Thursday, December 14, 2006

Dow Hits New High amid Data, Earnings

News Article
December 14, 2006

BusinessWeek Logo

Dow Hits New High amid Data, Earnings

Weekly jobless claims fell, while November import prices rose. Bear Stearns and Lehman Brothers posted stronger fourth-quarter earnings

Wall Street returned to this year's record-setting ways Thursday. Stocks finished broadly higher, with the Dow at a new all-time closing high, as investors looked past a jump in oil prices to embrace solid reports on the economy and corporate earnings.

Trading was active amid the end of December futures rollovers and the beginning of quadruple witching, when monthly stock and index option expirations coincide with the quarterly expiration of stock and index futures contracts.

On Thursday, the Dow Jones industrial average rose 99.26 points, or 0.81%, to 12,416.76, its highest-ever close, after touching a new intraday record of 12,431.26. The broader Standard & Poor's 500 index added 12.28 points, or 0.87%, to 1,425.49, a six-year high. The tech-heavy Nasdaq composite climbed 21.44 points, or 0.88%, to 2,453.85.

NYSE breadth was decidedly positive, with 22 issues advancing for every 12 declining. Nasdaq breadth was 18-12 positive.

Positive momentum and technical factors helped drive the market forward, some analysts say. "The Santa Claus rally continues to be in place," says Art Hogan, chief market analyst at Jefferies & Co. "Today's just another day when there's no negative catalysts to slow it down."

Looking ahead, key economic reports out Friday may determine whether stocks can extend their rally. Economists expect the consumer price index (CPI), a closely watched inflation gauge, to edge higher 0.2%. Industrial production is also seen up by 0.2%.

The looming inflation reading makes this session's rally even more surprising, other analysts say. "CPI is critical because that's really the last lingering question mark facing the Fed," says Jack Ablin, chief investment officer at Harris Private Bank. "A nice, well-behaved number will give the Fed a lot more room to maneuver."

In economic news Thursday, U.S. jobless claims dropped 20,000 to 304,000 in the week ended Dec. 9, better than expected, from 324,000 the previous week.

Meanwhile, U.S. import prices increased 0.2% in November, following October's revised 2.3% drop. November export prices rose 0.4% after a revised 0.3% decline in October.

The Empire State index was released a day ahead of schedule due to a technical error by the New York Federal Reserve. This gauge of regional manufacturing activity fell slightly to 23.1 in December, above market expectations, from November's 26.7 reading.

Oil prices surged, supporting corresponding shares. In the energy markets, January West Texas Intermediate crude oil futures rose $1.14 cents to $62.51 a barrel, after OPEC reportedly agreed on an oil output cut of 500,000 barrels per day beginning Feb. 1.

Among Thursday's stocks in the news, Bear Stearns (BSC) was higher after the investment house reported a 38% increase in fourth-quarter profit, topping analyst forecasts. The gains followed Tuesday's record earnings report from Goldman Sachs (GS).

Fellow investment bank Lehman Brothers (LEH) was modestly lower after posting a 22% rise in fourth-quarter profit, but not a record like its competitors.

Gains for the Dow were capped by United Technologies (UTX), which was down on a disappointing 2007 earnings outlook.

The retail sector was among top performers. Shares of Costco (COST) advanced as the wholesale club operator's 10% first-quarter profit growth surpassed analyst expectations.

On the downside, home-decorations retailer Pier 1 (PIR) was lower on a wider third-quarter loss.
In the tech sector, Ciena (CIEN) was sharply higher after the maker of fiber-optic networking equipment said it swung to a fourth-quarter profit on a 35% rise in revenue.

Advanced Micro Devices (AMD) also surged after the chipmaker forecast microprocessor unit growth at twice the industry rate in 2007.

In analyst calls, Massey Energy (MEE) was lower after J.P. Morgan cut its recommendation on the coal producer from neutral to underweight.

Shares of Netflix (NFLX) dropped after Bank of America initiated coverage of the DVD-rental company with a sell recommendation.

On the M&A front, Australian airline Qantas Airways agreed to accept an $8.64 billion takeover offer from a private equity group including Macquarie Bank and the Texas Pacific Group.

European markets finished higher. In London, the FTSE-100 index rose 35.5 points, or 0.57%, to 6,228. Germany's DAX index added 31.81 points, or 0.49%, to 6,552.58. In Paris, the CAC 40 index was up 33.73 points, or 0.62%, to 5,509.58.

Asian markets ended higher. In Japan, the Nikkei 225 index gained 136.27 points, or 0.82%, to 16,829.2. In Hong Kong, the Hang Seng index advanced 201.21 points, or 1.07%, to 18,919.4. Korea's Kospi index rallied 35.1 points, or 2.54%, to 1,418.38.

Treasury Market
Treasury yields ticked higher following the drop in jobless claims and gain in import prices. The 10-year note slipped in price to 100-08/32 for a yield of 4.59%, while the 30-year bond fell to 96-21/32 for a yield of 4.71%.

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