News Article
BusinessWeek.com
November 30, 2006
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Stocks End Mixed After Lackluster Data

Weekly jobless claims and October personal spending rose, while Chicago PMI sank. Retailers posted tepid November same-store sales

by Marc Hogan

 

Major stock indexes finished narrowly mixed Thursday, recovering from early lows as climbing oil prices helped boost energy shares. Bargain-hunting, a buy program, and end-of-month portfolio adjustments helped traders look past lackluster retail sales and economic reports suggesting slower economic growth, says Standard & Poor's Equity Research.

On Thursday, the Dow Jones industrial average edged down 4.8 points, or 0.04%, to 12,221.93, rising 1.2% for the month. The broader Standard & Poor's 500 index rose 1.17 points, or 0.08%, to 1,400.65, ending the month up 2.7%. The tech-heavy Nasdaq composite crept lower 0.46 points, or 0.02%, to 2,431.77, a 1.6% monthly gain.

NYSE breadth was slightly positive, with 22 issues advancing for every 19 declining. Nasdaq breadth was 16-13 positive.

Investors faced another busy slate of economic data Thursday, following Wednesday's stronger-than-expected revision to third-quarter gross domestic product. Jobless claims rose 34,000 to 357,000 in the week ended Nov. 25, from an upwardly revised 323,000. Though the numbers are higher than expected, it's probably a seasonal problem related to the Thanksgiving holiday, says Action Economics.

Personal income rose 0.4% in October, and spending edged up 0.2%. The personal consumption expenditures (PCE) deflator dipped 0.2%, while the core PCE index, which excludes food and energy, gained 0.2%. The report was in line with expectations.

The Chicago purchasing manager's index unexpectedly sank to 49.9 for November, from 53.5 in October.

Some analysts continue to expect modest gains from Friday's Institute for Supply Management index of manufacturing activity. "Although the weakness in the Chicago index raises downside risk to tomorrow's ISM manufacturing survey, we note the Philadelphia Fed index, New York Fed Empire State index, and Richmond Fed index all improved in November," says Bear Stearns senior economist Conrad DeQuadros.

The economic docket Friday holds the release of October construction spending, November ISM, and November domestic auto sales. Several Federal Reserve officials, including Fed Chairman Ben Bernanke, are set to speak.

Oil prices built on their recent rebound Thursday, supporting corresponding stocks. In the energy markets, January West Texas Intermediate crude futures rose 67 cents to $63.13 a barrel, a two-month high, extending Wednesday's rally on a bullish inventory report and colder weather forecasts.

Meanwhile, retail were reporting mostly disappointing November same-store sales Thursday. Federated (FD) and Target (TGT) were among retailers beating Wall Street forecasts.

Store operators missing analyst estimates included Abercrombie & Fitch (ANF), AnnTaylor (ANN), Bebe (BEBE), Costco (COST), Gap (GPS), J.C. Penney (JCP), and Pier 1 Imports (PIR).

Retail giant Wal-Mart (WMT), which previously reported an unexpected 0.1% drop in November same-store sales, said it projects same-store sales to be flat to up 1% in December.

Elsewhere, General Motors (GM) was modestly lower amid news dissident investor Kirk Kerkorian was selling 14 million shares in the automaker, cutting his stake more than expected to 4.95%.

Delta Air Lines (DALRQ.PK) posted a narrower loss of $88 million in October. The company, which is operating under bankruptcy protection, faces a hostile bid from U.S. Airways (LCC) reportedly worth $8.5 billion.

Heinz (HNZ) was higher after the ketchup maker reported a 6% drop in second-quarter earnings but raised its outlook for the full fiscal year.

In analyst calls, HSBC cut its recommendation on Merck (MRK) from neutral to underweight. Separately, Bank of America upgraded KB Home (KBH) from cautious to neutral.

European markets finished lower. In London, the FTSE-100 index fell 35.6 points, or 0.59%, to 6,048.8. Germany's DAX index dropped 54.61 points, or 0.86%, to 6,309.19. In Paris, the CAC 40 index slid 53.61 points, or 1%, to 5,327.64.

Asian markets ended higher. In Japan, the Nikkei 225 index gained 198.13 points, or 1.23%, to 16,274.33. In Hong Kong, the Hang Seng index advanced 179.55 points, or 0.96%, to 18,960.48. Korea's Kospi index added 9.66 points, or 0.68%, to 1,432.21.

Treasury Market
 
Treasury yields dipped after the surge in jobless claims and the weak Chicago PMI report. The 10-year note rose in price to 101-09/32 for a yield of 4.46%, while the 30-year bond climbed to 99-00/32 for a yield of 4.56%.

News Article
BusinessWeek.com
November 29, 2006
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Stocks Rise on Solid GDP Data

Third-quarter economic growth was revised up to 2.2%, stronger than expected. Also in focus: new home sales and the Fed's Beige Book

by Marc Hogan

 

Stocks were trading higher early Wednesday afternoon, following a report showing stronger-than-expected economic growth. Major indexes slipped from session highs as oil prices surged. Investors were also awaiting the Federal Reserve's Beige Book report, a day after Fed Chairman Ben Bernanke warned that inflation remains "uncomfortably high."

Near midsession, the Dow Jones industrial average rose 64.81 points, or 0.53%, to 12,201.26. The broader Standard & Poor's 500 index added 9.28 points, or 0.67%, to 1,396. The tech-heavy Nasdaq composite was up 12.16 points, or 0.5%, to 2,424.77.

Investors were sifting through another batch of economic data Wednesday. Third-quarter gross domestic product (GDP) growth was revised up to 2.2%, from 1.6% in the advance report. Economists were expecting a 1.7% growth rate.

Meanwhile, new home sales fell 3.2% to 1.004 million in October, from a downwardly revised 1.037 million. The numbers were close to expectations, says Action Economics.
The Fed's Beige Book was also on tap this session.

Oil prices extended recent gains Wednesday, boosting corresponding shares. In the energy markets, January West Texas Intermediate crude futures rose $1.11 to $62.10 a barrel after a weekly inventory report showed an unexpectedly large decline in supplies.

In corporate news, Pfizer (PFE) was modestly higher after the drugmaker said it plans to slash 2,200 U.S. sales jobs to make up for revenue lost to cheaper generic rivals.

Ford (F) was higher as the automaker said about 38,000 of its hourly production workers have taken buyout or early retirement offers this year.

Jewelery seller Tiffany's (TIF) was higher on a 23% increase in fiscal third-quarter profit, as the company raised its full-year earnings outlook.

Shares of Intel (INTC) gained after the chipmaker won a court ruling throwing out a patent-infringement lawsuit over technology that lets computers communicate without interfering with other processes.

On the M&A front, Novartis (NVS) was higher following a report Nestle may buy the Swiss health products maker's Gerber baby-food unit.

In analyst calls, NYSE Group (NYX) was lower after J.P. Morgan lowered its recommendation on the shares from overweight to neutral, citing valuation.

European markets finished higher. In London, the FTSE-100 index rose 82.12 points, or 1.31%, to 6,084.4. Germany's DAX index added 82.12 points, or 1.31%, to 6,363.8. In Paris, the CAC 40 index climbed 75.01 points, or 1.41%, to 5,381.25.

Asian markets ended higher. In Japan, the Nikkei 225 index rebounded 220.94 points, or 1.39%, to 16,076.2. In Hong Kong, the Hang Seng index gained 141.4 points, or 0.76%, to 18,780.93. Korea's Kospi index gained 11.08 points, or 0.78%, to 1,422.55.

Treasury Market
 
Treasury yields drifted higher following the GDP gain and home sales data. The 10-year note edged down in price to 100-30/32 for a yield of 4.51%, while the 30-year bond crept lower to 98-14/32 for a yield of 4.6%. "It's a battle of wills in Treasuries, with neither buyers nor sellers able to decisively set direction," says Action Economics.

