December 5, 2006
Stocks Rise After Economic Data
The S&P 500 hit a six-year high amid a downward revision to third-quarter labor costs and a report showing unexpected service-sector strengthStocks finished modestly higher Tuesday, with major indexes near historic highs, after data releases indicated moderating inflation and a strong service economy. Year-end portfolio adjustments also influenced trading, says Standard & Poor's Equity Research.
On Tuesday, the Dow Jones industrial average rose 47.75 points, or 0.39%, to 12,331.6, within 15 points of the 12,342.56 all-time closing high hit last month. The broader Standard & Poor's 500 index added 5.64 points, or 0.4%, to 1,414.76, its highest level since Nov. 7, 2000. The tech-heavy Nasdaq composite was up 3.99 points, or 0.16%, to 2,452.38.
NYSE breadth was positive, with 21 issues advancing for every 12 declining. Nasdaq breadth was 16-15 positive.
A flurry of economic data was in focus Tuesday. The Labor Department revised third-quarter productivity growth up less than expected, to 2.3% growth from unchanged in the advanced report. Unit labor costs were revised down to a 2.3% vs. 3.8% initially, better than expected, says Action Economics.
While the report was fairly positive overall, inflation worries remain, some analysts say. "The revisions paint a better picture of inflation but the trend is still troubling relative to the pre-Fed pause," says Lehman Brothers senior economist Drew Matus. "Friday's employment report is likely to post a bounce in average hourly earnings that should keep concerns about rising wage pressures on the minds of policymakers."
The Institute for Supply Management's non-manufacturing index unexpectedly rose to 58.9 in November, from October's stronger-than-expected 57.1 reading. Meanwhile, factory goods orders slumped 4.7%, slightly more than projected.
The ISM non-manufacturing index includes not just services, but construction, analysts note. "At present, it appears that the overall economy is nowhere near as weak as the manufacturing sector," says John Ryding, chief U.S. economist at Bear Stearns. "Meanwhile, the factory orders decline in October is further evidence of the weakening of factory conditions in October."
The economic docket Wednesday holds the release of weekly jobless claims, ahead of Friday's key payrolls report.
Homebuilders were among the top performers Tuesday, after Toll Brothers (TOL) was higher after the luxury homebuilder after reporting a 44% drop in fourth-quarter profit, better than expected, and suggested the housing market may be nearing a bottom.
Ford (F) was lower after the automaker said late Monday it plans to offer $3 billion in convertible senior notes.
Shares of Sirius Satellite Radio (SIRI) sank after the company reduced its outlook for new subscriber additions, citing soft retail sales since Thanksgiving. Bear Stearns downgraded the stock from outperform to underperform.
In other analyst calls, Starbucks (SBUX) was higher after UBS raised its recommendation on the shares from neutral to buy.
M&A activity continued to percolate. A panel of European regulators recommended approval of NYSE Group's (NYX) planned $13.7 billion acquisition of Euronext.
In the energy markets, January West Texas Intermediate crude oil futures fell 1 cent to $62.43 a barrel, in see-saw trading amid mild weather forecasts, an inventory report Wednesday, and anticipated OPEC output cuts next week.
Elsewhere, fast-food chain operator Yum! Brands (YUM) was higher following reports a recent E. coli scare in New York and New Jersey linked to the company's Taco Bell restaurants has apparently passed. Separately, Yum said it will double its quarterly cash dividend to 30 cents.
European markets finished higher. In London, the FTSE-100 index rose 36 points, or 0.6%, to 6,086.4. Germany's DAX index added 77.57 points, or 1.23%, to 6,372.8. In Paris, the CAC 40 index was up 63.61 points, or 1.2%, to 5,359.69.
Asian markets ended mixed. In Japan, the Nikkei 225 index slipped 37.83 points, or 0.23%, to 16,265.76. In Hong Kong, the Hang Seng index climbed 241.46 points, or 1.29%, to 18,844.19. Korea's Kospi index dropped 5.87 points, or 0.41%, to 1,420.59.
Treasury yields pushed higher following the strong ISM non-manufacturing reading. The 10-year note fell in price to 101-14/32 for a yield of 4.44%, while the 30-year bond dropped to 98-28/32 for a yield of 4.57%.