The Home Stretch
There are only 8 1/2 trading days left in 2003 and the DJIA looks determined to finish strong. After a decent, triple-digit CPI- fueled rally on Tuesday the Dow managed to etch yet another new 19-month high. Struggling to keep up is the NASDAQ. The tech- heavy NASDAQ, which has strongly outpaced the Industrials all year, seems tired. Investors are selling into strength and taking gains as they approach year's end. However, don't count the NASDAQ out just yet. There are still plenty of investors willing to buy the dip and we saw that again today as the NASDAQ overcame a 35-point decline by the closing bell. Jim's comments yesterday about fund managers rotating our smaller cap stocks and into large cap, more liquid equities is playing out before our eyes.
Yet another drop in the U.S. dollar and the re-emergence of SARS has put global markets on the defensive. The Japanese NIKKEI fell 178 points to close at 10,092. The Hong Kong Hang Seng followed suit with a 67-point drop to 12,193. European markets were generally lower but the British FTSE out performed the group with a 21-point gain to 4354. The German DAX lost 18 points to close at 3847.
U.S. stocks were a mixed bag. After Tuesday's big gain it would be normal to see some profit taking. Add to the mix this Friday's quadruple-witching expiration and I'm surprised we didn't see more volatility. The pockets of selling that did show up today were relatively shallow. Hardest hit was the semiconductor sector after yesterday's downgrade from Merrill Lynch. Internet stocks and networking stocks also took a step back. Airlines stocks paused again after the SARS news came out yesterday. Wednesday's best performers were the homebuilders, after new mortgage data showed an increase in applications. Retail stocks also produced a strong bounce after two days of declines. Gold stocks marched higher as gold futures added another $4.30 to close at $412.70 an ounce. Defense stocks were strong again and oil issues gushed higher with crude oil hitting new highs at $33.39 a barrel.
Market internals continued to paint a mixed picture. Bulls lead the way on the NYSE with advancers out numbering decliners 16 to 11 and up volume outweighing down volume 931 million to 741 million shares. The profit taking in the NASDAQ was easy to see with declining stocks pushing past advancers almost 17 to 14 and new highs evaporating to a lowly 78. Down volume of 907 million significantly overshadowed up volume at 550 million.
Chart of the DJIA:
Chart of the NASDAQ:
We had several stocks making headlines today. There were widespread expectations for Wall Street brokers to turn in a strong quarter and Bear Stearns and Lehman Brothers did not disappoint. Bear Stearns (BSC) reported net income of $2.19 per share, well above estimates of $1.81. Revenues jumped almost 36% to $1.53 billion, besting the $1.38 billion estimate.
Lehman brothers (LEH) also turned in a strong performance. Earnings were $1.71 a share compared to estimates of $1.57. Outstanding results in its bond trading activities and underwriting lead to a 49% jump in revenues at $2.3 billion for the quarter. Investors will get to hear from Goldman Sachs (GS) and Morgan Stanley (MWD) tomorrow. Estimates are $1.54 for GS and $0.90 for MWD. Overall 2003 has been an impressive year for the securities industry. Profits are expected to be the second best on record, above the 1999 levels at $16.3 billion.
Contributing to the impressive results for the major brokers has been a flood of IPO activity. Today alone we had four IPOs. The biggest IPO of the year was China Life (LFC). LFC is the biggest Chinese insurance company; of course it doesn't hurt being run by the government. The IPO brought in $3 billion with an IPO price of $18.68. By the close of business LFC had added more than $5 settling at $23.72.
Orbitz.com, the online travel destination, went public today. The Orbitz.com (ORBZ) IPO, while highly anticipated, failed to deliver. The company priced about 12 million shares at $26 for the open today. The stock soared to $30.75 intraday but actually closed for a loss at $24.98. It was not the most glamorous first day of trading.
Struggling for their own time in the spotlight were IPOs for Universal Technical Institute (UTI) and Falcon Financial Investment Trust (FLCN). UTI is an Arizona-based training college for automotive-related repair and refinishing. FLCN services loans to auto dealers.
Investors were also eager to hear from consumer electronic giants Best Buy (BBY) and rival Circuit City (CC). BBY's results matched consensus estimates at 37 cents a share on revenue growth of 18% to $6.03 billion. In contrast CC's results continue to deteriorate. Net income was actually a net loss of 12 cents a share, worse than the estimate for a 7-cent loss. This was the second earnings miss in a row for CC and the stock lost another 6.6% to close just above the $10 level of support. Without a doubt CC is losing the fight to BBY, who continues to steal market share.
Looking ahead to tomorrow's forecast we can probably expect more of the same. The strength in the DJIA and S&P 500 is likely to continue while the NASDAQ should continue to churn above the 1880 level. Stocks are likely to gravitate toward their nearest option strikes as the markets prepare for Friday's expiration. Investors will also get to mull through a few economic reports. Tomorrow brings the index of leading economic indicators. Estimates are for a 0.3 percent rise in November on top of October's 0.4 percent jump. The Philly Fed Index will be revealed tomorrow as well. Economists are looking for a decline to 25.0 in December from November's 25.9. Last but not least is the initial jobless claims, which are expected to decline.
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