GDP Driven Rally

123jump.com Staff
25 May, 2006
New York City

Market showed a positive bias at the opening. Averages gained strength as the day progressed on the steady buying from mutual funds. Tech stocks led the early rise and rally spread to large-cap stocks. Market rise for the second day in a row convinced buyers to step in on the revised grwoth rate of GDP to 5.3% in the first quarter. April existing-home sales declined 2%Mastercard IPO raised $2.39 billion at a price of $39 per share. Regions Financial agreed to buy AmSouth for $10 billion.

[R]4:00PM Market averages gained on revised GDP growth rate.[/R]

-Dow closed up 93.57 points, Nasdaq closed up 29.06 and S&P 500 closed up 14.31.
-Yield on 10-year bond closed at 5.08% and 30-year bond at 5.18%.
-Crude oil closed up $1.46 to $71.32 per barrel.
-Gold up $11 to close at $648.50 and silver closed up 8 cents to $12.60 per ounce.

-Asian markets closed lower led by 2% drop in Korea and Thailand and 1.4% in Japan.
-Latin American markets closed higher led by 5% rise in Brazil and 3% rise in Mexico.
-European markets closed higher led by 2.2% rise in Germany and 1.6% rise in U.K. and France.

Market averages closed higher on the heels of merger news, revised GDP data, jobless claims. Merger between two banks Regions Financial and AmSouth Bank for $10 billion will form the tenth largest bank in the country. Banking sector has been consolidating at a rapid pace and analysts expect similar mergers in the coming months. Recently Golden West agreed to be bought for $25 billion by Wachovia Bank. Revised GDP data suggested that the economy is benefiting from the rise in spending in inventory and corporate profits. Corporate profits rose 8.8% from a previous quarter and 24.8% from a year ago. Share of corporate prost in GDP came in at 8.9%, the highest in the last six decades. Market averages maintained a positive bias at the opening and reached higher level in the final 30 minutes of trading. Mastercard ((MA)) IPO closed up $5.70 from its offer price of $39. The credit card company IPO was the largest IPO in the last two years.

Joy Global, Inc. ((JOYG)), a manufacturer of mining equipment, announced Q2 earnings of 66 cents per share an increase of 19% over 31 cents per share in the year-earlier period. The company’s income grew from $83 million compared with $39 million a year ago. Total revenues for Q2 were $560 million compared to $472.5 million a year earlier. Analysts had been expecting earnings of 53 cents per share on revenue of $595.6 million. The increase in revenue, at 65% of the total quarterly revenues compared to 62% last year, was accredited to aftermarket parts and services revenues which rose 24% over the year-earlier period. Original equipment orders in Q2, however, declined in total by 33%, in particular for new capacity mining systems. The company stock has traded between $22.20 and $71.68 in the last 52 weeks of trading. The stock declined $4.97 to trade at $49.40 in the late afternoon trading.

[R]2:30PM Positive bias in averages in the last hour of trading.[/R]
Big merger between two banks based in Alabama state, a deal between Yahoo and eBay and GDP data kept traders in the buying mood for the day. The guilty verdict for Ken Lay and Jeff Skilling in Enron trial did not impact market trading. Market kept the upward bias in trading on the revised GDP estimate of 5.3% from 4.8% but inflation estimates were not changed. The first quarter rise in GDP was much better than 1.7% rise in fourth quarter GDP. Existing home sales declined 2% in April to an annualized rate of 6.76 million, according to National Association of Realtors. On the news housing stocks rose a fraction. Market staged 1% rally in tech stocks heavy Nasdaq and 0.7% rally in Dow.

Coldwater Creek, Inc. ((CWTR)), a retailer of women’s apparel, accessories and jewelry, announced Q1 earnings of 12 cents a share compared to 9 cents a share in the year-earlier period. The net income for the quarter was up 36% to $11.6 million compared to $8.5 million. Analysts had expected earnings of only 11 cents a share. Net sales for Q1 increased 38.3% to $215.3 million from $155.6 million in the year ago period. The company also announced that it would restate its 2005 Q1 financial statements to correct the manner in which it accounts for non-refundable marketing fees from its credit card issuer in conjunction with its co-branded credit card program. These fees, which were previously disclosed in prior SEC filings, were recognized as revenue during the period in which the customer’s card was issued and activated.

