You could just hear
the cheering at Wednesday's closing bell on the floor of the New York Stock Exchange. Better-than-expected results from bellwether companies Intel Corp. (INTC) and JPMorgan Chase (JPM) helped send the Dow above 10,000 for the first time since its close of 10,325 on Oct. 3 of last year. These were results based on bona fide revenue increases, not cost-cutting. If top-line sales are in fact increasing across the board, it could go a long way toward getting everyone who has been fed up with the market for the last year and a half, mainly individual investors, back into the pool.
MARKET INDEX WRAPUP, Wednesday, Oct. 14:
(At the risk of dumping the ashtray into the punchbowl, I must report that this week brings results from only a half-dozen heavily-weighted Dow components, and that we have a loooong row to hoe before we hit the Oct. 9, 2007 high of 14,164. And that only 29 companies in the S&P500 Index report this week; next week we look for some 160 S&P announcements. And that once again, MACDs all over the place are not confirming new highs (Hey, I paint what I see). But there's enough to stay chipper about, especially if you rustled up a few dollars and went long in the last few months.
DOW JONES INDUSTRIAL AVERAGE:
Don't feel betrayed if there's a backup soon; at least one sign warns us. Note the possible reversal off the top Bollinger band. Corrections after a runup should not surprise:
DOW OUTSIDE BOLLINGER: BACKUP SIGNAL?
At 2,172, the Nasdaq also had its highest close in more than 12 months, helped by Intel:
Not to be outdone, the S&P500 capped its high of Oct. 6 of last year:
JPMorgan Chase was the first major bank to report third-quarter earnings and easily topped Wall Street's expectations with a profit of $3.59 billion or 82 cents a share. The bank reported rising loan losses which it warned would continue for some time, but those losses were more than offset by JP Morgan's successful investment banking operations. The first of the big banks to announce earnings for the July-September period, JP Morgan thumbed its nose at analyst forecasts of 52 cents while almost doubling the amount of money it set aside for failed home and credit card loans.
Investment bank net income came to $1.92 billion, up $1 billion from a year earlier as fixed income trading especially thrived. It was helped by investors still edgy about their long-term financial situations who are continuing to seek the comparative safety of bonds. Overall revenue came to $28.78 billion, better than the predicted $24.96 billion. The stock gapped up and stayed up, gaining 3.29%.
JPMORGAN CHASE: WILL OTHER FINANCIALS FOLLOW IT UP?
JPMorgan has been considered one of the strongest financial companies during the past year's turmoil. It has performed better than other large competitors in part because of its relatively light exposure to troubled subprime mortgages and commercial real estate. It was also, in June, among the first banks to repay government bailout money, in this case $25 billion.
The bank said the percentage of credit card loans it wrote off as not being repayable in the third quarter reached 10.3% of its total portfolio; it's expected to reach 10.5% in the first half of 2010 and could go higher depending on the unemployment rate. Loan losses were also pushed higher by weakness in the portfolios JPMorgan acquired when it purchased failed Washington Mutual last year.
However, in a glimmer of good lending news, the company said that for the second straight quarter there were signs of stabilization in delinquencies in recently-past-due consumer loans. If that continues â€” no guarantee, said the bank â€” JP Morgan's credit costs will decline and it might be able to raise its 5-cent-per-share-quarterly dividend to as much as 25 cents. Which would be some increase.
Most financial companies don't have huge stock and bond trading operations to help overcome loan losses, so let's maybe save some confetti until a few other big banks report. Citigroup (C) and Bank of America (BAC) are scheduled to report this week.
Boding well for the tech sector, Intel announced results late Tuesday and watched its stock rise Wednesday. The company announced of promising third-quarter results which could point to strong demand for personal computers and maybe better, to an improving corporate market in technology.