News Article
BusinessWeek.com
November 24, 2006
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Stocks Slip as Dollar Falls

The greenback slid to its weakest level vs. the euro since May 2005. Retailers were also in focus on the Black Friday shopping day

by Marc Hogan

 

Stocks finished modestly lower Friday, recovering from initial lows in a shortened trading session after the Thanksgiving holiday. A decline in the dollar to its weakest level against the euro since May 2005 fanned inflation worries, says Standard & Poor's Equity Research.

On Friday, the Dow Jones industrial average fell 46.78 points, or 0.38%, to 12,280.17. The broader Standard & Poor's 500 index dropped 5.14 points, or 0.37%, to 1,400.95. The tech-heavy Nasdaq composite slipped 5.72 points, or 0.23%, to 2,460.26.

The plunge in the dollar was in focus Friday amid a light calendar for economic and corporate news. The greenback's weakness reflects a hawkish stance from the European Central Bank, uncertainty over U.S. economic growth prospects, and speculation of currency diversification in China, says S&P.

The spotlight was also on retailers on the crucial Black Friday shopping day. Best Buy (BBY) and Wal-Mart (WMT) were among store chains reportedly offering aggressive discounts.

Meanwhile, Sony (SNE) was slightly lower as the electronics manufacturer said it discovered a defect in some of its Cyber-Shot digital cameras. The company offered to repair the cameras for free.

Elsewhere, Advanced Semiconductor Engineering (ASX) was sharply higher after the Taiwan-based chip company said it may get an offer worth $5.64 billion from an investor consortium led by Carlyle Group.

Another semiconductor company, Veeco Instruments (VECO), said CEO Edward Braun plans to move from his current role to position of chairman during 2007.

After a few quiet days, the economic calendar picks up again next week. Key data releases are set to include October existing and new home sales, the Institute for Supply Management's manufacturing index, personal income, durable goods orders, and auto sales. A revised reading on third-quarter economic growth, the Federal Reserve's Beige Book, and Chicago PMI will also be on tap.

In the energy markets, January West Texas Intermediate crude futures rose 55 cents to $59.79 barrel.
European markets finished lower. In London, the FTSE-100 index fell 11.9 points, or 0.19%, to 6,128.1. Germany's DAX index dropped 63.29 points, or 0.98%, to 6,411.96. In Paris, the CAC 40 index was down 35.4 points, or 0.65%, to 5,389.46.

Asian markets ended mixed. In Japan, the Nikkei 225 index slid 179.63 points, or 1.13%, to 15,734.6. In Hong Kong, the Hang Seng index edged down 5.02 points, or 0.03%, to 19,260.3. Korea's Kospi index advanced 2.5 points, or 0.18%, to 1,421.73.

Treasury Market
 
Treasury yields ticked lower ahead of a shortened session with little on the docket. The 10-year note rose in price to 100-20/32 for a yield of 4.55%, while the 30-year bond climbed to 97-30/32 for a yield of 4.63%.

News Article
BusinessWeek.com
November 22, 2006
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Stocks Drift Higher Ahead of Holiday

Dell's third-quarter profit topped forecasts, but reports on consumer sentiment and jobless claims missed expectations. Also in focus: GM, Alcoa

by Marc Hogan

 

Major stock indexes finished modestly higher in slow trading Wednesday, as investors digested solid Dell (DELL) earnings and a pair of weaker-than-expected economic reports. The market will be closed Thursday for Thanksgiving and will have a shortened trading session on Friday.

On Wednesday, the Dow Jones industrial average nudged higher 5.36 points, or 0.04%, to 12,326.95, after hitting a new all-time intraday high of 12,361.00. The broader Standard & Poor's 500 index rose 3.28 points, or 0.23%, to 1,406.09. The tech-heavy Nasdaq composite rose 11.14 points, or 0.45%, to 2,465.98.

Solid earnings news was in focus Wednesday. Dell was sharply higher after the computer maker late Tuesday issued a delayed third-quarter earnings report that beat analyst expectations. Bear Stearns upgraded the stock from peer perform to outperform.

On the economic docket, University of Michigan's consumer sentiment index fell to 92.1 in its final November reading, weaker than expected, from 93.6 in October.

Separately, initial jobless claims rose 12,000 to 321,000, more than anticipated, in the week ended Nov. 18. That follows an upwardly revised 309,000 increase the week before.

After a few quiet days, the economic calendar picks up again next week. Key data releases are set to include October existing and new home sales, the Institute for Supply Management's manufacturing index, personal income, durable goods orders, and auto sales. A revised reading on third-quarter economic growth, the Federal Reserve's Beige Book, and Chicago PMI will also be on tap.

General Motors (GM) weighed on the Dow on Wednesday as billionaire investor Kirk Kerkorian's Tracinda Corp. reported cutting its stake in the automaker from 9.9% to 7.4%.

MGM Mirage (MGM) was sharply higher amid news Tracinda plans to raise its stake in the casino owner. Tracinda reportedly intends to offer $55 a share in cash for up to 15 million shares of the company.

Alcoa (AA) was higher after the aluminum producer announced it will cut 6,700 jobs as part of a restructuring effort.

Fellow Dow component Merck (MRK) was modestly higher following a federal judge's ruling that lawsuits claiming the drugmaker's Vioxx painkiller killed or injured people by causing heart attacks could not go forward as a class-action suit.

Supercomputer maker Cray (CRAY) was up sharply after winning a $250 million contract from the U.S. Defense Advanced Research Projects Agency.

Shares of Brocade Communications Systems (BRCD) climbed as the networking equipment maker posted a jump in fourth-quarter profit on improved sales and gross margins. Needham analysts upgraded the stock from hold to buy.

Hormel Foods (HRL) was higher after the Spam maker reported a 9% rise in fourth-quarter earnings, topping Street estimates.

Internet media company Yahoo! (YHOO) was higher as Bank of America analysts issued positive comments, maintaining a buy rating on the stock. Rival Google (GOOG) was down modestly.

M&A news continued to percolate. Comcast (CMCSA) bought Disney's (DIS) 39.5% stake in E! Entertainment Television for $1.23 billion and inked a deal allowing the cable provider to distribute Disney content through video-on-demand.

Meanwhile, IAC/InterActiveCorp (IACI), DirecTV (DTV), and Questar (STR) were higher after Standard & Poor's picked the companies to be part of the S&P 500 index.

In the energy markets, January West Texas Intermediate crude futures fell 93 cents to $59.24 barrel after a weekly inventory reported showed an unexpectedly large increase in crude supplies.

European markets finished mixed. In London, the FTSE-100 index fell 42.3 points, or 0.68%, to 6,160.3. Germany's DAX index rose 15.74 points, or 0.24%, to 6,476.13. In Paris, the CAC 40 index slipped 6.86 points, or 0.13%, to 5,452.49.

Asian markets ended sharply higher. In Japan, the Nikkei 225 index gained 180.09 points, or 1.14%, to 15,914.23. In Hong Kong, the Hang Seng index climbed 242.49 points, or 1.28%, to 19,250.79. Korea's Kospi index advanced 16.64 points, or 1.18%, to 1,422.54.

Treasury Market
 
Treasuries prices drifted higher after the weaker-than-expected data on consumer sentiment and jobless claims. The 10-year note edged up in price to 100-16/32 for a yield of 4.57%, while the 30-year bond rose modestly to 97-22/32 for a yield of 4.65%.

News Article
BusinessWeek.com
November 21, 2006
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Stocks Drift Higher as Google Hits Milestone

Shares of the Internet search company topped $500 for the first time, while Boeing won a $5.5 billion contract. The economic docket was quiet

by Marc Hogan

 

Major stock indexes finished modestly higher in light pre-holiday trading Tuesday, with no major economic reports on the docket this session and no corporate news to rival Monday's mega-deals.

On Tuesday, the Dow Jones industrial average nudged higher 5.05 points, or 0.04%, to 12,321.59, capped by weakness in General Motors (GM). The broader Standard & Poor's 500 index rose 2.31 points, or 0.16%, to 1,402.81. The tech-heavy Nasdaq composite added 2.12 points, or 0.09%, to 2,454.84, amid weakness in Intel (INTC).

