Stocks started off the day in sluggish fashion, but finished strong as financials showed up to the party and led the gain for the 10 industry groups tracked by the S&P 500, gaining 2.3% on the day. That erased almost all of last week's 2.4% decline for the group and that helped both the Dow Jones Industrial Average and S&P 500 to gains of over 0.7% each. The Nasdaq added almost half a percent as tech investors awaited a fairly significant after-the-bell earnings report.
It looks like the market is maintaining the expectation that the Federal Reserve will be adding to its balance sheet by purchasing Treasuries to prop up the economy, particularly after a surprise 0.2% decline in factory output and utilization rates. Industrial production has been seeing some gradual improvement and even after the September decline, U.S. industrial production has moved higher at an annualized clip of 5% over the last six months.
Industrial Production Chart
As for the impact that news of more quatitative easing is having on the U.S. dollar, let's just say things were a little less bad for the dollar against the euro today, but there was hardly a reason to cheer the performance of the U.S. Dollar Index. The greenback was stronger against the euro overnight due to some profit-taking that started last week, but enthusiasm for the dollar waned early in the U.S. trading session.
Perhaps the best near-term outlook for the dollar is not fundamental, but rather technical as analysts are saying the euro faces some stout resistance in the $1.40 area. Oil was higher today and gold took only a small breather, so the dollar is getting little in the way of reprieve. Dennis Lockhart, president of the Atlanta branch of the Federal Reserve, said today that the U.S. economy is weak enough to command extension of the Fed's easy monetary policy.
While it is worth noting that traders have pared their bearish bets against the dollar on speculation the market has already priced in the impact of QE2, there are still a lot more short bets against the dollar than there are bullish positions out there. The dollar index is down 8% since President Obama took office.
Dollar Index Chart
It was busy day in terms of earnings, both before and after the bell with the pre-market reports presenting investors with a mixed bag. This is a busy week for profit updates from oil services and energy names and the results were not pretty on that front this morning.
McMoRan Exploration (MMR), the independent oil and gas exploration firm, was slammed to the tune of 13.1% today after the company cut its production outlook for the third time this year. The company now expects to produce about 140 million cubic feet of natural gas per day in the fourth quarter and 160 million cubic feet on average for 2010, well below last year's production level of 202 million cubic feet.
While McMoRan was able to cut its year-earlier loss in half to 26 cents a share, revenue plunged 13% to $94.8 million. Analysts were expecting a loss of 25 cents a share on revenue of $98.7 million. McMoRan attributed the slack third-quarter production to maintenance work and downtime that was forced upon the company by the moratorium on deepwater drilling in the Gulf of Mexico.
Halliburton (HAL), the world's second-largest oil services company, said its third-quarter profit doubled to $544 million, or 60 cents a share, from $262 million, or 29 cents a share, a year earlier. While revenue jumped 30% to $4.67 billion, analysts were forecasting a top-line number of $4.78 billion. The revenue miss sent Halliburton shares down $1.73, or 4.83%, to $34.09 on volume that was more than double the daily average.
Halliburton said increased demand for its services in products in shale gas plays in the Northeast and Southwest helped offset weakness in other regions, inlcuding the Gulf of Mexico. The company is benefitting as energy producers rush to exploit onshore resources in the wake of the Gulf oil spill. Halliburton's global operation declined everywhere but North America during the quarter.
While natural gas prices are plunging, analysts say energy producers are heavily attracted to shale plays and will simply shift their drilling efforts to oilier shale areas if oil prices remain high and gas prices continue to falter, enabling Halliburton to maintain its North American margins and revenue at least through 2011.
Leading the charge in the financial services sector was Citigroup (C), the third-largest U.S. bank by assets. Citi jumped 22 cents, or almost 5.6%, to $4.17 on volume that was almost double the daily average after saying its third-quarter profit rose to $2.15 billion, or 7 cents a share, compared with a loss of $3.24 billion, or 27 cents a share, a year earlier. Analysts were expecting a profit of 6 cents a share.
