BusinessWeek.com
January 23, 2007
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Stocks Gain amid Earnings, Rising Oil
Crude futures rebounded above $55, while Texas Instruments, Johnson & Johnson and others reported fourth-quarter results
Stocks finished higher Tuesday, but below their best levels of the session, as rising oil prices lifted the energy sector. Investors were digesting downbeat guidance from the tech sector and a mixed batch of earnings reports. Some traders were positioning themselves ahead of tonight's State of the Union address, says Standard & Poor's Equity Research.On Tuesday, the Dow Jones industrial average rose 56.64 points, or 0.45%, to 12,533.8. The broader Standard & Poor's 500 index added 5.04 points, or 0.35%, to 1,427.99. The tech-heavy Nasdaq composite edged up 0.34 points, or 0.01%, to 2,431.41.
NYSE breadth was decidedly positive, with 22 issues advancing for every 11 issues declining. Nasdaq breadth was 18-12 positive.
Coming off some lackluster news last week, corporate earnings could remain a source of worry for the market, some analysts say. "High investor expectations should continue to pressure stocks as we work our way through earnings season," says Chris Johnson, CEO and chief investment strategist of Johnson Research Group.
Morgan Stanley moved from overweight to neutral on stocks. "We are changing our asset allocation by selling equities and raising cash, which becomes the largest overweight in our asset allocation," says Henry McVey, chief U.S. investment strategist at Morgan.
The energy sector was leading the market higher Tuesday amid a rebound in oil prices. In the energy markets, March West Texas Intermediate crude oil futures climbed $2.48 to $55.04 a barrel ahead of Wednesday's weekly inventory report, expected to show a decline in supplies.
Among stocks in the news, Alcatel-Lucent (ALU) was sharply lower after the telecommunications company warned that full-year 2006 revenue would come in at levels similar to 2005's results.
On the upside in tech, Texas Instruments (TXN) was higher after the chipmaker reported fourth-quarter earnings that topped analyst expectations. Also, Merrill Lynch upgraded shares of the company from neutral to buy.
In other earnings news, Johnson & Johnson (JNJ) was lower after the consumer-products maker posted a 3.5% uptick in fourth-quarter profit, missing analyst estimates.
Fellow Dow component DuPont (DD) was lower despite announcing sharply higher fourth-quarter profits.
Also among the blue-chips, United Technologies (UTX) said its fourth-quarter earnings jumped 38%. Shares rose following the news.
Meanwhile, D.R. Horton (DHI) was higher after the homebuilder said first-quarter earnings skidded 64%. Separately, Goldman Sachs raised its recommendation on U.S. homebuilders from sell to neutral.
Bank of America (BAC) was lower after the financial company posted a 47% increase in fourth-quarter net income.
Xerox (XRX) was lower after the copier and printer maker logged a 24% drop in fourth-quarter profit.
Gap (GPS) was lower after the retailer announced the departure of CEO Paul Pressler following a weak holiday shopping season.
After the closing bell, Yahoo! (YHOO) was expected to announce earnings of 13 cents per share on $1.2 billion in revenue, according to Reuters Estimates. Advanced Micro Devices (AMD) was seen reporting earnings of 8 cents per share on $1.7 billion in revenue.
Companies due to post quarterly results Wednesday include McDonald's (MCD). The fast-food chain operator is expected to post earnings of 61 cents per share on nearly $5.7 billion in revenue, according to Reuters Estimates.
Outside of earnings news, American Airlines parent AMR (AMR) was sharply lower after the company said it plans to sell 13 million new shares of common stock.
Apple (AAPL) was lower amid reports CEO Steve Jobs was questioned by government investigators as part of a probe into backdated stock options grants at the company.
On the economic docket Tuesday, U.S. leading indicators rose 0.3% in December, in line with expectations, after an unrevised 0.1% increase in November, for a fourth straight monthly increase.
Bush was set to give his State of the Union address at 10 p.m. Eastern. "We expect him to focus on three key issues-- Iraq, energy and climate change, and health care-- as well as a few secondary ones," Goldman Sachs economists Alec Phillips and Chuck Berwick say in a note to clients. About 30 million Americans could face tax hikes as a result of Bush's expected proposal to make health insurance premiums taxable income, according to S&P.
Wednesday's economic calendar is relatively quiet, highlighted by weekly Mortgage Bankers Assn. data on mortgage applications.
European markets finished mixed Tuesday. The FTSE-100 index in London rose 9.2 points, or 0.15%, to 6,227.6. Germany's DAX index fell 8.38 points, or 0.13%, to 6,678.93. In Paris, the CAC 40 index was down 4.71 points, or 0.08%, to 5,575.07.
Asian markets ended slightly lower. In Japan, the Nikkei 225 index slipped 15.61 points, or 0.09%, to 17,408.57. In Hong Kong, the Hang Seng index edged down 2.52 points, or 0.01%, to 20,769.7. Korea's Kospi index inched lower 0.32 points, or 0.02%, to 1,363.09.
Treasury Market
Treasury yields ticked higher following the rise in December leading indicators. The 10-year note fell in price to 98-19/32 for a yield of 4.8%, while the 30-year bond dropped to 93-26/32 for a yield of 4.9%.