NYSE breadth was positive, with 21 issues gaining for every 13 declining. Nasdaq breadth was flat.
Investors' appetite for risk may have increased. The VIX index, a closely watched barometer of volatility expectations, closed below 10 on Monday for the first time since 1994, Standard & Poor's Equity Research notes.

In corporate news, Boeing (BA) was higher on news Korean Air Lines ordered 15 passenger aircraft and 10 freighters in a deal worth $5.5 billion.

Internet search giant Google (GOOG) was higher as shares in the company rose above the $500 mark for the first time.

A few companies were still reporting quarterly results as earnings season winds down. Deere (DE) was higher after the farm and lawn-equipment maker reported a 19% rise in profit for its fiscal fourth-quarter but said it sees slower sales this year.

Fast-food chain Jack in the Box (JBX) was higher after the company posted a 54% jump in fiscal fourth-quarter earnings and said it would buy back up to 5.5 million common shares in a modified "Dutch auction" tender offer for a maximum price of $335.5 million.

Shares of Nordstrom (JWN) gained after the retailer clocked a 26% earnings increase in the third quarter, beating expectations.

Borders (BGP) and J. Crew (JCG) were set to post earnings after the closing bell.

Elsewhere, Dow Chemical (DOW) was lower after Merrill Lynch cut its rating on the company from neutral to sell.

Medtronic (MDT) was sharply higher as J.P. Morgan upgraded the stock from neutral to overweight after the company reported higher-than-expected second-quarter earnings. J.P. Morgan also raised its rating on Juniper Networks (JNPR) from neutral to overweight.

The economic calendar was quiet. Chain store sales dipped to a 0.2% pace in the three weeks ended Nov. 18, according to U.S. Redbook. Investors were awaiting Wednesday's reading of the University of Michigan's consumer sentiment index.

In the energy markets, January West Texas Intermediate crude futures rose $1.37 to $60.10 a barrel. The Trans-Alaskan Pipeline System reportedly reduced crude volume by 25% of capacity due to bad weather.

European markets finished narrowly mixed. In London, the FTSE-100 index edged down 1.9 points, or 0.03%, to 6,202.6. Germany's DAX index rose 8.06 points, or 0.12%, to 6,460.39. In Paris, the CAC 40 index added 4.61 points, or 0.08%, to 5,459.35.

Asian markets ended slightly higher. In Japan, the Nikkei 225 index edged up 8.2 points, or 0.05%, to 15,734.14. In Hong Kong, the Hang Seng index bounced 53.67 points, or 0.28%, to 19,008.3. Korea's Kospi index was up 3.69 points, or 0.26%, to 1,405.9.

Treasury Market
 
Treasury prices drifted higher as Federal Reserve Governor Kevin Warsh sounded a hawkish note on inflation. The 10-year note edged up in price to 100-12/32 for a yield of 4.57%, while the 30-year bond rose to 97-16/32 for a yield of 4.66%. The White House Council of Economic Advisors downgraded its economic growth forecasts, partly underpinning Treasuries.

News Article
BusinessWeek.com
November 17, 2006
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Dow Inches to Record Despite Housing Data

Housing starts plunged in October, countering recent improvements in other indicators for the sector. Also in focus: HP, Starbucks

by Marc Hogan

 

Stocks finished mixed Friday, as the Dow reached its fourth straight all-time closing high but a weak housing report hampered the broader market. Trading was active amid options expiration this session, says Standard & Poor's Equity Research.

On Friday, the Dow Jones industrial average rose 36.74 points, or 0.3%, to 12,342.56, a new closing record. Strength in AT&T (T) and Altria (MO) boosted the blue-chip benchmark. The broader Standard & Poor's 500 index added 1.44 points, or 0.1%, to 1,401.2. The tech-heavy Nasdaq composite slipped 3.2 points, or 0.13%, to 2,445.86.

NYSE breadth was negative, with 17 issues declining for every 16 advancing. Nasdaq breadth was 17-13 negative.

Investors were sifting through disappointing housing data Friday. Housing starts sank 14.6% to a 1.486 million pace in October, from a downwardly revised 1.74 million in September. Building permits fell 6.3%, their ninth straight monthly decline. The numbers are much weaker than expected and run counter to improvements in most other housing indicators, says Action Economics.

The housing figures raise downside risks to economic growth projections, some analysts say.

"Although there have been several signs in other reports that the housing sector has begun to stabilize (purchase applications, homebuilder sentiment, etc.), the weakness in housing starts in October suggests that construction may subtract more than we have been anticipating from fourth-quarter GDP growth," says John Ryding, chief U.S. economist at Bear Stearns.

The economic docket Monday holds the release of the October index of leading economic indicators ahead of a short Thanksgiving holiday week.

On the company side, Hewlett-Packard (HPQ) said its fourth-quarter earnings quadrupled on higher sales, topping analyst expectations. But shares of the computer maker dipped on news the SEC has issued notice of a formal investigation into the company's investigation of boardroom leaks.
Starbucks (SBUX) was also lower as the coffee seller reported a 5.2% decline in fourth-quarter profit and analysts expressed worries about labor costs.

Gap (GPS) posted an 11% drop in third-quarter profit and reduced its earnings outlook for 2007, but shares of the retailer rose.

In deal news, Johnson & Johnson (JNJ) agreed to buy stent maker Conor Medsystems (CONR) for $1.4 billion in cash.

Meanwhile, U.S. Steel (X) was sharply higher amid reports of speculation that Russian metals giant OAO Severstal could acquire the steel producer.

Energy exchange NYMEX Holdings (NMX) was also up sharply after its initial public offering raised $383.5 million.

In the energy markets, December West Texas Intermediate crude futures fell 45 cents to $55.81, a 17-month low, amid reduced fuel demand and skepticism over OPEC cuts. January contracts take over on Monday.

European markets finished lower. In London, the FTSE-100 index fell 62.9 points, or 1.01%, to 6,192. Germany's DAX index dropped 26.98 points, or 0.42%, to 6,416.04. In Paris, the CAC 40 index slid 66.01 points, or 1.2%, to 5,439.71.

Asian markets ended mixed. In Japan, the Nikkei 225 index lost 72.14 points, or 0.45%, to 16,091.73. In Hong Kong, the Hang Seng index gained 28.64 points, or 0.14%, to 19,182.71. Korea's Kospi index was up 1.47 points, or 0.1%, to 1,412.22.

Treasury Market
 
Treasury yields fell after the damp housing starts data. The 10-year note rose in price to 100-06/32 for a yield of 4.6%, while the 30-year bond advanced to 97-00/32 for a yield of 4.69%.

News Article
BusinessWeek.com
November 15, 2006
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Dow Hits Another Record After Fed News

The Oct. 25 FOMC minutes showed Bernanke & Co. remains focused on inflation. Investors also digested M&A news

by Marc Hogan

 

Stocks finished higher Wednesday, sending the Dow to its 16th all-time closing high in 32 trading sessions amid deal activity, solid manufacturing data, and tame minutes from the Federal Reserve's most recent meeting on interest rates.

On Wednesday, the Dow Jones industrial average rose 33.7 points, or 0.28%, to 12,251.71, a new record close, after touching an all-time intraday high of 12,291.73. The broader Standard & Poor's 500 index added 3.35 points, or 0.24%, to 1,396.57, briefly topping the 14,000 mark for the first time since 2000. The tech-heavy Nasdaq composite climbed 12.09 points, or 0.5%, to 2,442.75.

NYSE breadth was positive, with 21 issues advancing for every 12 declining. Nasdaq breadth was 19-12 positive.

Investors were sifting through economic reports Wednesday. The minutes from the Fed's Oct. 25 monetary policy meeting indicated the Fed remains focused on keeping inflation in check rather than stimulating growth. The current core inflation rate is "uncomfortably high," the Fed said, adding that "downside risks to economic activity had diminished a little."