Like rival JPMorgan Chase (JPM) said when it reported results last week, Citi was able to deliver the quarterly profit by taking back $1.97 billion it had set aside to cover bad loans. Citi's losses from bad loans plunged 30% in the third quarter to $7.66 billion as defaults on credit cards and real estate loans declined. Citi is benefitting from its global business, which delivered about half the bank's revenue in the quarter, and thus far, Citi has been immune from the foreclosure mess that has hampered rivals such JPMorgan and Bank of America (BAC).
After the bell, the tech sector was at the forefront of earnings report. Dow component International Business Machines (IBM), the world's biggest computer services provider, said its third-quarter profit rose 12% to $3.59 billion, or $2.82 a share, from $3.21 billion, or $2.40 a share, a year earlier. Sales rose to $24.3 billion. Those numbers beat the average analyst estimate of a profit of $2.75 a share on revenue of $24.1 billion, but investors were not impressed.
Corporate customers did boost spending on IBM hardware and software, but services contracts, the company's most important business line, slumped 7% to $11 billion. The services unit accounts for 60% of IBM annual revenue and 40% of its annual profit, according to Bloomberg News. News of the disappointing services number has IBM shares trading lower by $5 in the after-hours session as of this writing.
Yes, IBM is an important stock, but it was by no means the marquee tech name to deliver results after the market closed today. That distinction belongs to Apple (AAPL). After touching a new all-time of $319 today, Apple closed at $318. Apple does what it does best when it comes to quarterly earnings updates and that is blow-out estimates.
For its fiscal fourth quarter, Apple posted a profit of $4.31 billion, or $4.65 a share, compared with $2.53 billion, or $2.77 a share, a year earlier. Revenue surged 67% to $20.34 billion. Analysts were expecting a profit of $4.10 a share on sale of $18.9 billion. The now ubiquitous iPhone led the charge for Apple as the company moved 14.1 million units compared to the Street estimate of 11.5 million units.
Consumers also continue to love their Macs. Apple sold 3.89 Mac computers during the quarter, beating the estimate of 3.8 million, but the good news may have ended there. Kind of. Apple sold ''just'' 4.2 million iPads during the quarter, but the Street was looking for a number around 4.8 million units. The problem was not a lack of demand because stores cannot keep the iPad on their shelves. The problem was Apple suppliers ran out of parts and components to build more iPads with.
Obviously, demand for the iPad is robust, but if Apple cannot build the device then they cannot sell it and investors realize that. Apple shares are down almost 6% in the after-hours session. Six percent is a lot in percentage in terms, but when talking about a stock that closed at $318, that works out to a decline of $18.39.
The Apple conference call was pretty entertaining. Founder and CEO Steve Jobs made a rare cameo on the call, delcaring that his company will crush iPad competitors and rival products from the likes of Dell (DELL) and Research In Motion (RIMM) will be ''dead on arrival.'' Remember, Goldman Sachs has a $500 price target on Apple.
If Monday's after-hours action is any indication, the Nasdaq will open lower on Tuesday. Apple accounts for 20% of the Nasdaq 100 so it may take longer than previously hoped for the Nasdaq Composite to make a run at resistance at 2519. With Monday's close at 2480, it would take a mighty tumble to bring Nasdaq support at 2450 into play over the next couple of days.
While the S&P 500 did not post an eye-popping gain today, it was able to move away from resistance at 1175, albeit slightly. That is good for three closes in four days above 1175, but with Apple and IBM looking so weak this evening, we could see the S&P 500 back below 1175 tomorrow. More significant support is 1150.
S&P 500 Chart
The Dow may have some problems making a run at resistance at 11,200 tomorrow, assuming that IBM is a real drag on the index. Then again, three Dow components, Bank of America, Coca-Cola (KO) and Johnson & Johnson (JNJ) report before the bell. I would not expect much out of Bank of America, certainly not enough to outweight IBM's decline. Support for the Dow is 10,975.
With so much being made of the results of the mid-term elections, and Election Day is just two weeks from tomorrow, I thought it would be interesting to research the performance of stocks following the mid-terms. There have been 17 200-day trading periods following mid-term elections since 1942. How many times has the S&P 500 moved higher in those 200 days proceeding the mid-term election? Seventeen. Perhaps its best to be bullish until the market proves otherwise.