And The Survey Says...
GDP and ECI are due out tomorrow morning and these key economic reports will no doubt set the tone for the day and possibly longer. For most of the day you could see the hesitancy in the markets as traders took the wait-and-see attitude before placing their bets, even with a bond market rally. This is to be expected with all the bombs the market has had to endure in the past month. But believers in the bonds began to emerge in the final hour (plus a buy program) and the stock market took off in bullish fashion. We will also take the wait-and-see road as there will be plenty of time to jump in if tomorrow's numbers confirm the rally, but you have to be impressed with the broad markets resilience.
There was reason to be happy today even when the markets were nearing the lows of the session around 3:00pm ET. The Dow was -30 and the Nasdaq was -40 but advancers were still ahead of decliners on the NYSE. That is a rarity for most of the past month but has been more common for the past few sessions. There aren't many signals that you could call leading indicators or we would all be rich, but market internals are near the top of the list to most technicians. At the close, advancers finished ahead of decliners 17 to 13 on the New York but lost to decliners 20 to 18 on the Nasdaq. Volume at the NYSE was strong at 909 million shares. The final numbers for the Dow were 10394.89, up 92.76.
As we mentioned above, another reason to smile was the 30-year bond. The Durable goods report came out this morning better than expected with a 1.3% decline for the month of September. This pushed the bond up 24/32 and the yield down to 6.32% in the first real show of optimism for the bonds in a long time. The Transports, Utilities, and Financials all benefited with strong showings today.
The Nasdaq was stuck underwater all day though, probably due to eBay's lackluster earnings report last night. All the big names went lower today including MSFT, INTC, DELL, and AMZN. They lost $1.50, $2.00, $1.19 and $5.31 respectively. The Nasdaq composite finished at 2802.52 which was down 8.95 for the day. Volume was at 1.02 billion. The S&P 500 had the best day up 1.15%. This index closed at 1296.71, up 14.80.
Here is a look at today's late afternoon comeback in the Dow...
This is a two-week chart of the S&P 500. Notice support at the 1280 level hold today.
The winning loser for the day was EBAY. They reported earnings last night of $0.02 cents versus a First Call estimate of $0.01 and this caused a typical post-announcement sell-off. Revenues came in at $58.5 mln against estimates of $57.5. Both Sands Bros. and Deutsche Banc Alex Brown lowered ratings on the online auctioneer. EBAY fell $13.31 to $138.69.
The real winner for the day was F5 Networks on the Nasdaq. They reported earnings that were much better than expected after the close on Tuesday. They reported net income of 2.3 mln or $0.11 cents a share. This is compared to analysts guess of $-0.05 cents. Revenue grew by 631% and the stock soared by 38%. Robertson Stephens raised estimates and reiterated his Buy rating on FFIV. F5 is the maker of Internet traffic management software. They closed at $137, up $37.88.
SBC, the newest Dow component, reported earnings Wednesday morning and beat the street by $0.03 with a $0.64 cent profit. This helped rally the stock which gained $?.?? today. Those who were looking for a bigger drop in the Dow will have to rethink their position. Maybe with Goodyear or Sears in the calculation but with the caliber of stocks announced yesterday that will join the Dow on Monday, it will take on a whole new feel and outlook.
We have some after-hours news to report as well. First, AMZN reported a loss of $0.26 cents. The estimate was for a loss of $0.28. There were some concerns over margins though. This had AMZN down fractionally on Instinet. The other big story developing was HWP. The company confirmed what the analysts have been saying for the past few weeks that revenue and earnings were in jeopardy. "Increased risk" (of not meeting expectations) is the official term the company used. HWP was already down $6.25 to $70.38 during the day but was down another $3.38 in after-hours trading. Here is our warning to HWP, we see an "increased risk" that your stock will remain in the dog house over the short-term.
So here is what we are expecting on the economic front. At 8:30am will be the release of the preliminary estimate for Q3 GDP. This is the a big one. The estimate is for a 4.1% growth in the real rate and a 1.3% in the price deflator which is a measure of inflation. Anything stronger than these numbers will be another reason for the Fed to raise rates. The ECI or Employment Cost index (a Greenspan favorite) will also be released at 8:30am ET. This is a bigger one. Analysts are looking for an 0.9% rise for the quarter and 3.2% for the year. Also Alan Greenspan will be speaking on Thursday night and this may be the biggest event of the day. Will he repeat what he said on a Thursday night two weeks ago when he stifled investor optimism and crushed the markets?
The one question lingering on the Street is about today's late rally. Is it possible that the rumors indicating a leak of tomorrow's data is true? Are the number really benign to inflation? It is not beyond the realm of possibility since we've seen it before. The labor Department claims there was no leak but it didn't stop the bulls from parading during the last hour today. There is talk that a lot off cash has built up during this chaotic month that is ready to be put to work if the numbers are in fact good. Still you won't miss much be waiting to see the numbers first compared to the risk you take if you jump early. Hopefully, the market will taste no poison in either report.
There are stocks to buy in this market but proceed with caution and sell too soon.