Stocks Churn Ahead of Intel and Jobs Report
A slight majority of stocks turned around early morning weakness on Wednesday to close mildly higher as major indices ended the session near unchanged. Uninspiring economic news coupled with caution ahead of Intel's mid-quarter update on Thursday night and the jobs report on Friday morning kept stocks in neutral. Meanwhile the media coverage of the Walt Disney shareholder vote to keep embattled CEO Michael Eisner reached a frenzied state.
Global markets were generally lower lead by a 277-point decline in the Chinese Hang Seng index. The U.S. dollar continued its gains against the euro while trading close to unchanged versus the yen. Crude oil futures slipped 86 cents to $35.80 a barrel after the U.S. Department of Energy and the American Petroleum Institute reported a rise last week in crude oil supplies of 1.6 to 2.0 million barrels compared to previous estimates for a decline. Gold slipped $1.10 to $392.70 an ounce and copper futures plummeted 5.1% to $1.301 a pound, erasing last week's gains.
Market internals for the U.S. exchanges were mixed. Advancing stocks just edged past decliners by a narrow margin on the NYSE while the A/D line was virtually even on the NASDAQ. Overall volume was soft but down volume outweighed up volume on both exchanges. The volatility indices traded higher on the early morning weakness but reversed course as stocks pared their losses.
The Dow Jones Industrial Average closed up 1.63 points to 10,593 and traded in a relatively tight 60-point range. The index held support at the 10,550 level and its 50-dma once again. The S&P 500 followed the Dow with a 1.93-point gain to 1,151, regaining all of this morning's losses and holding above support at its 40- dma. The tech-heavy NASDAQ was hampered by selling in the semiconductor sector but only lost 6 points to close at 2033. Trading in the NASDAQ Composite was limited to a 19-point range. Insurance, biotechs and bank stocks were the strongest sectors while investors rotated out of chips, Internets, networking and hardware issues.
Chart of the DJIA:
Chart of the NASDAQ:
The major economic reports out this morning were the Institute for Supply Management's non-manufacturing index (or services index) and the Fed's Beige Book report. The January ISM services index came in at 65.7, a record high. Economists were expecting a drop to 63 percent in February. The actual number was 60.8, a bullish reading but worse than expected. Readings over 50 indicate expansion and growth and February's 60.8 marks the 11th consecutive month of growth for the services index. On Monday investors were encouraged by a better than expected reading in the manufacturing sector's employment index. Today's services employment component slipped from 53.4 in January to 52.7 in February, which bolsters the very cautious enthusiasm for this Friday's employment report.
The Federal Reserve's Beige Book report, which reports on economic conditions from the Fed's 12 regional districts, was largely ignored. The report was positive and suggested that employment was improving albeit slowly. Expectations for a strong Q1 GDP number are still alive but no one seems to be expecting any blow out job number gains.
Speaking of jobs Disney CEO Michael Eisner may be in for a tougher fight than he thought to keep his. Today was Disney's annual shareholder meeting where investors voted to re-elect Eisner. Since Eisner was running unopposed for the top spot at Disney dissidents seeking his removal made their voices known by "withholding" their votes. Of the 1.779 billion votes cast about 771.7 million or 43% of the vote elected to oust Eisner. This was an unprecedented occurrence and will likely force the Board of Directors to reconsider their support for Eisner. Adding to the pressure to remove Eisner, who has lead Disney for 20 years, was a statement from California's CalPERS pension fund who asked Michael to step down by the end of the year. Comcast Corp (CMCSA), who issued an unsolicited bid to buy Disney a couple of weeks ago, wasted no time and quickly issued a statement telling the Disney board and shareholders that Disney's management should meet with Comcast to reconsider their "generous" proposal. Disney (DIS), a Dow component, lost 11 cents on the session to close at $26.65.
Another Dow component doomed to suffer the spotlight tomorrow is Intel Corp (INTC). Intel will hold their mid-quarter update Thursday after the closing bell. Earlier this week on Monday a J.P.Morgan analyst downgraded INTC due to slower notebook sales and product delays. JPM also suspects that Intel will not raise guidance tomorrow for the first time in almost a year. Setting the tone was Xilinx's mid-quarter update on Tuesday night. Xilinx, another semiconductor maker, only narrowed their guidance to the top of their previous range and investors punished the stock with a 3.99% loss today. If Intel fails to raise guidance or somehow inspire investors again Friday could be a very tough session for tech stocks. Caution ahead of tomorrow's meeting drove both Intel and the SOX semiconductor index to a 1.89% loss. Intel and the sector are likely to trade sideways to down tomorrow and this could be a wet blanket on any attempted bounce in the NASDAQ tomorrow.
I'm not expecting a lot of excitement tomorrow. We do have a few economic reports but nothing too inspiring. The January Factory Orders report is expected to dip 0.6% from December's 1.1% gain. The Q4 productivity numbers are forecasted to rise 2.7%, which would confirm an earlier preliminary reading. The weekly initial jobless claims are expected to drop 5,000 to 345,000 this week. The real focus will remain on Intel's report Thursday night and the Jobs report Friday morning. Estimates are for unemployment to remain unchanged at 5.6% while the non-farms payroll report is expected to show a gain of 125,000 new jobs in February. I would hesitate to initiate new bullish positions, especially in tech stocks until after the Jobs report.