Chairman, Rally of Hope

123jump.com Staff
19 Jul, 2006
New York City

Market rallied on the hope that the future rate hikes are not likely in the immediate future. Banks, home builders and tech stocks rallied on the news. European and Latin American markets rallied on the Chairman comments. After the close, Intel reported earnings of 15 cent compared to 33 cents a year ago. EBay reported 14% decline in profit on 30% rise in revenue. Apple also reported earnings rise of 47% on revenue growth of 32%. Apple shipped 8.1 million iPods in the quarter.

[R]4:00PM Surging market averages on the hopes rate hike deferral.[/R]

-Nasdaq gained 37.49 points, Dow advanced 212.19 and S&P 500 surged 22.95 points.
-Yield on 10-year closed at 5.06% and on 30-year closed at 5.107%.
-Crude oil lost 80 cents to close at $72.66 per barrel.
-Gold surged $13.30 per ounce to close at $642.80 per ounce.

-Asian Markets closed mixed. Japan closed 0.4% higher and India led 2.2% lower. Australia lost 0.4% but Hong Kong, Malaysia and Singapore advanced 0.3%.

-European Markets surged with over 2% gain in France, Germany and Spain. U.K. and Switzerland gained 1.7% and 1.9% respectively. Russia advanced 0.2% but South Africa gained near 3%.

-Latin American Markets surged on the back of rise in New York. Mexico led the surge with 5% rise and followed by 4.25% gain in Brazil and 3.2% advance in Argentina.

It was a day of catch up, and market did just that. Fed Chairman comments kick started the rally and tech stocks, banks, housing and mortgage lenders led the race to the top. Three popular averages, Dow Jones, S&P 500 and Nasdaq gained close to 2% on the Chairman’s comments soothed market fears of rising inflation and rates. Fed’s Chairman is still learning to communicate with the market and in the recent past market has not been clear with the direction from the Chairman. Since May 10th of this year, market has displayed extreme volatility and until yesterday had lost all the gains of the year. Banking stocks staged a solid rally as Bank of America and J P Morgan reported better than expected earnings. Yahoo ((YHOO)) lost 22% after reporting disappointing earnings on 28% rise in revenue.

European markets generally closed higher at least near 2% on the U.S. Fed Chairman comments. Tech stocks also rose on the back of rising stocks of Nokia, Ericsson and ASM Lithography. The earnings at ASM Litho rose 49% and revenue gained 23%. The stock gained 6%. Other semiconductor technology related stocks advanced including near 5% rise in ST Microelectronics.

Asian markets generally closed mixed led by a steep decline in India. With the earnings season in full swing market has been preoccupied with earnings from large companies. Two leading outsourcing companies Wipro ((WIT)) and Tata Consultancy Software reported strong rise in revenue. Wipro, software and business process outsourcing company, reported earning rise of 44% on revenue growth of 42%. The company also indicated that a similar rise in earnings is likely in the current quarter. Tata reported revenue rise of 35% and earnings rise of 46% on the addition of 62 new clients. The company also reported two large contracts of $50 million or more from a U.S. based retailer and Middle-East based telecom company. TCS stock fell 5% and Wipro fell 4% on the earnings news.
Sensex index, Mumbai stock exchange bench-mark, sold-off 2.2% as domestic and foreign investors sold stocks. Foreign investors have shown little loyalty to the emerging markets in the last three years of trading. They have generally chased rising markets and have sold stocks with the slightest hint of a local economic slowdown.

[R]2:45PM Banking and housing companies rallied on the hope that future rate hikes may be postponed.[/R]
Fed Chairman’s testimony to the Senate Banking Committee and strong earnings from J P Morgan and Bank of America supported a solid advance in the banking stocks. Bank of America ((BAC)) stock advanced 3% on the second quarter earnings of $1.22 per share compared to $1.14 per share a year ago. Excluding merger charges related to MBNA, earnings per share would have been $1.22 per share. In the prior merger chares related to Fleet Boston reduced earnings by 2 cents. Revenue grew 25% from a year ago. For the first six month the bank earned $10.46 billion or $2.25 per share compared to $9.05 billion or $2.21 per share on a split adjusted basis.

J.P. Morgan ((JPM)) reported second quarter earnings of 99 cents compared to 28 cents a year ago on revenue rise of 52% and 11% lower than in the first quarter of this year. In the second quarter 2005 the company had a legal reserve charge of 33 cents per share. The strong revenue gains were supported by a 42% increase in investment banking fees and 30% rise in bonds and debt underwriting fees. The company allocated $21 billion and generated 16% return on equity. The bank’s stock gained 5.5% at late afternoon trading.


