Tuesday, October 3, 2006

At Last, the Dow Hits Its Mark

News Article
October 3, 2006

Business Week Online

At Last, the Dow Hits Its Mark

Investors toasted the blue-chip benchmark's ascent Tuesday, but nagging questions on earnings and the economy remain

Wall Street set another bull-market milestone Tuesday afternoon, as the Dow Jones industrial average reached a new all-time high en route to its best closing level ever. Major stock indexes finished higher as investors weighed a drop in oil prices and a chipmaker's revenue warning.

The Dow Jones industrial average rose 56.99 points, or 0.49%, to 11,727.34, a new all-time closing high, after touching a record intraday high of 11,758.95. The broader Standard & Poor's 500 index added 3.83 points, or 0.29%, to 1,334.11. The tech-heavy Nasdaq composite gained 6.05 points, or 0.27%, to 2,243.65.

The Dow hit its previous intraday peak of 11,750.28 on Jan. 14, 2000, and set a closing high of 11,722.98 the same day. The benchmark had been flirting with record levels since Sept. 28, when it briefly bobbed above its old closing high.

NYSE breadth was only slightly positive, however, with 17 issues advancing for every 16 declining. Nasdaq breadth was 16-14 negative.

The latest blue-chip breakthrough came as investors debated whether the economy is headed for a hard or soft landing (see BusinessWeek.com, 10/3/06, "Is the Economy Headed for a Fall"). A report Friday on payrolls and unemployment could shed some new light on that quandary.

Meanwhile, Kansas City Federal Reserve President Thomas Hoenig was set to speak about the economy after the close. Data releases due Wednesday include August factory orders and the Institute for Supply Management's services index for September.

A steep drop in oil prices prompted lower inflation expectations and raised hopes for consumer spending, some analysts say. "On a very short-term basis, an investor would be encouraged by the fact that oil is breaking down below $60," says Joe Battipaglia, executive vice president and chief investment officer at Ryan Beck. Gold futures were down $21.80 to $581.50, as the precious metal is often seen as a hedge against inflation.

Still, the longer-term outlook remains muddied by concerns over a slowing economy, according to Battipaglia. "There's a big leadership change here from small caps to large caps, from value stocks to growth stocks, and from cyclicals into defensive," he says. "When those transitions occur, the handoff isn't always smooth."

In the energy markets Tuesday, November West Texas Intermediate crude oil futures fell $2.35 to $58.68 a barrel, a seven-month low, ahead of an report Wednesday expected to show a jump in fuel inventories. Energy shares like Exxon Mobil (XOM ) were lower as Merrill Lynch downgraded the sector to underweight.

Among other stocks in focus, Boeing (BA ), Wal-Mart (WMT ), J.P. Morgan (JPM ), and Disney (DIS ) paced the Dow higher. Intel (INTC ) pared gains in the final hour on a report the European Union is considering antitrust charges against the company.

Fellow chipmaker Marvell Technology (MRVL ) weighed on the Nasdaq. Shares of the company fell sharply after Marvell lowered its third-quarter revenue guidance and said it would have to restate past financial results over stock-options accounting issues.

Automakers posted relatively solid September sales results. General Motors (GM ) reported a 3.1% drop in U.S. vehicle sales, while Ford (F ) said sales rose 5.2% from a year earlier. DaimlerChrysler (DCX ) posted a 2.3% sales decline. Toyota (TM ) reported a strong 25% sales increase, offsetting the other automakers' weaker-than-expected totals, says Action Economics.

Elsewhere, Sony (SNE ) was lower amid reports of erratic performance by the electronics maker's hotly anticipated PlayStation 3 video game console.

In earnings news, Pepsi Bottling Group (PBG ) was down after the Pepsico (PEP ) distributor posted a 1% rise in third-quarter earnings, in line with analyst forecasts, and affirmed its full-year guidance.

Drugstore chain Walgreen (WAG ) was higher after the company posted 8.5% higher September same-store sales.

Coffee giant Starbucks (SBUX) was higher as the company began selling warm food in 200 of its New York area stores and introduced new maple-flavored products for its fall menu.

Shares of Pier 1 Imports (PIR) sank after the retailer discontinued its cash dividend, in a move the company said will improve near-term liquidity as it executes a turnaround strategy.

European markets finished modestly lower, but recovered from their worst levels of the session. In London, the Financial Times-Stock Exchange 100 index fell 20.7 points, or 0.35%, to 5,937.1. Germany's DAX index slipped 7.24 points, or 0.12%, to 5,992.22. In Paris, the CAC 40 index lost 23.34 points, or 0.45%, to 5,219.79.

Asian markets ended mixed. Japan's Nikkei 225 index edged down 12.2 points, or 0.08%, to 16,242.09. In Hong Kong, the Hang Seng index gained 63.48 points, or 0.36%, to 17,606.53. In Korea, markets were closed for a holiday after the Kospi index on Monday added 2.81 points, or 0.2%, to 1,374.22.

Treasury Market

Treasury yields drifted higher, with the economic docket quiet ahead of key reports due later in the week. The 10-year note edged down in price to 102-02/32 for a yield of 4.61%, while the 30-year bond inched lower to 96-00/32 for a yield of 4.75%.

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