Passage of the historic health-care reform package had futures trading down last night and got the market off to a sour start this morning, but the down move was short lived as stocks rebounded and all three major U.S. indexes finished another Monday in positive territory. The Dow Jones Industrial actually moved above 10,800 before settling at 10,785.89, up about 44 points on the day. The S&P 500 gained nearly six points to finish the day at 1165.81 and the Nasdaq continued its flirtation with 2400, gaining 21 points to close at 2395.40.
As is par for the course with major, controversial legislation, the House passed a health-care reform package of historic proportions last night when they were probably hoping no one was watching, but that was not the case. The Senate is expected to take up the bill on Tuesday with the intent of implementing some fixes to the House version, but press reports are saying that President Obama could sign the bill into law as early as tomorrow afternoon.
For their part, Republicans are not going quietly into the night on this issue. Sen. Jim DeMint (R-SC) and Rep. Steve King (R-IA) have filed bills in their respective houses to repeal the bill and it goes without saying tomorrow's Senate proceedings will be loaded with procedural gimmicks aimed at stopping this bill from seeing the light of day. One would think with all of these external factors weighing on health-care-related stocks, the sector would have been in for some pain today.
To be sure, health insurance providers were a mixed bag today with Aetna (AET) and Cigna (CI) both finishing the day higher, but Humana (HUM) and WellPoint (WLP) both closed lower. Investors in the pharmaceuticals space seem to like the bill as Abbott Labs (ABT) and Dow components Merck (MRK) and Pfizer (PFE) both finished up on the day, helping the Health Care Select SPDR (XLV) and the Pharmaceutical HOLDRs ETFs to finish in the green.
Not lost in the health-care shuffle is the fact that financial reform will now move to the front burner with the imminent passage of the health-care bill. Just hours after the health-care bill was passed by the House, the Senate Banking Committee voted to move ahead with financial reform. The vote was 13-10 along party lines, no surprise there.
The bill, sponsored by Sen. Chris Dodd (D-CT) may not be strong enough for the White House's taste, but it does have the support of the Wall Street crowd, making its passage somewhat dubious. Even if the bill makes it out of committee, it must be reconciled with a House version and then come back to the Senate for a full vote where the Democrats are one vote shy of cloture. Sixty votes are needed to avoid procedural wrangling and actually get a straight forward vote and the Democrats have 59 votes, assuming no Republicans jump ship.
Financials were a mixed bag on the news, with Goldman Sachs (GS) and Morgan Stanley (MS) finishing lower on the day, but banks with more retail exposure, such as Wells Fargo (WFC) and Dow members Bank of America (BAC) and JPMorgan Chase (JPM) all finished higher on the day. The Financial Select SPDR (XLF) ended up with a small gain on the day.
In other stock-specific news, there were a couple of somewhat encouraging earnings reports out of the retail sector. High-end jeweler Tiffany (TIF) said its fourth-quarter profit more than quadrupled to $140.4 million, or $1.10 a share, from $31.1 million, or 25 cents a share, a year earlier. Sales rose 17% to $981.4 million from $837.6 million. The profit number missed the consensus estimate of $1.13 a share, but the top line number did beat the average estimate of $970.9 million.
Tiffany shares spent most of the day in positive territory, eking out a small gain and that gain was probably realized because the company said it expects to earn $2.45 to $2.50 a share this year on revenue of $3 billion. Analysts had been expecting a profit of $2.43 a share on sales of $2.9 billion. Analysts remain bullish on the name and Tiffany may be offering proof that when it comes to earnings, it's not what a company says it did, but what it expects to do.
Williams-Sonoma (WSM) was another name on the higher-end of the retail spectrum that was in the news today. The home furnishings retailer said it earned $88.4 million, or 81 cents a share, in the fourth quarter, compared with $12.2 million, or 12 cents a share, a year earlier. Sales rose 8.1% to $1.1 billion from $1 billion. Excluding items, Williams-Sonoma earned 86 cents a share and that blew away the average analyst estimate of 74 cents.