[R]12:30PM European markets closed higher.[/R]
European stocks reversed from early weakness and posted solid gains in the afternoon, leading averages to robust close. Strong U.S. markets opening, gains for miners, and well-received corporate news boosted European stocks Thursday. Along with rising metal prices, shares of mining companies like Anglo-American and Kazakhmys advanced. Tate & Lyle gained 5.6% after reporting higher-than-expected quarterly profit growth of 16%. U.K. bank Barclays added 1.2$% on positive Q1 results, including growing revenue. The German DAX 30 climbed 1.6%, the French CAC 40 surged 2.1%, and London FTSE 100 rose 1.5%.

Oil prices moved back above $70 on fears of approaching hurricane season. Light crude July delivery gained 54 cents to $70.40 a barrel. London Brent crude added 11 cents to $69.33. Gasoline added 2 cents to $2.0425 a gallon, while heating oil was up to $1.9438. Natural gas gained 3 cents to $6 per 1,000 cubic feet. The dollar advanced in European trading on economic data. The euro traded at $1.2771, down from $1.2773. The dollar bought 111.95 yen, down from 112.69. The British pound stood at $1.8707, down from $1.8717.


[R]11:30AM Stocks traded higher on economic and corporate news.[/R]
Stocks traded in the positive Thursday morning, gaining on GDP data, corporate deals and a market debut by Mastercard. The weaker-than-expected report on economic growth calmed inflation concerns and brought optimism that the Federal Reserve may stop raising interest rates. Shares of MasterCard surged 10% in their stock market debut, a day after the initial public offering priced $39, below expectations of $40 to $43. In deal news, eBay Inc. ((EBAY)) rose 7% after Prudential raised its investment rating on the Internet auctioneer. The company also announced an advertising alliance with Yahoo Inc. ((YHOO)) whose stock rose 3.6%. A broker upgrade of Wal-Mart Stores Inc. ((WMT)) also provided support as the stock climbed 2%.

The gold sector was one of the market's best performances as investors turned to bargain hunting with gold for June delivery currently up $6.50 at $644 an ounce. The Amex Gold Bugs Index rose 3.4%, recovering from 3.9% drop Wednesday. An increase in the price of oil helped energy stocks move higher, with the Philadelphia Oil Service Index up 1.3% and the Amex Oil Index higher by 1.7%. The Amex Natural Gas Index rose 1%. Stone Energy ((SGY)), oil and gas producer currently climbed 20% after Energy Partners ((EPL)) offered to acquire the company for about $2 billion. Biotechnology stocks showed strength, extending recent gains and sending the Amex Biotechnology Index up 1%. Some tech stocks came under pressure as Network Appliance ((NTAP)) reported disappointing Q4 earnings. Some semiconductor and computer hardware stocks also moved lower.

[R]Existing home sales decreased 2% to a seasonally adjusted annual rate of 6.76 million units.[/R]
Thursday morning, the National Association of Realtors released its report on existing home sales in the month of April, showing that sales eased on the heels of a two-month rebound. The report showed that existing home sales fell 2.0 percent to a seasonally adjusted annual rate of 6.76 million units in April from a downwardly revised rate of 6.90 million units in March. Economists expected sales to fall to a 6.75 million unit rate in April from the 6.92 million unit rate originally reported for March. The report also showed that total housing inventory levels rose 5.8 percent to 3.38 million existing homes available for sale at the end of April. This represents a 6-month supply at the current sales pace. NAR added that the national median existing home price was $223,000 in April, up 4.2 percent year-over-year.