The world's biggest semiconductor company reported profit of $1.9 billion in the quarter or 33 cents a share, down a bit from Q308's $2 billion or 35 cents; revenue was $9.4 billion, down from $10.2 billion. Analysts were looking for 28 cents on $9 billion. For the current quarter, Intel expects revenue of $10.1 billion, beating Wall Street's expectation of $9.5 billion and kindling hopes that the tech market is truly waking up. Intel gapped up and gained over 1.5%, but closed below its open.
Apparently, manufacturers made pretty big bets on the next quarter. Chip companies are generally seen as good indicators of where the broader tech market is going, since chip companies must build their products ahead of any upswing in demand for end-customer goods. In fact, Intel's third quarter revenue represented an 18% jump from the previous quarter and the largest sequential third quarter revenue growth in over 30 years. One analyst called it "a sign of life in end-use demand."
Emerging markets could be partial drivers, at least, of the tech revival. Over and over again we see that when consumers get a little discretionary income, their first purchases tend to be electronic gadgets such as TVs, cell phones and PCs. Thus the tech sector, as usual, stands to be an early beneficiary of an economic upturn. Nor for the most part are tech companies burdened by nasty credit issues. Following Intel's lead, the Semiconductor Index had a similarly upbeat day:
In the big news of the day, the report of the September 22-23 Federal Open Market Committee meeting showed the Fed boosting its outlook for the economy. Still, monetary policy is likely to remain easy for some time, due to under-utilization of resources and the expectation of low inflation. Not all members seem to be in agreement on when to tighten things up, which should prove interesting in coming months.
The projection was raised for real GDP growth through the second half of 2009 and through 2010. A bigger upturn is now expected than at the previous meeting, due to firming sales and starts of single-family homes, a slowing rate of decline in capital spending, and a mild recovery in consumer spending. The Fed, as always, was capable of simply not factoring oil prices into inflation, despite the sharp recent increase.
WEST TEXAS INTERMEDIATE CRUDE:
The report largely dovetailed with most economists' view that the recession is over but the recovery is far from strong. In all, the report didn't much affect the market.
Contradicting some of that news was this week's Mortgage Bankers' Association MBA's purchase index, which thudded 5% last week while the refinance index edged down 0.1%. Mortgage rates moved up from near-record lows with 30-year loans up 13 basis points to an average 5.02%, which is largely why refinancings made up 67.4% of all applications: homeowners were hurrying to lock in low rates.
The decline in retail sales for September was smaller than expected, which helped market gains. The Commerce Department said overall retail sales declined 1.5% percent last month after a 2.2% spike in August; the decline was due to car sales falling 10.4% after the end of the government's Cash for Clunkers program, and now we don't have to hear "Cash for Clunkers" again.
It was the biggest monthly decline this year but not nearly as depressing as the 2.1% drop analysts had expected. Without the bad auto news, retail sales actually rose 0.5%, beating forecasts, but still lagging last year's showing.
There have now been two months of unexpectedly rising core sales. Gains were seen, interestingly, in the furniture & home furnishings category, up 1.4%; general merchandise, up 0.9%; and health & personal care, up 0.8%. There were also gains in the categories of food & beverage stores, clothing & accessories, sporting goods & hobbies, and food services & drinking places (do drinking places ever have a bad month?). Declines came in building material & garden shops, miscellaneous stores and nonstore retailers.
Furniture-maker Stanley (STLY) reported a wider loss but, yes, still beat expectations and added almost 6% today after a week of gains. Analysts were expecting increases at general merchandise stores following reports last week from the nationwide retailers of growing same-store sales. It marked the first year-over-year rise in sales after a year of declines. Sales at department stores edged up 0.4% in August and in fact department store chains Kohl's (KSS), Nordstrom (JWN), Macy's (M, below) and Dillard's (DDS), to name just a few, have all been soaring. Still, as long as unemployment is touching 10%, we probably shouldn't expect too much slack to be taken up by the still-employed.