The minutes were in line with Wall Street expectations. "No major changes in the FOMC's view of the world," Goldman Sachs says.

Separately, the New York Fed's Empire State manufacturing index rose to 26.66 in November from 22.92 in October, much stronger than expected.

The strong Empire State reading suggests gains in the Institute for Supply Management manufacturing index, some analysts say. "The Empire State index has not been a particularly good indicator of trends in the national ISM manufacturing index in recent months as this regional indicator has painted a significantly stronger picture of manufacturing growth," says John Ryding, chief U.S. economist at Bear Stearns. "However, one should be wary of ignoring the continued strength of both the general sentiment headline line index, and the subindexes on orders, employment, and shipments."

Deal news was also in focus. US Airways (LCC) said it has made an $8 billion cash and stock bid for Delta Air Lines (DALRQ.PK). Shares of airline stocks gained on the news.

Meanwhile, Deutsche Boerse abandoned its offer to buy rival Euronext, clearing the way for NYSE Group NYX to acquire the Paris-based exchange and create the first transatlantic stock market.

Shares of Google (GOOG) reached a new all-time high near $500 after Credit Suisse analysts set a new price target of $600 for the Internet search company. Online retailers Amazon (AMZN) and eBay (EBAY) were also higher on positive analyst comments.

Home Depot (HD) was upgraded by J.P. Morgan from underweight to overweight, but shares of the home improvement retailer dipped.

Comverse Technology (CMVT) was sharply lower after the the voicemail software maker said it found other accounting errors during an investigation into stock-options grant practices.

Tyco (TYC) reported a 38% increase in fiscal fourth-quarter profit, topping analyst estimates. But the manufacturing and services conglomerate also said it will restate results for previous periods in fiscal 2006 due to errors in its stock-options accounting practices.

In the energy markets, December West Texas Intermediate crude futures rose 48 cents to $58.76 a barrel after a weekly inventory report showed an unexpectedly large increase in crude supplies alongside surprising declines in gasoline and distillate supplies.


European markets finished higher. In London, the FTSE-100 index rose 43.2 points, or 0.7%, to 6,229.8. Germany's DAX index added 45.26 points, or 0.71%, to 6,432.64. In Paris, the CAC 40 index was up 35.25 points, or 0.64%, to 5,511.53.

Asian markets ended mixed. In Japan, the Nikkei 225 index slipped 46.08 points, or 0.28%, to 16,243.47. In Hong Kong, the Hang Seng index climbed 214.58 points, or 1.14%, to 19,093. Korea's Kospi index gained 5.17 points, or 0.37%, to 1,412.54.

Treasury Market
 
Treasury yields rose following the Empire State index increase and hawkish Fed minutes. The 10-year note fell in price to 100-03/32 for a yield of 4.61%, while the 30-year bond dropped to 96-31/32 for a yield of 4.69%.

News Article
BusinessWeek.com
November 14, 2006
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Dow Hits Record High on Tame Inflation

Wholesale prices matched their biggest monthly decline in October, fueling hopes that the Fed would stay on hold

by Marc Hogan

 

Stocks finished broadly higher Tuesday, recovering from early lows as investors weighed a sharp drop in wholesale inflation and unexpectedly weak retail sales. The Dow reached another closing high, with earnings reports from big-box retailers also in focus. A buy program and short covering helped boost stocks, says Standard & Poor's Equity Research.

On Tuesday, the Dow Jones industrial average rose 86.05 points, or 0.71%, to 12,217.93, after touching a new all-time intraday high of 12,228.01. The blue-chip benchmark topped its previous record close of 12,176.54, set Nov. 8. The broader Standard & Poor's 500 index added 8.8 points, or 0.64%, to 1,393.22, a six-year high. The tech-heavy Nasdaq composite climbed 24.28 points, or 1.01%, to 2,430.66.

NYSE volume was decidedly positive, with 24 issues advancing for every eight declining, while Nasdaq breadth was 20-9 positive. Trading was active ahead of Friday's options expiration.

Investors were digesting a steep decline in wholesale prices Tuesday. The producer price index (PPI) fell 1.6% in October, matching the record decline. The core PPI, which excludes food and energy, dropped 0.9% in October, the biggest slide since August, 1993. Both numbers were weaker than expected.

Meanwhile, retail sales fell 0.2% in October, or 0.4% excluding autos. These figures were also weaker than Wall Street expected.

The numbers suggest the economy is a headed for a "soft landing," some analysts say. "The Federal Reserve is likely to leave interest rates unchanged until the balance of risks between recession and inflation become clearer," says Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission.

Others say the PPI is a flawed measure of current inflation pressures. "We continue to expect that core CPI rose 0.2% in October," says John Ryding, chief U.S. economist at Bear Stearns.

In other economic data, business inventories rose 0.4% in September while sales plunged 2%. On Wednesday, investors were due to receive the November reading of the Empire State index.

Eleswhere on the economic front, St. Louis Federal Reserve Bank president William Poole said in a speech in Philadelphia Tuesday that the FOMC shouldn't remain too tight on monetary policy for too long.

On the company side, Wal-Mart (WMT) was higher after the retail giant reported an 11.5% increase in third-quarter profit but trimmed its guidance for the year.

Rival discount retailer Target (TGT) was also higher as a 16% rise in third-quarter profit topped analyst estimates.

Home Depot (HD) was higher after the home-improvement retailer posted a 3.1% drop in third-quarter earnings on sharply lower same-store sales.

Shares of DR Horton (DHI) climbed as the homebuilder's 51% fourth-quarter profit decline still exceeded Street forecasts.

Among companies slated to announce quarterly results Wednesday were Applied Materials (AMAT) and Tyco International (TYC).

Elsewhere, General Motors (GM), Ford (F) and DaimlerChrysler (DCX) were meeting with President Bush Tuesday to discuss measures to help compete against imports (see BusinessWeek.com, 11/14/06, "Will Bush Listen to Motown?"). Ford also restated financial results from the last five years to correct errors in how it accounted for interest-rate hedging.

Chipmaker Intel (INTC) released its widely anticipated quad-core chips ahead of a rival version from competitor Advanced Micro Devices (AMD).

Software giant Microsoft's (MSFT) Zune music player made its debut in a bid to unseat Apple's (AAPL) iPod as the leading digital-music device.

In the energy markets, December West Texas Intermediate crude futures fell 30 cents to $58.28 a barrel ahead of options expiration Tuesday.

European markets finished lower. In London, the FTSE-100 index fell 7.6 points, or 0.12%, to 6,186.6. Germany's DAX index slipped 6.35 points, or 0.1%, to 6,387.38. In Paris, the CAC 40 index lost 14.28 points, or 0.26%, to 5,476.28.

Asian markets ended higher. In Japan, the Nikkei 225 index rallied 267.06 points, or 1.67%, to 16,289.55. In Hong Kong, the Hang Seng index edged up 9.88 points, or 0.05%, to 18,878.42. Korea's Kospi index gained 10.68 points, or 0.76%, to 1,407.37.

Treasury Market
 
Treasury yields slid following the PPI decline and damp retail sales data. The 10-year note rose in price to 100-15/32 for a yield of 4.57%, while the 30-year bond climbed to 97-14/32 for a yield of 4.66%.

News Analysis
BusinessWeek.com
November 10, 2006
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Stocks: Sizing Up the D.C. Shakeup

Which big names look set to gain—or lose—with the Democrats taking Congress? Here's a rundown

by Marc Hogan

 

It didn't take long for the stock market to shake off its post-election hangover. Index futures pointed lower ahead of the bell on Nov. 8, a day after Democrats seized control of the House of Representatives and—at that point possibly—the Senate, but stocks wound up finishing higher on the day (see BusinessWeek.com, 11/9/06, "Stocks Rise as Dems Gain, Rumsfeld Resigns").

The Dow Jones industrial average touched a new all-time closing high. The blue-chip benchmark did slip in afternoon trading on Nov. 9, as investors appeared to take some money off the table after the market's recent winning streak.

