If one is to consider last week's small declines on the Nasdaq and the S&P 500 a dip then it was bought with a fair amount of enthusiasm today as the Dow Jones Industrial Average flirted with 12,000, reaching its highest level since 2008 after chalking up a triple-digit gain. That is a very impressive way to start the week considering the blue chip index has notched eight consecutive weekly gains. The S&P 500 gained just over half a percent while the Nasdaq closed higher by over 1%. The Russell 2000 made some headway toward erasing last week's loss by adding almost 1% today.
Whether it was some mergers and acquisitions news, share buyback headlines or speculation about higher dividends, there were plenty of catalysts to help the bulls reassert themselves on Monday and large-caps were the place to be. On the dividend front, 2011 is shaping up to be a dandy year for income investors. You may have heard the factoid thrown about that as of the end of the third quarter, U.S. nonfinancial companies were sitting on north of $1.9 trillion in cash and it would appear some of that stash is destined to be returned to shareholders this year in the form of higher dividends and share repurchases.
I assume Warren Buffett's Berkshire Hathaway (BRK-A, BRK-B) is not included in the $1.9 trillion figure because the company is a financial stock, but Berkshire could be sitting on $50 billion in cash by the end of 2011, according to Barron's, which issued a bullish report on the company over the weekend. While the recent chatter surrounding Buffett and Berkshire has been about the Oracle of Omaha's retirement plans, it is worth noting that Barron's says the company could pay a dividend this year.
That is assuming that Buffett cannot find a big acquisition to take part in and that is a very real possibility if equity markets continue to soar higher. A noted value investor such as Buffett probably will not be doing much shopping with stocks at higher levels than where they currently trade. The dividend chatter played a part in boosting Berkshire shares and I have included the chart of the ''B'' shares as they are more reasonably priced than the ''A'' shares.
A Berkshire dividend would be big news because, for all the dividend stocks Buffett has acquired over the years, his company has not paid a dividend since he took over in 1965.
Berkshire B Chart
Speaking of Buffett stocks, one of Berkshire's largest holdings, Dow component American Express (AXP) reported fourth-quarter results after the bell and the New York-based company said its profit soared 49% to $1.05 billion, or 88 cents a share, on revenue of $7.32 billion. Excluding severance charges, AmEx earned 94 cents a share. Analysts were expecting a profit of 95 cents a share on revenue of $7.28 billion.
The good news comes on two fronts for AmEx. Not only did large corporate customers, small businesses and consumers boost their spending in the fourth quarter, they have also gotten better about paying their bills on time, allowing the company to set aside less cash for bad accounts.
AmEx set aside $239 million for future losses, 68% less than the same period in 2009, and released $672 million from an account to cover soured loans while write-offs for bad loans fell to 4.1% in December from 7.1% a year earlier, according to Bloomberg News. Investors apparently wanted more as shares of AmEx are down 1.4% in the after hours session.
American Express Chart
In other Dow-related headlines, McDonald's (MCD), the world's largest fast-food chain, stepped into the earnings confessional before the bell, delivering a slight increase in fourth-quarter results that translated to a small bump higher for the stock today. Illinois-based McDonald's said its fourth-quarter profit rose 2.1% to $1.24 billion, or $1.16 a share, compared with $1.22 billion, or $1.11 a share, a year earlier.
Excluding a one-time charge, McDonald's earned $1.15 a share on sales of $6.21 billion, which was in line with analysts' estimates. Same stores sales in the U.S. rose 2.6% compared with the 4% estimate of analysts surveyed by Bloomberg.
Shares of McDonald's have been nothing if not volatile for a company of this nature over the past few months The stock surged roughly 25% from July through early December only to give back about 10%, tumbling from $80 to $72. Now at just over $75 with a forward P/E of just over 15, the purveyor of Big Macs could be a compelling play for income investors looking to start or add to a position on any market dips. The yield is fair at 3.24% and McDonald's has raised its dividend for 37 consecutive years.
