care giant Johnson & Johnson (JNJ ) sued Boston Scientific (BSX ) and Abbott Laboratories (ABT ) for $5.5 billion, claiming the two companies breached Johnson & Johnson's now-scuttled merger deal with Guidant (GDT ).

Department-store shares dipped after Credit Suisse downgraded Kohl's (KSS ), Nordstrom (JWN ), and J.C. Penney (JCP ) from neutral to underperform.

Computer maker Hewlett-Packard (HPQ) also remained in focus as two of its executives and an outside investigator were served subpoenas related to the company's probe into media leaks.

European markets finished higher. In London, the Financial Times-Stock Exchange 100 index rose 75.3 points, or 1.3%, to 5,873.6. Germany's DAX index added 58.97 points, or 1%, to 5,960.63. In Paris, the CAC 40 index was up 73.1 points, or 1.42%, to 5,219.59.

Asian markets ended lower. Japan's Nikkei 225 index lost 76.36 points, or 0.49%, to 15,557.45. In Hong Kong, the Hang Seng index retreated 237.96 points, or 1.36%, to 17,308.08. Korea's Kospi index shed 11.24 points, or 0.83%, to 1,343.97.

Treasury Market

Treasury yields ticked higher after the solid consumer confidence data and hawkish inflation comments from former Fed Chairman Paul Volcker and former New York Fed President Gerald Corrigan. The 10-year note fell in price to 102-09/32 for a yield of 4.58%, while the 30-year bond dropped to 96-22/32 for a yield of 4.71%.


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