Despite big changes in Washington, the major factors affecting Wall Street may stay the same. Stocks typically gain the day after midterm elections, no matter which party emerges the victor, some analysts say.

Meanwhile, the longer-term factors driving the market—oil prices, interest rates, housing, and corporate profits—are expected to remain unaffected by the current power shift. The threat of a presidential veto and Democrats' hopes for 2008 will likely keep sweeping new legislation to a minimum, analysts say.

Still, gridlock isn't necessarily as good as conventional wisdom may dictate. "Gridlock is the last thing America needs," says Stephen Roach, chief economist at Morgan Stanley (MS), in a Nov. 9 report. "Granted, there are times when government can indeed get in the way. But there are also circumstances which demand leadership and decisive policy actions. This is one of those times."

Meanwhile, the Democratic wave in Congress has already affected sentiment for several specific stocks and sectors (see BusinessWeek.com, 10/27/06, "How the Election Could Move the Markets"). This special edition of Five for the Money looks at key segments of the market that could draw extra attention as a result of the recent elections.

1. Health Care
 
The Democrats' gains have been strong medicine for Big Pharma shareholders. The NYSE Healthcare index fell 1.6% on Nov. 8, and was off another 2.1% in afternoon trading a day later. Dow components Johnson & Johnson (JNJ) and Pfizer (PFE) were among the decliners. Managed-care stocks also took a hit amid UnitedHealth Group's (UNH) stock-options woes (see BusinessWeek.com, 11/9/06, "UnitedHealth's Options Just Got Messier").

Investors may be worried about possible importation of drugs from Canada and new legislation that would allow the government to negotiate Medicare Part D prescription-drug pricing directly with pharmaceutical companies, analysts say. "While we think some concession may be made on importation, we think gridlock will continue on Medicare pricing, given opposition from Senate Republicans and President Bush," says Standard & Poor's analyst Herman Saftlas.

2. Energy
 
The shifting electoral winds were a little kinder to Big Oil shareholders, but analysts see some potential pitfalls ahead. The NYSE Energy index added 1.6% on Nov. 8, and was up another 1.2% in afternoon trading the following day. Oil giants Exxon Mobil (XOM) and Chevron (CVX) shared in the gains, as crude oil futures rebounded above $60.

However, possible Democratic legislation could hold negative implications for oil, coal, and gas stocks, analysts say. "The sector does face some headline risks in the form of Democratic proposals like a windfall profit tax," says Jeff Kleintop, chief investment strategist for PNC Wealth Management (PNC). "You've also got some issues around clean air and climate-change regulation favored by the Democrats that could push up costs for some energy companies."

On the other hand, certain energy stocks might stand to benefit under a Democratic administration. The PowerShares WinderHill Clean Energy (PBW) exchange-traded fund gained 1.4% on Nov. 9, holding near the unchanged mark in afternoon trading the next day. "The market's initial reaction to the sweep by the Democrats has favored alternative-fuel companies, on the back of the belief that they are going to help sponsor government-run programs that would help wean America from overseas oil," says Quincy Krosby, chief investment strategist at The Hartford (HIG).


3. Fannie, Freddie, and Sallie
 
The Democratic takeover in Congress may also give a boost to certain government-sponsored enterprises, or GSEs. Fannie Mae (FNM) surged 7.9% on Nov. 8 (see BusinessWeek.com, 11/8/06, "Fannie Mae Gains Some Breathing Room"), while Freddie Mac (FRE) added 2%, though both stocks were lower in afternoon trading the next day.

Democrats favor more lenient regulation of the GSEs, analysts say, though probable House Financial Services Committee Chairman Barney Frank (D-Mass.) has said he would push to reform the two companies.

However, shares of the parent company of Sallie Mae (SLM), a former GSE, dropped on Nov. 8 and again in afternoon trading Nov. 9. A top legislative priority of likely House Speaker Nancy Pelosi (D-Calif.) is cutting interest rates on student loans. Some analysts say that could hamper SLM, as Sallie Mae is now known.

4. Retailers and Restaurants.
 
Liberal bogeyman Wal-Mart (WMT) could also face challenges under a Democratic Congress. Shares of the retail giant fell 1.3% on Nov. 8, and were slightly lower in afternoon trading the next day. PNC's Kleintop says the electoral results are "negative at the margins" for Wal-Mart because of the possibility of stepped-up efforts to unionize the company's stores.

While Wal-Mart pays even its least-compensated employees more than the federal minimum wage of $5.15, companies that do pay the minimum might see their costs rise. Six states passed minimum-wage ballot measures in the Nov. 7 elections, and Pelosi has said a minimum-wage hike would reach the House floor within the first 24 hours after the new Congress meets in January. On Nov. 8, President Bush suggested he would be willing to work with Democrats on boosting the federal minimum wage, which has not been changed since September, 1997.

"Companies that have benefited from low-cost labor are probably going to see some wage pressures," says Barbara Walchli, who manages the Aquila Rocky Mountain Equity Fund (ROCAX). Investors should watch out for restaurant stocks and stocks of retailers that rely on low-wage workers, Walchli says.

5. Defense
 
Defense companies also suffered stock weakness in the trading session after the elections. Shares of both Lockheed Martin (LMT) and Northrop Grumman (NOC) fell on Nov. 8, though Northrop was modestly higher in afternoon trading Nov. 9. Meanwhile, shares of Boeing (BA) were up both Nov. 8 and 9.

Notwithstanding the prominence of Democratic opposition to the war in Iraq, the election results probably wouldn't put additional pressure on the defense sector during the next two years, some analysts say. "Defense spending is unlikely to decline, despite earlier concerns that Democrats might shift funds from defense to domestic programs," says Goldman Sachs (GS) economist Alec Phillips in a Nov. 8 report. "With an eye toward 2008, Democrats are apt to spend just as much as Republicans would have on defense, though the funds might be distributed slightly differently within the defense budget."

The defense sector may turn out to be a metaphor for the broader market. Democratic leadership in Congress may affect how gains are distributed across individual stocks and sectors, but broader market direction will be determined by fundamentals, analysts say.

"The markets overall will focus on the things that they always focus on," adds the Hartford's Krosby. While Wall Street gets used to new faces in Washington, a cooling housing market and some projections for slowing corporate profits could still give traders plenty to worry about before the next elections.

News Article
BusinessWeek.com
November 10, 2006
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Stocks Drift as Oil Prices Drop

Crude futures fell after the International Energy Agency slashed its demand projection. Also in focus: Disney earnings, a Boeing contract win

by Marc Hogan

 

Major stock indexes were mixed in slow trading late Friday afternoon, amid a pullback in oil prices and earnings news from Disney (DIS). Investors were considering the effects of Democratic control of Congress, as former Treasury Secretary Robert Rubin called for higher taxes, says Standard & Poor's Equity Research.

In afternoon trading, the Dow Jones industrial average slipped 10.8 points, or 0.09%, to 12,092.5. The broader Standard & Poor's 500 index nudged higher 0.07 points, or 0.01%, to 1,378.4. The tech-heavy Nasdaq composite rose 7.88 points, or 0.33%, to 2,383.89.

Oil prices retreated Friday following the previous session's gains. In the energy markets, December West Texas Intermediate crude futures fell $1.58 cents to $59.58 a barrel after the International Energy Agency cut its projection for world oil demand this year by 80,000 barrels a day.

Market players were also eyeing mixed earnings news. Dow component Disney reported an 89% jump in profit for its fiscal fourth quarter, topping Street forecasts. However, shares fell as analysts expressed concerns about the sustainability of earnings growth.

Insurer American International Group (AIG) was higher after the company said its third-quarter earnings more than doubled, beating analyst estimates.

Shares of Nvidia (NVDA) dipped even after the graphics chipmaker's third-quarter revenue and earnings results trumped analyst expectations.

Bausch & Lomb (BOL) was lower after the eye-care products maker said third-quarter profits likely fell because of a recall of a tainted contact-lens solution.