[R]11:30AM Stock markets rallied on Federal Reserve Chairman Testimony.[/R]
Stocks moved sharply higher on well received comments from Federal Reserve Chairman Ben Bernanke, interpreted as an indication that the Fed will leave interest rates unchanged at its next meeting in August. Bernanke also predicted that a projected slow down in economic growth should help limit inflation pressures over time.

The broad based strength in the market included strength in the airline sector as airline stocks benefited from declining oil. The decrease by the price of oil is partly due to the release of a report from the Energy Department that showed that U.S. crude oil and gasoline inventories unexpectedly increased. Gold stocks also posted significant gains, as the price of the precious metal moved back to the upside after sharp declines in the previous two sessions. Housing and financial stocks moved sharply higher, as Bernanke''s comments offset recent concerns about interest rates. The health insurance sector also moved notably higher, with the Morgan Stanley Healthcare Payor Index rising 3%.In morning trading, the Dow rose 160.16, or 1.48%. The Standard & Poor''s 500 index rose 18.44, up 1.49%, and the Nasdaq composite index rose 26.01, or 1.27%.

[R]Crude oil and gasoline stockpiles rose[/R]
Crude oil inventories ticked slightly higher during the most recent week, according to government statistics released Wednesday. This broke a recent string of declines. Stockpiles of gasoline and distillates also ticked up during the week. The Department of Energy''s Energy Information Administration said that crude oil inventories edged higher by 200,000 barrels for the week ended July 14. Specifically, the measure ticked up to 335.5 million barrels from the previous week''s level of 335.3 million barrels. This broke a recent string of declines, with inventories dropping by 6 million barrels in the previous week. Oil inventories for the July 14 week were 3.2% higher than last year. Meanwhile, gasoline inventories showed a week-over-week advance of 1.5 million barrels. This followed a decline of 400,000 barrels in the previous week. The level of gasoline inventories was 0.8% above last year. Distillate fuel oil had an inventory advance of 1.2 million barrels during the week. This built on a recent streak of gains, including an advance of 2.6 million barrels in the previous week.


[R]10:30AM Stock markets rallied on Bernanke’s comments.[/R]
Stock markets rallied in morning trading, following comments from Federal Reserve Chairman Ben Bernanke of moderating pace of economic growth and contained inflation. The Dow Jones industrial average shot up more than 100 points. In morning trading, the Dow rose 108.70, or 1.01%. The Standard & Poor''s 500 index rose 15.27, up 1.23%, and the Nasdaq composite index rose 24.29, or 1.19%. Bonds were down but recovering some lost ground on Bernanke''s comments. The yield on the 10-year Treasury note was 5.16%, up from 5.14% Tuesday.

The airline sector turned in one of the market''s best performances in early trading, with SouthWest Airlines ((LUV)) climbing 7.6% after the airline reported strong Q2 earnings growth. The health insurance sector rebounded from yesterday’s sharp decline to show significant strength, as reflected by the 2.8% gain shown by the Morgan Stanley Healthcare Payor Index. Housing stocks also moved sharply higher in spite of the Commerce Department report that showed a bigger-than-expected decrease in housing starts in the month of June.


[R]9:45AM Stocks opened higher on strong earnings.[/R]
U.S. stocks advanced at opening on signs of cooling economy and stronger-than-expected earnings from International Business Machines Corp. and JPMorgan & Chase. However, a disappointing revenue outlook by Yahoo Inc. limited gains on the Nasdaq.

The Labor Department said the CPI rose by just 0.2% in June, the smallest increase in four months, but core inflation, excluding energy and food, rose by 0.3%, higher than the 0.2% expected. Signs of slowing housing market were received from the Commerce Department report which said that construction of new homes fell by 5.3% in June.

Shares of J.P. Morgan ((JPM)) climbed 3.3% after the No. 3 U.S. bank said its Q2 profit tripled. Dow component International Business Machines Corp. ((IBM)) rose 2.8% after reporting a stronger-than-expected quarterly profit. Shares of Internet media company Yahoo ((YHOO)) dropped 19% to $26.08 after it gave a 2006 revenue outlook below forecasts. In the first hour of trading, the Dow rose 54.59, up 0.51%. The Standard & Poor''s 500 index rose 4.71, up 0.38%, and the Nasdaq composite index fell 0.87, or 0.04%.

The airline sector turned in one of the market''s best performances in early trading, with SouthWest Airlines ((LUV)) climbing 7.6% after the airline reported strong Q2 earnings growth. The health insurance sector rebounded from yesterday’s sharp decline to show significant strength, as reflected by the 2.8% gain shown by the Morgan Stanley Healthcare Payor Index. Housing stocks also moved sharply higher in spite of the Commerce Department report that showed a bigger-than-expected decrease in housing starts in the month of June.

