Stock Market Today: October 12, 2011
After The Close - Wall Street posted strong gains today on optimism that Europe’s financial problems could be resolved without too much disruption. Overlooking last night’s disappointing earnings report from Dow component Alcoa (AA - Free Alcoa Stock Report) and viewing Slovakia’s no vote to expand the European Financial Stability fund as a temporary setback, investors bid up shares moderately at the opening bell. By 10:00 A.M. EDT, the Dow Jones Industrial Average had gained 56 points.
The bullishness picked up as the morning wore on, partly on a decent profit report from soft drink and snack food giant PepsiCo (PEP) and an upbeat tone at a Wal-Mart Stores (WMT - Free Wal-Mart Stock Report) analyst meeting, but largely on the feeling that euro zone troubles would be contained. President Jose Manuel Barroso of the European Union’s executive body, the European Commission, put forth a road map to strengthen the region’s banks by requiring them to soon raise capital. The plan was viewed favorably by the market. By noontime on the East Coast, the Dow had gained 120 points and the NASDAQ was up 33 points. Financial stocks were among the day’s leaders, with shares of JPMorgan Chase (JPM - Free JPMorgan Stock Report) prominent among the winners. General Motors (GM) stock also advanced on news that the carmaker plans to roll out an all-electric vehicle, the Chevrolet Spark, by 2013.
Trading continued on the upswing throughout the afternoon, with the Dow reaching an intraday high of over 200 points. Gold prices also rose nicely on a stronger euro/weaker dollar scenario. Bond prices fell, though, with the yield (which moves inversely to prices) on the 10-year note rising 10 basis points to 2.25% on lukewarm demand at today’s Treasury auction.
By the closing bell, though, the gains on the Dow Jones Industrial Average had been trimmed to 103 points and the NASDAQ’s to 22 points, on profit-taking and ahead of what could be mixed corporate earnings results. Still, the number of advancing issues outpaced decliners by a wide margin on both the Big Board and the NASDAQ.
Tomorrow brings earnings releases from JPMorgan Chase, where the consensus is for a slight third-quarter profit decline, and Internet search leader Google (GOOG), where a big bottom-line increase is expected. Meanwhile, government figures due out on initial jobless claims and the U.S. international trade deficit are thought to have remained in their recent range. Overall, the good news for investors is that the market’s tone appears to be improving on indications that a European financial meltdown may not be a foregone conclusion. The downside is that the slower global economic growth at hand likely means it is not clear sailing for stocks in the weeks and months ahead. - Robert Mitkowski
At the time of this article, the author had a position in Wal-Mart.
12:15 PM ET - Stocks are rallying today, as investors are feeling more confident that the European debt crisis can be contained. An effort to expand the European rescue fund hit a snag, after failing to win a Slovakia vote of confidence. However, the matter is expected to clear, when a second vote is conducted later this week. The expanded facility should help shore up troubled banks, and prevent the situation from escalating. Moreover, comprehensive solutions to the region’s problems seem to be in progress. Across the Atlantic, the markets had a decent session. The DAX and the CAC-40 finished up over 2%, with a solid performance on the FTSE-100, as well. The euro, now at $1.38, is strengthening, suggesting a better outlook.
Economic news has been minimal today. However, tomorrow we get a look at weekly initial jobless claims data, as well as the trade balance report for the month of August. Meanwhile, corporate news is taking center stage. Dow component Alcoa (AA - Free Alcoa Stock Report) issued quarterly results that were lower than many had expected. Growth was strong in most regions, with the exception of Europe. That stock is trading lower today. Elsewhere, Pepsi (PEP) stock is advancing, after the beverage maker posted better-than-expected profits. Also, India technology company Infosys (INFY) posted strong results, sending those shares higher.