The California-based company said robust sales at its Pottery Barn and Pottery Barn Kids stores helped drive the profit growth. Like Tiffany, Williams-Sonoma offered bullish 2010 guidance. The company said it expects earnings to rise 22% to 33% to $1.16 to $1.26 a share on sales of $3.2 billion to $3.3 billion. Analysts had been expecting earnings of $1.02 a share on revenue of $3.2 billion.
And just as Tiffany did earlier this year, Williams-Sonoma said it will boost its quarterly dividend to 13 cents a share from 12 cents. All of this good news helped the stock gain $2.96, or 12.26%, to close at $27.10 after touching a new 52-week high of $27.27 earlier in the trading session. Volume was nearly quadruple the daily average.
Speaking of bullish 2010 guidance PepsiCo (PEP), the world's second-largest soft drink maker, started its two-day analyst meeting today at Yankee Stadium. Chief Executive Officer Indra Nooyi reiterated that the company expects earnings to rise by 11% to 13% this year and that the company is still aiming for low double-digit growth in 2011 and 2012.
Nooyi added that Pepsi is focusing on healthier drinks and snacks that have less calories, sugar and salt. The company, which raised its dividend and announced a $15 billion share buyback plan last week, said it plans to invest ''aggressively'' in emerging markets such as Brazil, China, India and Russia.
And speaking of emerging markets, China continues to be a real thorn in the side of Internet search king Google (GOOG). Google ended its four-year old policy of providing censored content to users in mainland China today. What this means is that if you go to the Chinese version of Google, google.cn, you will be redirected to Google's Hong Kong site, google.hk.
That is not much of an elixir because the Chinese government can still restrict the links that users on the mainland can view and shows that Google, for all of its power, was probably short on power and long on hubris when it came to dealing with the Chinese government. If push comes to shove, Beijing will not have any qualms about shutting off access to Google in China completely. They have already taken similar action with Facebook, Twitter and Google's YouTube, according to the Associated Press.
Google, which has about 700 staffers in China, said it might remove some sales staff from the country. As I mentioned last week, China has its own Google in the form of Baidu (BIDU), so Google's refusal to play by China's rules is vexing, particularly when considering how important the Chinese market is to American companies. When many American companies set up shop in global markets, they tailor their products to adhere to local customs, rules and traditions. For example, you will not find a Big Mac on the menu of a McDonald's (MCD) in Bangalore. Why Google thinks it is above similar practices is anyone's guess. Not surprisingly, the stock was down on the China news.
Looking at the charts, the Dow has notched gains in nine of the past 10 trading session with last Friday being the lone down day in that time frame. The index again traversed 10,800 today before settling below that mark, but it appears that resistance at 10,725 has now turned into support. Even with the retreat below 10,800, the Dow is still trading at a 14-month high.
The S&P 500 snapped a small two-day losing streak today, but could not hold the highs of the day and closed just below 1160. The next hurdle for the index is 1170 and support looks firm at 1150. Neither the health-care news nor the financial reform headlines stood in the way of stocks on Monday and that is a bullish sign for the S&P 500.
S&P 500 Chart
As I mentioned earlier, the Nasdaq bumped into some resistance at 2400 today, the second-time it has done so since last Wednesday. Last Thursday and Friday, the Nasdaq did not even make it to 2400 intraday, so the bulls will need to push the Nasdaq through 2400 with some vigor to dispel any concerns regarding the near-term health of the index. If 2400 is broken on strong volume, there is a lot of room to run to 2473, which was the July 2008 high.
Oracle's (ORCL) earnings report on Thursday could help (or hinder) the Nasdaq's ascent. When Oracle delivers an earnings surprise, it is usually to the upside. The stock's moves off its last five earnings reports are 6%, -3%, 7%, 10% and 7% respectively.
It is hard not to be impressed by the resilience shown by equities on Monday in the face of political headwinds and it makes me wonder where the major indexes would be trading if Washington was not such a prevalent factor in the markets. Shorts are continually getting squeezed and they may wave the white flag any day now with the intent of regrouping if there is profit taking in early April. For now, the safe bet is on the bulls.