Elsewhere, Boeing (BA) was higher after the aerospace company won a U.S. Air Force contract potentially worth $13 billion for search and rescue combat helicopters.

Intel (INTC) was higher after the chipmaker said it plans to spend $1 billion on a chip assembly and testing plant it is building in Vietnam, more than tripling its initial investment of $300 million.

Wal-Mart (WMT) edged higher after the retail giant cut prices on appliances, following recent price reductions on electronics and toys.

In deal news, drug maker Genentech (DNA) agreed to acquire biotechnology outfit Tanox (TNOX) for $919 million.

Auto services marketer Autobytel (ABTL) said it reached a marketing agreement with Time Warner's (TWX) AOL Autos. Autobytel also said it is considering strategic alternatives for two units.

The economic calendar is relatively quiet until next week, with Federal Reserve Chairman Ben Bernanke avoiding policy remarks in a speech this morning in Frankfurt. The October Treasury budget will be on tap Monday.

European markets finished modestly lower. In London, the FTSE-100 index fell 23.1 points, or 0.37%, to 6,208.4. Germany's DAX index slipped 1.1 points, or 0.02%, to 6,357.77. In Paris, the CAC 40 index edged down 1.1 points, or 0.02%, to 5,447.5.

Asian markets ended lower. In Japan, the Nikkei 225 index lost 86.14 points, or 0.53%, to 16,112.43. In Hong Kong, the Hang Seng index dipped 61.72 points, or 0.33%, to 18,891.14. Korea's Kospi index declined 3.71 points, or 0.27%, to 1,395.73.

Treasury Market
 
Treasury yields dipped amid a light session for economic data. The 10-year note rose in price to 100-11/32 for a yield of 4.58%, while the 30-year bond advanced to 96-31/32 for a yield of 4.69%.

News Article
BusinessWeek.com
November 9, 2006
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Stocks Fall amid Oil Rise, Weak Sentiment

Crude futures pushed above $61, while consumer sentiment missed expectations. Democrats secured control of the Senate in addition to the House

by Marc Hogan

 

Stocks finished lower Thursday, as the Dow dipped after its 14th all-time closing high in 26 days. Democrats won a tightly contested Senate seat in Virginia, putting the party in charge of both houses of Congress for the first time in 12 years following Tuesday's midterm elections. Tech bellwether Cisco (CSCO) issued a positive outlook, while traders were also considering rising commodity prices and an unexpectedly soft consumer sentiment reading.

On Thursday, the Dow Jones industrial average fell 73.24 points, or 0.6%, to 12,103.3, pulling back from the previous session's record close of 12,176.54. The broader Standard & Poor's 500 index dropped 7.39 points, or 0.53%, to 1,378.33. The tech-heavy Nasdaq composite lost 8.93 points, or 0.37%, to 2,376.01.

Investors were consolidating three straight days of gains, says Standard & Poor's Equity Research. NYSE breadth was negative, with 19 issues declining for every 13 advancing, while Nasdaq breadth was 20-10 negative.

The prospect of a Democratic Senate was in focus Thursday. The Associated Press late Wednesday projected Democratic Senate candidate Jim Webb to win a previously undetermined race in Virginia against Sen. George Allen (R-Va.), who conceded Thursday afternoon. The win gave Democrats control of the Senate after already landing a majority in the House of Representatives.

Oil prices surged. In the energy markets, December West Texas Intermediate crude futures rose $1.33 to $61.16 a barrel after the Kuwaiti oil minister expressed confidence OPEC would meet its goal of cutting output by 1.2 million barrels a day.

On the economic front, consumer sentiment dipped to 92.3 in the University of Michigan's preliminary November survey, from 93.6 in October. Separately, wholesale sales dropped 1.2% in September, following a downwardly revised 0.7% gain in August.

Meanwhile, the trade deficit fell to $64.3 billion in September, from $69 billion in August. Import prices dropped 2% in October, while export prices slipped 0.4%. Initial jobless claims declined 20,000 to 308,000 for the week ended Nov. 4.

On the company side, Cisco was higher after the networking equipment maker reported higher third-quarter earnings and said sales will gain as much as $25% to $8.29 billion in the fourth quarter.

UBS raised its recommendation on Cisco shares from neutral to buy. Merrill Lynch lifted its stock price target.

In other earnings news, retailer J.C. Penney (JCP) posted a nearly 23% rise in third-quarter profit.

Media conglomerate Viacom (VIA), (VIA.B) said Chief Financial Officer Michael Dolan will step down at the end of 2006. The company also posted an almost 16% drop in third-quarter earnings.
Separately, fellow media giant News Corp. (NWS) said it swung to profitability in its fiscal first quarter with net income of $843 million.

Companies set to announce quarterly results after the close include Disney (DIS).

In deal activity, Dow component 3M (MMM) said it is selling its branded drug business in three separate deals valued at almost $2.1 billion.

European markets finished mixed. In London, the FTSE-100 index shed 7.5 points, or 0.12%, to 6,231.5. Germany's DAX index rose 9.42 points, or 0.15%, to 6,358.68. In Paris, the CAC 40 index added 11.44 points, or 0.21%, to 5,448.6.

Asian markets ended mixed. In Japan, the Nikkei 225 index slipped 17.17 points, or 0.11%, to 16,198.57. In Hong Kong, the Hang Seng index gained 141.62 points, or 0.75%, to 18,952.86. Korea's Kospi index advanced 19.37 points, or 1.4%, to 1,399.44.

Treasury Market
 
Treasury prices drifted as investors weighed a raft of economic data. The 10-year note edged up in price to 101-29/32 for a yield of 4.63%, while the 30-year bond slipped to 96-10/32 for a yield of 4.73%.

News Article
BusinessWeek.com
November 8, 2006
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Stocks Rise as Dems Gain, Rumsfeld Resigns

The Dow hit a new all-time closing high as market players eyed potential Washington gridlock and the defense secretary's ouster

by Marc Hogan

Stocks finished higher Wednesday, recovering from early losses as Defense Secretary Donald Rumsfeld stepped down and the Democrats came within one yet undecided race of controlling both the House of Representatives and the Senate. The Dow hit a new all-time closing high, while oil prices rebounded.

On Wednesday, the Dow Jones industrial average rose 19.77 points, or 0.16%, to 12,176.54, topping its previous record close of 12,167.02. The broader Standard & Poor's 500 index added 2.88 points, or 0.21%, to 1,385.72. The tech-heavy Nasdaq composite gained 9.06 points, or 0.38%, to 2,384.94, helped by Apple (AAPL) and Yahoo! (YHOO).

NYSE breadth was positive, with 21 issues advancing for every 12 declining. Nasdaq breadth was 18-12 positive.

The shift in House control from Republicans to Democrats was in focus Wednesday. Analysts widely projected Democrats to take over the House, but a Senate victory was less expected.

Democrats also defeated at least five Republican senators, while a Senate race in Virginia was still too close to call. Another tightly contested race was decided Wednesday morning when Montana Democrat Jon Tester was projected to defeat Republican Sen. Conrad Burns.

In a press conference, President Bush announced Rumsfeld was resigning. Bush named Robert Gates, a former director of the Central Intelligence Agency, as Rumsfeld's replacement.

At the outset, investors were consolidating gains, some analysts say. "Coming down to the wire like this [in the Senate] is not the great market mover that you might think it is," says Art Hogan, chief market analyst at Jefferies & Co. "We think there are a lot of things that are positive about gridlock. That thesis is still intact."

The Democratic leadership, headed by likely Speaker of the House Nancy Pelosi (D-Calif.), may consider its strong electoral showing a mandate to pursue its policy priorities, other analysts note. "The question is whether the President is getting the blotter out for his veto pen," says David Rosenberg, North American economist at Merrill Lynch, in a research report. "Pelosi's 'Six in '06' platform called for Congress to quickly raise the minimum wage, cut interest rates on student loans, roll back subsidies to oil companies, boost spending in stem-cell research and strengthen homeland security."

