Friday, December 15, 2006

Stocks Rise on Tame Inflation Data

News Article
December 15, 2006

BusinessWeek Logo

Stocks Rise on Tame Inflation Data

The Dow touched a new intraday high after the November consumer price index came in flat. Also in focus: industrial production

Major stock indexes finished modestly higher Friday, though off their best levels, as the Dow hit new all-time closing and intraday highs following a mild inflation report. Trading was heavy due to quadruple witching, when monthly stock and index option expirations coincide with the quarterly expiration of stock and index futures contracts, says Standard & Poor's Equity Research.

On Friday, the Dow Jones industrial average rose 28.76 points, or 0.23%, to 12,445.52, a new closing record. The blue-chip benchmark also touched a new intraday best of 12,445.52. The broader Standard & Poor's 500 index added 1.59 points, or 0.11%, to 1,427.08, a six year-high, and within 100 points of its record close of 1527 in March, 2000. The tech-heavy Nasdaq composite was up 3.35 points, or 0.14%, to 2,457.2.

NYSE breadth was negative, with 18 issues declining for every 16 advancing. Nasdaq breadth was 16-15 negative.

In economic news, a key inflation gauge showed a tamer reading than Wall Street expected. The U.S. consumer price index, or CPI, was unchanged in November, after a 0.5% headline decline in October. Economists were expecting a 0.2% core and headline increase.

The benign CPI reading suggests inflation may have peaked, some analysts say. "For the Fed, the recent relief on the core inflation front provides expanding room to respond to below-trend economic growth, if necessary," says Peter Kretzmer, a senior economist at Bank of America, in a note to clients.
Meanwhile, U.S. industrial production rose 0.2% in November from a downwardly revised flat reading in October. The report was in line with expectations, says Action Economics.

Next week's economic calendar holds reports on November personal income, housing starts, durable goods orders, and producer price figures. Investors will also be digesting December consumer sentiment data.

Among Friday's stocks in the news, strength in General Electric (GE) and Honeywell (HON) helped lead the Dow higher.

Fellow Dow component Home Depot (HD) edged down after the home-improvement retailer said its board of directors has authorized the immediate repurchase of $3 billion of outstanding stock.

Bear Stearns (BSC), which reported strong earnings Thursday, was higher after the investment house increased its stock buyback plan to $2 billion from $1.5 billion.

Tech bellwether Apple (AAPL) was lower after the computer maker said it has delayed filing its annual report as a result of its probe into stock options grants.

In earnings news, Adobe (ADBE) was higher after the software maker said it expects revenue of as much as $670 million in the fiscal first quarter, topping analyst estimates of $651.2 million.

E-Trade Financial (ET) was higher after the online brokerage said it expects sales of $2.75 billion to $3 billion in 2007, more than the $2.68 billion analysts forecast.

Black & Decker (BDK) was sharply lower after the power-tool maker cut its fourth-quarter earnings forecast.

On the M&A front, software maker Intuit (INTU) agreed to buy payment processor Electronic Clearing House (ECHO) for $142 million, or $18.75 a share.

XM Satellite Radio (XMSR) and rival Sirius Satellite Radio (SIRI) were higher after Lehman Brothers reportedly said in a research report that a merger between the two companies would save $1.3 billion a year.

In the energy markets, January West Texas Intermediate crude oil futures rose 92 cents to $63.43 following OPEC's agreement to cut output starting Feb. 1 and amid news of attacks on facilities in Nigeria.

European markets finished higher. In London, the FTSE-100 index rose 32 points, or 0.51%, to 6,260. Germany's DAX index added 36.25 points, or 0.55%, to 6,588.83. In Paris, the CAC 40 index was up 32.04 points, or 0.58%, to 5,541.62.

Asian markets ended higher. In Japan, the Nikkei 225 index gained 85.11 points, or 0.51%, to 16,914.31. In Hong Kong, the Hang Seng index advanced 191.25 points, or 1.01%, to 19,110.65. Korea's Kospi index was up 3.49 points, or 0.25%, to 1,421.87.

Treasury Market
Treasury yields ticked slightly lower on the benign CPI reading but finished well above their initial lows. The 10-year note edged up in price to 100-07/32 for a yield of 4.59%, while the 30-year bond was little changed at 96-19/32 for a yield of 4.71%. The late-session decline in bond prices likely reflected pre-holiday positioning and possible technical selling, says S&P.

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