Also on Wednesday, in what appeared to be a surfeit of good news, the Commerce Department said businesses slashed their inventories 1.5% in August, the 13th straight decline and more than the 0.9% drop analysts had expected. This cannot go on forever. Eventually, businesses must begin rebuilding depleted store shelves and back rooms. When that happens, factory production will begin to rise, employment will pick up, consumers will start consuming, and we'll see a reasonable recovery.
But it won't be a robust recovery unless our exports pick up. On the subject of exports, a colleague recently asked me (snidely, if you must know) whether I happened to know who Cato the Elder was. Being a nerd since before it was fashionable, naturally I knew: He was a Roman senator who ended every speech in the Senate for 20 years with the phrase, "Carthage must be destroyed." Time passed, and eventually Rome went and destroyed Carthage. It is my great hope that if I keep slipping "exports" into my writing, people will see the importance of manufacturing things and selling them to other countries, and eventually, even if it takes 20 years, you and I will have a recovery and a balance of trade we can be proud of.
CATO THE ELDER â€” my kind of guy:
Not surprisingly, a Bureau of Labor Statistics report suggests that import prices are showing the effect of the weak greenback, since inflation pressures look like they're increasing -- barely, but still increasing. Import prices excluding petroleum were up 0.4% in September after a 0.3% rise in August, and import prices for industrial supplies excluding petroleum were up 1.5% after August's 1.1% rise. Hmm. Pressures may now be starting, slowly, to find their way into finished goods. It's not the end of the world, but the report does indicate rising pressures for intermediate goods.
ALL IMPORTS EXCLUDING PETROLEUM:
Pharmaceuticals company Abbott Labs (ABT) also announced third quarter adjusted earnings up some 35% at 92 cents a share, and raised its full-year guidance. Strong sales of its rheumatoid arthritis drug Humira were to thank, along with its nutritional products; like almost everything else that happened Wednesday, it beat expectations. Abbott's results helped the pharmaceutical sector and that nudged healthcare up 1.5%.
Rail company CSX (CSX) was one of this session's best performers following its upside earnings surprise of 74 cents a share. Other rails shared in its strength and sent the industrial sector to a 2.6% gain, second only to financials. Transportation is considered by some an early and significant indicator of economic activity.
Telecom was the only sector that failed to post a gain. The loss was minor, but this session was the fifth time in the last six sessions that telecom underperformed.
Hardly anyone thinks we'll see a test of last spring's lows, but a look at the NYSE Advance/Decline Line might be in order. The NYAD is a market-breadth indicator that tells us whether bullish or bearish momentum is driving the market. It compares the number of NYSE stocks that are advancing in price with the number that are declining. When more stocks on the NYSE are increasing in value than are decreasing, the A/D Line moves higher indicating bullish momentum; when more stocks are decreasing in value, the A/D Line moves lower, indicating bearish momentum. We want to see higher highs and higher lows; until just recently, that's what we got:
NEW YORK STOCK EXCHANGE ADVANCE-DECLINE . . . .
. . . .COMPARED TO THE DOW:
A steeply rising A-D Line is usually followed by a considerable period of rising stock prices. What we don't want to see, assuming we're long, is a sharp sustained falloff in the rise of the A-D line. Obviously there can be bumps and corrections along the way, as seems to be the case here. We'd be dreamers not to expect a top of some kind after the runup of the last seven months, especially considering today's breach of psychologically-significant Dow 10,000.
On Thursday we get the Philadelphia Fed Survey, New York Manufacturing and the Consumer Price Index, which many will be watching. The earnings pace hastens with Citigroup (C), Goldman Sachs (GS), Google (GOOG) and International Business Machnes (IBM) Amphenol (APH), Baxter Intl (BAX), Cypress Semiconductor (CY) Fairchild Semiconductor (FCS), Harley Davidson (HOG), Nokia (NOK), Omniture (OMTR) and Southwest Airlines (LUV), among others.