The balance may have shifted on the issue of free trade, as well, some analysts say. "While I am in the camp of those who believe that the stalemate version of gridlock is mostly bullish for the economy and for the stock market, I am concerned about rising protectionism," says Ed Yardeni, chief investment strategist at Oak Associates. "Congress isn't as likely to give the White House the 'fast track' authority needed to negotiate multilateral and bilateral free trade agreements as in the past."

On the company side, Merck (MRK) was lower as the drugmaker revealed that liabilities from four tax disputes could total $5.58 billion. Pharmaceuticals and managed care were among the session's worst-performing industires on fears of tough Democratic legislation, says S&P.

Altria (MO) was higher after voters in Alaska defeated a state measure that would tax cigarettes.

Fellow Dow component Exxon Mobil (XOM) was also up after California voters rejected a proposed oil tax.

Fast-food giant McDonald's (MCD) was higher after posting a 5.5% increase in October same-store sales.

Software maker Novell (NOVL) was higher on news Microsoft (MSFT) will pay the company $240 million upfront for subscription certificates for Novell's SUSE Linux Enterprise Server product.
In earnings news, Federated Department Stores (FD) was lower after the retailer reported a third-quarter loss of $3 million, or a penny per share.

Cablevision (CVC) edged lower after the cable TV company posted a narrower third-quarter loss.
Companies set to report quarterly results after the close include Cisco Systems (CSCO).

Elsewhere, NYSE Group (NYX) said it will cut more than 500 jobs in an effort to lower costs, remove redundancies, and consolidate after its acquisition of the Archipelago electronic exchange.

Shares of Google (GOOG) rose modestly after CEO Eric Schmidt denied a rumor the Internet search company had set aside $500 million to settle copyright claims as part of its acquisition of video site YouTube.

The calendar was light for economic data. Meanwhile, Federal Reserve President Michael Moskow gave remarks largely reiterating a recent speech that was hawkish on inflation.

The economic docket picks up Thursday after a quiet week. Investors will be digesting reports on wholesale trade, consumer sentiment, jobless claims, import prices, and the trade deficit.

In the energy markets, December West Texas Intermediate crude futures rose 90 cents to $59.83 a barrel after a weekly inventory report showed an unexpectedly small increase in crude supplies.
European markets finished modestly lower. In London, the FTSE-100 index slipped 5 points, or 0.08%, to 6,239. Germany's DAX index fell 12.7 points, or 0.2%, to 6,349.26. In Paris, the CAC 40 index edged down 0.62 points, or 0.01%, to 5,437.16.

Asian markets ended lower. In Japan, the Nikkei 225 index slid 177.67 points, or 1.08%, to 16,215.74. In Hong Kong, the Hang Seng index lost 128.07 points, or 0.68%, to 18,811.24. Korea's Kospi index shed 7.37 points, or 0.53%, to 1,380.07.

Treasury Market
 
Treasuries drifted higher after news of Rumsfeld's resignation. The 10-year note rose in price to 101-27/32 for a yield of 4.64%, while the 30-year bond advanced to 96-11/32 for a yield of 4.73%. Gridlock is seen as favorable for the debt market because it could mean lower government spending, says Action Economics.

News Analysis
BusinessWeek.com
November 7, 2006
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Will Ballots Favor Bulls or Bears?

Markets have largely priced in a Democratic takeover of the House, analysts say. But stocks could move if the midterm elections become a rout

by Marc Hogan

 

As time ticked down to the first polls closing at 6 p.m. Eastern time, investors were gearing up for the prospect of Democratic gains in the midterm congressional elections on Nov. 7 (see BusinessWeek.com, 11/7/06, "Your Midterm Elections Scorecard"). Fundamentals should continue to drive market action over the long run, but a surprise in tonight's results could carry a short-term impact, analysts say.

The Iowa Electronic Markets were offering strong odds that Republicans will lose control of the House of Representatives but hold onto the Senate. In afternoon trading, prices on this University of Iowa futures market for betting on election results suggested an 82% chance Democrats will win the House and only a 31% chance Republicans would lose the Senate.

Wall Street analysts were also predicting a divided Congress. While some view gridlock as a positive, others note that a unified government has historically produced better stock returns (see BusinessWeek.com, 11/3/06, "Preferably, It's All or Nothing"). Either way, an unexpected Democratic sweep of both chambers could rattle the markets in the immediate term.

Democratic Sweep May Worry Investors

Stocks were higher ahead of the election results on the afternoon of Nov. 7, as the Dow Jones industrial average flirted with a new all-time closing high. "It looks like the market's gotten past the notion of a split Congress and is currently rejoicing in gridlock," says Jack Ablin, chief investment officer at Harris Bank, noting that divided leadership could help the markets avoid interference from legislators. "While there are certainly some longer-term implications for the stock market, the near term has probably brightened."

However, investors might not react as kindly to a surprise. A substantial Democratic victory in the Senate, as well as the House, might provoke a brief sell-off, according to Ron Brown, chief investment officer at Genworth Financial Asset Management. "The market could use that as an excuse to have a hiccup," Brown says.

The effects of a Democratic sweep would likely reveal themselves on the sector level, rather than across the broad market, some analysts say. Investors might be worried, rightly or wrongly, about possible Democratic legislation hampering health-care companies, defense contractors, or Big Oil, says Brian Gendreau, investment strategist at ING Investment Management.

Meanwhile, a divided government might not be as bullish as some investors hope, other analysts say. "Gridlock is a positive if there's nothing that needs to be done," says Barry Ritholtz, chief market strategist at Ritholtz Research. "We're in a situation where there are a lot of issues that should be addressed sooner rather than later."

Spin Could Affect Stocks

Ritholtz also raises the possibility of Democrat-led congressional investigations into the Bush Administration's actions. He says a "drumbeat" of allegations relating to prewar intelligence or Halliburton (HAL) could set a gloomy backdrop for stocks.

At the same time, both parties will be battling to spin the election results in the most positive light. Democrats will be looking to claim a mandate, while Republicans might portray a narrower-than-expected Democratic triumph as a Democratic defeat, says George Schwartz, president of Schwartz Investment Counsel, which runs the Ave Maria Funds. Democratic success in this war of spin could raise worries about tax rate hikes, he says, while stocks could rise if the GOP can claim victory.

Overall, though, analysts stress that economic indicators, corporate profits, and other fundamentals will likely continue to determine the direction of the markets, regardless of which political party runs Congress. "The most we face is perhaps a transitory surprise that probably would be remarkably short-lived," says Genworth's Brown. While Wall Street's long political guessing game may be about to come to an end for another year, the votes will have to be counted first.

News Article
BusinessWeek.com
November 6, 2006
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Stocks Stage Pre-Election Rally

A brace of M&A news lifted major indexes. Analysts think an outright victory by either party could cause a sharp, short-term swing in the market

by Marc Hogan

Stocks finished broadly higher Monday, boosted by some large buyout proposals. The docket for economic data was quiet this session ahead of Tuesday's congressional elections. Big money reportedly flowing in from Europe may also have lifted sentiment, amid indications Republican candidates may be narrowing the gap against their Democratic rivals, says Standard & Poor's Equity Research.

On Monday, the Dow Jones industrial average rose 119.51 points, or 1%, to 12,105.55. The broader Standard & Poor's 500 index added 15.48 points, or 1.13%, to 1,379.78. The tech-heavy Nasdaq composite climbed 35.16 points, or 1.51%, to 2,365.95.

NYSE breadth was decidedly positive, with 25 issues advancing for every 8 declining. Nasdaq breadth was 21-9 positive.

The upcoming election results could impact the markets in the short-term, though fundamentals will ultimately be more important, some analysts say.

"If the Republicans do retain both houses, then the market is likely to have a short-term reaction rally," says Richard Bernstein, chief investment strategist at Merrill Lynch, in a research report. "If the Democrats win both houses, then the market is likely to have a short-term reaction sell off. A split probably has little impact."