[R]Housing starts and building permits declined.[/R]
The Commerce Department released its report on housing starts in the month of June on Wednesday, showing that housing starts fell more than economists had expected. The report also showed a notable decline in building permits. The report said that housing starts fell 5.3 percent to a seasonally adjusted annual rate of 1.850 million units from a revised 1.953 million unit rate in May. Economists had expected starts to fall to a 1.890 million unit rate from the 1.957 million unit rate originally reported for May. The decrease in housing starts reflected double-digit percentage declines in housing starts in the Northeast and the West. Housing starts in the South showed a more modest decrease while housing starts in the Midwest increased modestly. Single-family housing starts fell 6.5 percent to an annual rate of 1.486 million units in June from a 1.590 million unit rate in May, while the rate for buildings with five units or more fell 4.1 percent to 306,000 units. The Commerce Department also said that building permits fell 4.3 percent to a seasonally adjusted annual rate of 1.862 million units in June from a 1.946 million unit rate in May. Building permits are seen as an indicator of demand. Decreases in building permits were seen in the Midwest, South, and West, while building permits in the Northeast rose by 6.1 percent.

[R]Consumer prices index rose 0.2% in June.[/R]
Wednesday morning, the Labor Department released its report on consumer prices in the month of June, showing that price growth came in line with economist estimates. At the same time, core prices rose a little more than expected. The report showed that the consumer price index rose 0.2 percent in June following a 0.4 percent increase in May. The increase came in line with economist estimates of an increase of about 0.2 percent. A decrease in energy prices helped to limit the upside for the index, with energy prices falling 0.9 percent in June after showing significant increases in the three previous months. The decrease came as the index for petroleum based energy fell 0.9 percent while the index for energy services fell 1.1 percent. Meanwhile, food prices rose 0.3 percent in June after edging up 0.1 percent in May. Prices for both medical care and education and communication also increased by 0.3 percent. The Labor Department also said that core prices, which exclude food and energy prices, rose 0.3 percent in June, matching the increase seen in the three previous months. Economists had expected a more modest increase of about 0.2 percent.


[R]9:00AM Stock futures pointed to a mixed opening ahead of data.[/R]
U.S. stock futures pointed to a mixed opening Wednesday, with investors awaiting inflation data and congressional testimony by Federal Reserve Chairman Ben Bernanke.

Market also awaited another batch of earnings news from major companies, including Motorola Inc. ((MOT)). After Tuesday''s close, Yahoo Inc. ((YHOO)) gave a 2006 revenue outlook below forecasts, sending its shares 15% before the opening bell. In contrast, International Business Machines Corp. ((IBM)) reported stronger-than-expected quarterly profit. Shares of IBM, the world''s largest computer services company, rose 3.1% to $76 in after-hours trading. Standard & Poor''s 500 futures were up 0.40 point, slightly above fair value. Dow Jones industrial average futures were flat, and Nasdaq 100 futures were down 4.75 points.

Piper Jaffray Companies ((PJC)) posted second-quarter earnings of $4.1 million, or 21 cents a share, up from $1.2 million, or 6 cents a share, a year ago. Excluding one-time restructuring and transaction-related expenses, earnings for the latest quarter would have come in at 75 cents a share. Revenue rose to $114.4 million vs. $102.1 million last year on increasing investment banking and interest revenue, which compensated the drop in the company’s institutional brokerage revenue.

Abbott’s ((ABT)) second-quarter net earnings dropped to $612.2 million or 40 cents a share, from $877.1 million, or 56 cents a share a year earlier. Excluding items the company posted a profit of 62 cents a share vs. 58 cents a share last year. Excluding items and incremental stock compensation costs, Abbott recorded earnings of 65 cents a share. Net sales in the latest quarter slipped to $5.5 billion from $5.52 billion a year ago.

JPMorgan Chase & Co. ((JPM)) posted second-quarter earnings of $3.54 billion, or 99 cents a share vs. $994 million, or 28 cents a share a year ago. The most recent quarterly results include private equity gains of $340 million, material litigation insurance recoveries of $161 million, a gain of $64 million on the sale of MasterCard shares in that firm''s IPO, $53 million in merger-related expenses, and a loss of $305 million tied to the repositioning of the company’s treasury portfolio. The numbers reported last year included litigation reserve costs of $1.2 billion, or 33 cents a share. Revenue in Q2 climbed to $15.72 billion from $13.71 billion a year earlier.

Yahoo Inc. ((YHOO)) reported sharply lower second-quarter profit from a year earlier hurt by surging expenses for employee stock options and other costs. In the year-ago period the company recorded a one-time investment gain. Sales in the latest quarter rose as more businesses advertised on the company’s Internet pages. Net income for the quarter dropped to $164.3 million or 11 cents a share from $754.7 million or 51 cents last year, when option costs were not included in the company’s results. Excluding stock option costs and one-time gains and expenses, adjusted net income advanced to $237 million, or 16 cents a share, from $209 million, or 14 cents a year earlier. Sales for the quarter jumped 26% from last year and excluding the payments to other sites sales grew 28% to $1.12 billion.