[R]10:30AM Indian Sensex experiences high volatility to end higher.[/R]
Sensex in India closed higher with a surge of 93.17 points or 0.88%, at 10,666.32. The turnover on BSE was $670 million or Rs 3,016 crore, lower than Wednesday’s $830 million or Rs 3,746 crore. The market breadth continued to recuperate as 905 stocks advanced and 1,530 declined.

Among the gainers was Tata Steel which soared 7.80% to Rs 519 on 2 million shares on reports that steel companies will raise prices. The company also expects to start building its steel plant in Bangladesh soon. Bharti Airtel surged 5.90% to Rs 392 while TCS rose 4.32% to Rs 1,870.15. Heavyweight HLL advanced 4.15% to Rs 237.80 and ITC added 3.70% to Rs 180.50. ONGC also joined the bandwagon to rise 2.51% to Rs 1,194 on 0.5 million shares. Other gainers included Tata Motors, advancing 3.5% to Rs 803 following the company’s planned expansion of its facility in Uttar Pradesh, which adds up a new assembly line for commercial vehicles, with an investment coming to the tune of Rs 350 crore. Reliance Industries closed 1% up to Rs 947.25 on 2.5 million shares. It came to a low of Rs 925 in early trades, hitting a high of Rs 959.90 in later trading.

Steel Authority of India, otherwise known as SAIL, reported net profit decline of 59% to $220 million or Rs 1,103 crore from a year ago. The current earnings reflect recent merger with its subsidiary IISCO, Indian Iron and Steel Co. The stock declined 2.3% to Rs. 76.50 on a volume of 9.6 million shares. Tata Power was among the decliners, plunging 5% to Rs 503 while BHEL slid 3.20% to Rs 1,910. HDFC shed 2.90% to Rs 1,151 and Bajaj Auto traded lower 3.20% to Rs 2,750. Hindustan Oil Exploration lost 4.52% to Rs 135.05 following its report of a net loss of $$2.6 million or Rs 13.77 crore in the fiscal fourth quarter, down from a net profit of Rs 7.72 crore in the year-ago period. A big write off of $8.6 million or Rs 41.83 crore, made up mainly of exploration costs of some of the blocks was the cause of the loss.


[R]10:30AM Commodity stocks rebounded on bargain-hunting.[/R]
Commodity stocks attempted a rebound in early trading on bargain-hunting. The gold sector was one of the best performers, climbing by 2.7%. Energy stocks also moved to the upside. The oil and oil service spaces rose 1.7% each. The Internet sector drove higher, helped by news of a new partnership between Yahoo! ((YHOO)) and eBay ((EBAY)). There were few standouts to the downside. The computer hardware and semiconductor stocks showed mild weakness.


[R] 9:45AM Stocks advanced in early trading.[/R]
Stocks advanced at opening after a report showing less-than-expected growth in Q1 economic activity calmed investors' worries about inflation and fears of higher interest rates. The Commerce Department revised quarterly GDP to an annual rate of 5.3% from an initial reading of 4.8% last month, that figure came in below forecasts for a 5.8% gain. Meanwhile, the GDP's inflation component was left unchanged at a 3.3% growth rate, further easing the market's fears of escalating prices. Fewer claims for jobless benefits last week signaled that the job market was also strong. In the first hour of trading, the Dow gained 34.66, or 0.31%. The Standard & Poor's 500 index was up 6.52, or 0.52%, and the Nasdaq composite index climbed 14.12, or 0.65%. Bonds slid further, with the yield on the 10-year Treasury note edging up to 5.05% from 5.04% late Thursday.