A Democratic takeover of one or both chambers of Congress could be good for Treasuries, others say. "As long as the economy continues growing at a reasonable clip, gridlocked government would provide an excellent backdrop for continued improvement in the budget deficit, with any significant new spending programs having little chance of getting past a White House veto and any attempt to extend or make permanent various temporary tax cuts a likely non-starter in a Democratic Congress," note Morgan Stanley economists Ted Wieseman and David Greenlaw. "Gridlock certainly worked wonders in the second half of the 1990s for the budget."

Still, other analysts don't expect the elections to swing the markets much in either direction. "The elections are unlikely to move markets in a big way unless the Republicans manage to maintain control of both Houses of Congress," says Steven Ricchiuto, chief U.S. economist at ABN Amro. "Gridlock will continue to dominate Capitol Hill politics under almost all possible election scenarios, but foreign investor confidence will be shaken if the Republicans hold onto the House."

Investors were digesting M&A news Monday. Four Seasons Hotels (FS) received an offer to take the company private for $3.7 billion, or $82 per share in cash.

The bid came from Four Seasons Chairman and CEO Isadore Sharp and controlling shareholder Triples Holdings Limited, along with Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud's Kingdom Hotels International and Microsoft (MSFT) Chairman Bill Gates' Cascade Investment.

In other deal news, German industrial gas company Linde agreed to sell its forklift unit to Kohlberg Kravis & Roberts and the private-equity arm of Goldman Sachs (GS) for $4.6 billion. Separately, French media and telecommunications conglomerate Vivendi said it received and rejected a takeover proposal from KKR.

Drugmaker Abbott Laboratories (ABT) also announced a $3.7 billion deal to buy Kos Pharmaceuticals (KOSP).

Meanwhile, OSI Restaurant Group (OSI), which operates Outback Steakhouse, agreed to be bought out by Bain Capital and Catterton Partners for about $3 billion, or $40 a share.


On the analyst front, Home Depot (HD) was little changed and Lowe's (LOW) was lower after UBS cut shares of the home-improvement retailers from neutral to reduce, citing the housing slowdown.


In earnings news, XM Satellite Radio (XMSR) was sharply higher after the satellite radio outfit reported a narrower third-quarter loss on continued subscriber growth. Rival Sirius Satellite Radio (SIRI) was also higher.

Shares of El Paso (EP) fell after the oil and gas company said it swung to a third-quarter profit, as revenues came in below analyst expectations.

Other companies due to post earnings Monday include RealNetworks (RNWK).

Elsewhere, Google (GOOG) was higher amid reports the Internet search giant plans to start selling advertising space in 50 major newspapers.

The calendar was relatively quiet for economic data. Chicago Federal Reserve President Michael Moskow said more interest-rate hikes may be needed. Former Fed Chairman Alan Greenspan reportedly reiterated his recent statement that the worst of the housing slump is over.

After the close, Cleveland Fed President Sandra Pinalto, and San Francisco Fed President Janet Yellen were also set to speak.

In the energy markets, December West Texas Intermediate crude futures rose 88 cents to $60.02 a barrel as the Saudi Arabian oil minister said further production cuts could be in store.

European markets finished higher on the takeover news. In London, the FTSE-100 index rose 76.4 points, or 1.24%, to 6,224.5. Germany's DAX index added 89.5 points, or 1.43%, to 6,330.65. In Paris, the CAC 40 index was up 66.06 points, or 1.24%, to 5,402.36.

Asian markets ended mixed amid speculation Friday's U.S. employment report reduces the likelihood the Fed will cut rates. In Japan, the Nikkei 225 index nudged higher 14.74 points, or 0.09%, to 16,364.76. In Hong Kong, the Hang Seng index gained 186.86 points, or 1%, to 18,936.55. Korea's Kospi index lost 4.69 points, or 0.34%, to 1,379.19.

Treasury Market
 
Treasury yields drifted lower, giving up initial gains as Greenspan's mild assessment of the housing market offset Moskow's hawkish remarks on inflation. The 10-year note edged up in price to 101-10/32 for a yield of 4.71%, while the 30-year bond rose to 95-12/32 for a yield of 4.79%.

News Article
BusinessWeek.com
November 2, 2006
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Stocks Slip After Mixed Retail Sales

The Dow flirted with the 12,000 mark after discount retailers posted soft October sales and Wal-Mart warned about November sales

by Marc Hogan

 

Stocks finished modestly lower Thursday, as the Dow posted its fifth straight daily decline amid lackluster economic data and a retail heavyweight's flat November sales forecast. Traders were also looking ahead to Friday's nonfarm payrolls figures, says Standard & Poor's Equity Research.

On Thursday, the Dow Jones industrial average fell 12.48 points, or 0.1%, to 12,018.54. The broader Standard & Poor's 500 index slipped 0.47 points, or 0.03%, to 1,367.34. The tech-heavy Nasdaq composite edged down 0.33 points, or 0.01%, to 2,334.02.

NYSE breadth was slightly negative, with 18 issues declining for every 15 advancing. Nasdaq breadth was 18-13 negative.

Investors were weighing disappointing economic reports Thursday. Nonfarm productivity growth was flat in the third quarter, from a downwardly revised 1.2% in the second quarter. Unit labor costs rose 3.8%, though that's down from an upwardly revised 5.4% second-quarter gain.

The productivity report could trouble Federal Reserve policymakers, some analysts say. "Some commentators and Fed officials have tried to explain away sharply higher unit labor costs as the result of one-time factors such as stock option expensing at the start of the year," says John Ryding, chief U.S. economist at Bear Stearns. "Sustained, elevated unit labor cost increases (unit labor costs have risen at a 6.0% annualized rate this year) might make it difficult to argue that there is not a more persistent factor at work."

Meanwhile, jobless claims climbed 18,000 to 327,000 in the week ended Oct. 28, from an upwardly revised 309,000 the week before. Factory orders rose 2.1% in September, below expectations.

Highlighting Friday's docket is a report on October nonfarm payrolls. Also on tap is the October reading of the Institute for Supply Management's non-manufacturing index.

On the company side, retailers were posting mixed sales results for October. Discount retailers Costco (COST) and Target (TGT) were among companies missing analyst estimates, while rival Wal-Mart (WMT) warned it expects flat November sales. The disappointing numbers raise worries about the holiday season, says S&P.

Department stores posted stronger October sales. Retailers beating expectations included Federated (FD) and J.C. Penney (JCP).

In earnings news, International Paper (IP) was lower after the company reported a drop in third-quarter profit.

Broadcaster CBS (CBS) posted a sharply lower third-quarter profit but a 26% jump in operating earnings.

Elsewhere, Microsoft (MSFT) was reportedly entering into an agreement with Novell (NOVL) that would allow Linux software to work with Microsoft's Windows software.

In analyst calls, Intel (INTC) was lower after Merrill Lynch downgraded shares of the chipmaker from buy to neutral.

Computer maker Dell (DELL) was higher after Goldman Sachs raised its rating on the stock from sell to neutral.

In the energy markets, December West Texas Intermediate crude futures fell 83 cents to $57.88 a barrel amid warm weather forecasts and Kuwait's caution on production cuts.

European markets finished lower. In London, the FTSE-100 index edged down 0.3 points, or less than 0.01%, to 6,149.3. Germany's DAX index slid 68.57 points, or 1.09%, to 6,223.33. In Paris, the CAC 40 index dropped 60.79 points, or 1.13%, to 5,310.07.

Asian markets ended mixed. In Japan, the Nikkei 225 index lost 25.24 points, or 0.15%, to 16,350.02. In Hong Kong, the Hang Seng index rallied 261.13 points, or 1.42%, to 18,714.78. Korea's Kospi index gained 9.38 points, or 0.68%, to 1,383.73.

Treasury Market
 
Treasury yields rebounded after the soft productivity data and gain in unit labor costs. The 10-year note fell in price to 102-06/32 for a yield of 4.6%, while the 30-year bond dropped to 96-19/32 for a yield of 4.71%.