There is plenty of news to get in the world of semiconductors today. Intel (INTC), the world's largest semiconductor maker, got the ball rolling this morning by announcing a $10 billion share repurchase plan. The company had taken a break from share buybacks to conserve cash during the financial crisis, but waded back into the water late last year, repurchasing $1.5 billion of its own stock during the fourth quarter.
Intel also made good on its promise made last year to raise its first-quarter dividend. Still, some pundits were critical of the Intel buyback news, saying it means Intel is taking a pass on delving deeper into the lucrative smartphone market where it is a laggard, not a leader.
In the semiconductor sector, the smart play on smartphones may just be Nvidia, which surged $2.51, or 11.3%, to $24.73 thanks to a Barron's bounce. Barron's said Nvidia shares could run to $40 if the company's Tegra chip helps it boost market share.
Nvidia is banking on Tegra to help it become a market leader for mobile chips, the chips used in smartphones and tablet devices like the iPad. At the Consumer Electronics Show in Las Vegas earlier this month, Tegra chips were spotted in several new smartphones and tablets running on Google's (GOOG) Android operating, indicating Nvidia is ahead of rivals like Qualcomm and Texas Instruments (TXN) in the mobile chip market.
After the bell, Texas Instruments, the largest maker of analog chips, said its fourth-quarter profit jumped 44% to $942 million, or 78 cents a share, from $655 million, or 52 cents, a year earlier as revenue surged 17% to $3.53 billion.
Texas Instruments said its inventory was up $318 million to $1.52 billion in the quarter and that is by design. As such, orders fell a bit as customers are not as worried as they previously have been about obtaining supply from TI. The company's first-quarter guidance left something to be desired and that is probably why the stock is 2.5% in the after-hours session.
The company said it expects to 54 cents to 62 cents a share on sales of $3.27 billion to $3.55 billion for the current quarter. Analysts polled by Bloomberg are currently forecasting a profit of 57 cents a share on revenue of $3.33 billion. By sales, TI was the third-largest U.S.-based chipmaker last year, trailing Intel and Qualcomm.
Texas Instruments Chart
Looking at the charts, the S&P 500 is back to 1290 and a move above that number means it is time to be long again. The first attempt at 1300 for the index failed, but the slide from there did not really test support at 1260, so that still remains the number where I would be looking for the bulls to step in if the market wants to move lower. From there, next support would be 1235-1240, but with more than 100 S&P 500 constituents left to report earnings this week, if we see bullish guidance and more positive dividend news, we could be talking about what to look for over 1300.
S&P 500 Chart
As I mentioned earlier, the Dow is now building on eight straight weekly gains and a move to 12,000 seems to be a foregone conclusion at this point. You would have to go back to 2008 to find the last time the Dow traded that high. AmEx may not be a problem for the Dow on Tuesday as Jonhson & Johnson (JNJ), Travelers (TRV) and Verizon (VZ) all report before the bell. The 11,600 area is where we go if the headlines turn noticeably negative over the coming weeks.
I am still not overwhelmed by the Nasdaq because Apple's (AAPL) gain of over 3% today probably did most of the heavy lifting with Nvidia chipping in, but the index is back above 2700. Earnings reports from Netflix (NFLX) and Amazon (AMZN) should be watched closely later this week, particularly the former. I have mentioned before the problems facing Netflix and Whitney Tilson's short position in the name. Any news about higher costs and lost subscribers would be a disaster for this stock and perhaps help shorts get the Nasdaq to 2675.
After last week's plunge of almost 4.3%, a gain of 0.8% for the Russell 2000 leaves the index with some work to. The index is now just below old support at 780 and that may turn into new resistance. Multiple failures there could send the volatile index down to real support at 764.
Russell 2000 Chart
This week has the potential to be a real roller coaster with so many earnings reports left to come and a full economic calendar, which includes the FOMC announcement on Wednesday and GDP on Friday. In other words, this would not be a good week for marquee names to deliver disappointing results and forward guidance or for the market to have to contend negative non-U.S. events. The mental impact of the Dow hitting 12,000 and the S&P 500 topping 1300 may be enough to drive stocks higher for the rest of the week, but the indexes have to get there first.