[R]First-quarter GDP climbed 5.3%, compared to 4.8% previously reported.[/R]
Thursday morning, the Department of Commerce released its revised report on first quarter GDP growth, showing that first quarter GDP growth was revised up less than expected. The Commerce Department said that first quarter GDP grew at an annual rate of 5.3 percent compared to the 4.8 percent growth previously reported. Economists had expected a more significant upward revision to 5.9 percent growth. The increase compared to the previously reported rate of growth was primarily due to upward revisions to private inventory investment and exports. The upward revisions were partly offset by downward revisions to consumer spending for services and equipment and software spending. The revised first quarter GDP growth compares to the modest 1.7 percent growth seen in the fourth quarter. The Commerce Department said that the acceleration compared to the fourth quarter reflected an upturn in consumer spending on durable goods, an acceleration in exports, an upturn in federal government spending, and an acceleration in equipment and software spending. The report also showed that consumer prices, excluding food and energy prices, rose 2.0 percent in the first quarter, unchanged from the previous report. The price growth in the first quarter compares to a 2.4 percent rate of growth in the fourth quarter.

[R]Initial jobless claims dropped more than economists had expected.[/R]
The Department of Labor released its report on initial jobless claims in the week ended May 20 on Thursday, showing that jobless claims fell less than economists had been expecting. The report showed that jobless claims fell to 329,000 from the previous week's revised figure of 369,000. Economists had expected jobless claims to fall to 315,000 from the 367,000 originally reported for the previous week. The Labor Department also said that the four-week moving average rose to 337,000 from the previous week's revised average of 333,750. This marked the fifth consecutive increase by the less volatile moving average. The report also showed that continuing claims in the week ended May 13 rose to 2.42 million from the preceding week's revised level of 2.382 million.


[R]9:00AM Stock futures pointed to a slightly higher start on Wal-Mart upgrade.[/R]
U.S. stock futures indicated a slightly higher opening, supported by Wal-Mart which gained on a brokerage upgrade. Dow industrial component Wal-Mart ((WMT)) rose 2% to $48.95 on Inet after Banc of America Securities raised the stock to a ‘buy’ from ‘neutral’. Internet auctioneer eBay Inc. ((EBAY)) jumped over 2% in pre-market trading after Prudential Equity Group raised its investment rating on the stock to overweight from neutral weight’. In other research news, Banc of America cut its price target on shares of XM Satellite Radio Holdings Inc. ((XMSR)) to $25 from $30, sending the stock down 2.3% to $13.44 on Inet. Traders were cautious, awaiting a report on gross domestic product, which could shed light on the outlook for U.S. interest rates. Economists expect U.S. growth in the Q1 to be revised upward to a robust 5.7% from an initial estimate of 4.8% released in late April by the Commerce Department. S&P 500 futures were up 4.60 points, a shade above fair value. Dow Jones industrial average futures increased by 28 points, and Nasdaq 100 futures were up 7 points.

Flowers Foods Inc, ((FLO)), bakery products maker, reported that Q1 net income advanced 15% to 37 cents a share on 11% revenue growth on sales of Nature's Own products. Earnings from continuing operations at the company were 36 cents a share, topping analyst estimate by three cents.

Patterson Companies, ((PDCO)), dental products distributor, reported it Q4 earnings advanced to 41 cents a share, up from 36 cents a share a year ago on 11% revenue growth, with sales in its largest business, Patterson Dental, up 11% and sales from its veterinary unit 19% higher. The company met analysts’ views.

Sanderson Farms Inc, ((SAFM)), poultry producer, reported it reversed to a Q2 loss of 83 cents a share, down from a net income of $1.32 a share a year earlier. The company added that sales fell to $225.1 million from $259.2 million. The company also said that results reflect a combination of sluggish demand for poultry products in the domestic market coupled with a decline in export levels that has depressed market prices. The company missed analyst estimate for a loss of 47 cents a share.

Big Lots Inc, ((BLI)), closeout retailer, reported Q1 net income advanced 76% to 12 cents a share, with sales up 5%. The company said its earnings from continuing operations of 13 cents a share topped analyst forecasts, and raised its earnings from continuing operations expectations to a new range of 44 cents to 49 cents a share. Q2 comparable store sales are forecast to rise 1% to 4%, and it expects to narrow its quarterly loss from continuing operations to a range of 7 cents to 10 cents a share.