International Business Machines Corp. ((IBM)) said that its second-quarter profit from continuing operations rose to $2 billion, or $1.30 a share from $1.85 billion, or $1.12 a share a year earlier. Revenue declined to $21.9 billion from $22.3 billion last year.
CSX Corp. ((CSX)) reported a second-quarter profit of $390 million, or $1.66 a share compared with $165 million or 73 cents a share last year. Excluding one-time items tied to insurance recoveries from Hurricane Katrina and tax benefits, the railroad company would have posted earnings of $1.16 vs. 96 cents a year ago. Surface transportation revenue advanced 12% from a year earlier to $2.4 billion. CSX also announced a two-for-one stock split.

Check Point Software Technologies Ltd. ((CHKP)) reported 16% lower second-quarter profit due to options related costs, while revenue dropped 3.9% from a year ago. The network-security software company’s profit decreased to $65.7 million, or 27 cents a share, from $78 million, or 32 cents a share last year. Excluding expenses tied to options and acquisitions, the quarterly profit would have been $76 million vs. $79.8 million last year and on a per-share basis the profit excluding these items would have remained unchanged from a year earlier at 32 cents a share. Revenue dropped to $138.9 million from $144.6 million last year.

Valmont Industries Inc. ((VMI)), fabricated metal products maker, reported 66% higher earnings in the most recent quarter at $17.3 million, or 67 cents vs. $10.4 million, or 42 cents a year ago. Revenue climbed 28% from last year to $338.8 million helped by solid performance from international businesses and higher utility product sales. The company sees its fiscal 2006 revenue to increase between 12% and 15%.
[R]8:00AM Oil prices rebounded ahead of U.S. inventory data.[/R]
Following Tuesday’s sell-off, crude oil prices rose Wednesday amid expectations that U.S. inventory data would show a decline in domestic gasoline stocks on strong demand for motor fuel during the summer driving season. According to a Dow Jones survey, U.S. gasoline stocks will fall by an average of 1.1 million barrels in the week ended July 14, extending the previous week''s decline. Crude stocks are expected to be flat, while distillate stocks, including heating oil and diesel fuel, were tipped to rise 1.3 million barrels. The continuing violent conflict between Israel and militants in Lebanon still weighed on the market.

Light, sweet crude for August delivery gained 38 cents to $73.92 a barrel in electronic trading on the New York Mercantile Exchange as of mid-afternoon in Singapore. Gasoline futures rose 1.75 cents to $2.2845 a gallon. September Brent crude futures on London''s ICE Futures exchange rose 51 cents to $74.87 a barrel. In other trading, heating oil prices rose 1.56 cents to $1.9990 a gallon. Natural gas futures rose 10.5 cents to $5.66 per 1,000 cubic feet.


[R]7:00AM Asian markets closed mixed. The Nikkei recovered.[/R]
Asian-Pacific benchmarks finished mixed Wednesday as stock exchanges reversed from much of earlier gains amid renewed advance by the price of oil, following reports Israeli ground troops were moving into southern Lebanon. Investors also awaited comments by the Fed Reserve Chairman Ben Bernanke as well as the June CPI data. The Nikkei ended up 0.4%, recovering from a month-long losing streak. Tech shares had a mixed performance, with Sony rising 1.1%, Advantest Corp, up 3.7%, while Softbank declined 3.7%. Automakers were among gaining stocks moving higher, led by Toyota Motor, up 0.9% and Mitsubishi Motors, up 0.5%. Across the region, Hong Kong’s Hang Seng rose 0.33%, lifted by strong gains for oil companies, real estate and China shares. China''s largest publicly listed oil company, Petro China climbed 1.8%. Singapore Straits Times advanced 0.47%, South Korea’s Kospi ended flat, while Australia’s benchmark closed down 0.4%. China’s Shanghai Composite had the sharpest decline today, falling 2.2%.

European stocks moved to the upside at mid-day trading Wednesday, boosted by considerable strength in the technology sector. Tech stocks led advancers on well-received earnings news from ASML Holding. The Dutch semiconductor rose 3.6% after it revealed that its second-quarter net income rose a stronger-than-forecast 49% to 167 million euros on 23% sales growth. Anglo-Dutch IT services group LogicaCMG also contributed to the upward move, posting a gain of 2.7%. The German DAX 30 climbed 0.5%, the French CAC 40 rose 0.4%, and London FTSE 100 advanced 0.4%.