Genesco Inc, ((GCO)), footwear, headwear and accessories retailer, reported Q1 net income advanced to 40 cents a share, up from 34 cents a share a year earlier. The company added that earnings from continuing operations totaled 41 cents a share. Sales advanced to $315 million from $286.1 million. The company met analyst estimate.



[R]8:00AM Mastercard Corp. begins trading with an IPO price of $39, lower than expected.[/R]
The world’s No 2 credit-card brand Mastercard Corp. will begin trading Thursday on the NYSE with an initial public offering price of $39, below the originally expected range of $40/$43. The $2.39 billion offering will go down as one of the largest in two years.

The lower IPO price resulted from a volatile market and concerns about its increasing legal problems. Similarly, on Wednesday erratic market conditions led to a lackluster IPO from Vonage Holdings whose stock fell 13% below its initial offer price. But the main investors’ worries are related to Mastercard’s legal and regulatory problems. Architects of the IPO designed the flotation as a defensive move against a legal assault by retailers who consider fees too high and continued regulatory concern over antitrust issues. Still, the chance of possessing one of the leading financial services brands in the world is definitely luring and the price seems affordable even for the smallest investors.

On Thursday 61.52 million shares, representing a 46% stake in the company, will begin trading under the symbol MA. The deal values MasterCard, owned by its 1,400 member banks, as an almost $6 billion company. Proceeds from the deal will mostly be used to redeem Class B shares, allowing the banks to begin unwinding their stakes. MasterCard will also use about $650 million raised in the public flotation to fund a war chest to protect itself from legal troubles. MasterCard and its rival Visa International have been participants in legal battles over what are known as interchange fees. Merchant groups have already filed a class-action suit alleging unlawful price fixing of fees that hurt both merchants and consumers.


[R]7:30AM Japanese benchmark Nikkei falls, followed by most Asian markets.[/R]
Asian markets finished lower. Japan’s benchmark Nikkei 225 Average was down 213 points, or 1.34% to close at 15693.75. The Nikkei declined on weakness in banking shares. Mitsubishi UFJ, the world-largest bank in terms of assets, fell 3.5%. Another major, Sumitomo Mitsui Financial Group shed 1.7%. Auto makers also declined as Toyota was down 1.6%, while Honda Motor Co lost 1.7%. Hong Kong's Hang Seng Index dropped 0.9% to 15,675.36. The China Enterprise Index, a yardstick of China stocks listed on the Hong Kong Stock Exchange, shed 2.8% to 6,556.78. South Korean benchmark Kospi was the lead declining market, shedding 2.82% to 1295.76. Singapore's Straits Times Index dropped 1.5%, while the Shanghai Composite Index declined 1.3%. Markets in Indonesia were not opened today for a public holiday.


[R]6:30AM European shares plunge after initial gains.[/R]
On the corporate front Euronext stocks were down 4.5%, following the announcement of Atticus, which has 9% of the operator, to leave with the management to decide which the best offer was. That impacted negatively hopes of a higher bid placed by Atticus. Deutsche Börse was down 4.4%, after it said that it would improve its offer but would not overpay. Danone advanced 2.2%, on the brokerage front, after Merill Lynch added the company to its Europe 1 Focus List on valuation basis. ProSiebenSat.1 advanced 2.6% after Deutsche Bank raised the broadcaster’s level from ‘hold’ to ‘buy’.

Crude oil dipped 20 cents to settle at $70.06 a barrel by 0535 GMT, after shedding $1.90 or 2.7 % on Wednesday. London Brent crude advanced 13 cents to $69.35. Gold gained on Thursday after plunging in U.S. trade, with bargain-hunters and physical buyers slowly moving into the market on dollar frailty. Spot gold advanced to $647.30 an ounce before slipping to $644.90/645.70 by 0933 GMT, against $639.20/640.00 late in New York on Wednesday. The dollar rose against the euro. The euro bought $1.2761 in morning European trading, down from $1.2773 in New York late Wednesday. The British pound fell to $1.8687 from $1.8717. The dollar was virtually unchanged against the Japanese currency, edging up to 112.71 yen from 112.69 yen.