Just past noon in New York, the market is near its session highs. The Dow Jones Industrial Average is up 121 points (1.06%); the S&P 500 Index is advancing 16 points (1.34%); and the NASDAQ is up 32 points (1.24%). Market breadth confirms the rally’s strength, as advancers are ahead of decliners by almost 5 to 1 on the NYSE. All of the market sectors are participating in today’s move, with leadership in the basic materials and conglomerate names. Stocks advancing on heavy volume include: Clothing retailer Liz Claiborne (LIZ), Frontline (FRO), MGM Resorts (MGM), and Netflix (NFLX). Stocks heading lower include: Baxter International (BAX), Adtran (ADTN), and retailer Buckle (BKE).
Technically speaking, the S&P 500 Index closed above its 50-day moving average for a second time yesterday and it looks like it will follow through again today, barring a late afternoon selloff. We are now approaching the upper end of the trading range that the market has been locked in since early August. This is at about the 1,220 level. If the index can meaningfully move beyond this area, it would certainly be a bullish indicator, in our view. - Adam Rosner
At the time of this article's writing, the author had a position in Alcoa (AA).
Before The Opening Bell - The third-quarter earnings season kicked off after yesterday’s market close and to the dismay of investors it was not the start Wall Street was hoping for. Leading off the two-week plus stretch of heavy reporting was aluminum giant Alcoa (AA – Free Alcoa Stock Report). We will also receive earnings from one more Dow-30 component this week when banking giant JPMorgan Chase (JPM – Free JPMorgan Stock Report) reports tomorrow.
The Alcoa report was disappointing to say the least. The aluminum producer reported third-quarter profits that fell far short of expectations. Concerns about a slowdown in the global economy pushed down prices for aluminum by more than 10% in the July-through-September period and weighed on the company’s bottom line. Alcoa's third-quarter net income totaled $172 million, or $0.15 a share. That was better than profits of $61 million, or $0.06 share, a year earlier, but weaker than the second-quarter figure. The aluminum concern is involved in nearly every aspect of the aluminum business, from mining to smelting to selling rolled metal sheets that wind up as aircraft, cars, cans and many other products. The broad use of its material makes Alcoa a bellwether for the economy. Thus, the investment community may take Alcoa’s poor third-quarter showing as a sign that the global economy is slowing. Shares of the Dow-30 component were down in afterhours trading following the report.
The news was not all bad from the corporate world, though. PepsiCo. (PEP) reported slightly better-than-expected quarterly earnings, helped by international growth and the acquisition of a Russian beverage company. The soft drink and snacks maker also affirmed its full-year target. Shares of PepsiCo are up modestly in premarket trading today.
Meanwhile, what looked like terrible news from Europe regarding its sovereign debt crisis last night has brightened a bit this morning. Late yesterday, Slovakia's Parliament rejected a key euro bailout bill, threatening European Union’s efforts to remedy a debt crisis that is threatening the global economy. Slovakia’s outgoing prime minister and her main opponent both said they would now work to approve the bill quickly. Parliament is scheduled to convene again tomorrow. The focus of investors will remain on the central European country because expanding the rescue fund for debt-saddled European nations requires the approval of all 17 countries in the euro zone. Sixteen countries have already approved, and now Slovakia, holds in its hands the fate of the financial plans of the wider 17-nation euro zone and ultimately the global economy. However, this morning, European stocks rose, with investors shrugging off Slovakia's rejection of Europe's bailout fund and electing to focus on hopes that a possible alternative solution would be worked out before a meeting of European Union leaders next week.
Also last night, to nobody’s surprise, the Senate voted against President Obama’s $447 billion jobs creation package. Expecting that the proposal would be defeated on Capitol Hill, President Obama vowed yesterday that he is prepared to break his bill up into separate parts and move it that way.
Elsewhere, the price of crude oil moved modestly higher this morning despite the growing fears that the global economy may be slowing and yesterday’s report that the International Energy Agency slightly lowered its global oil demand forecasts. A weak dollar—even as concerns persist about European sovereign-debt problems—is likely responsible for today’s higher crude quotes. Benchmark crude for November delivery was up 70 cents at $86.51 a barrel in electronic trading on the New York Mercantile Exchange.
With less than an hour to go before the start of trading on these shores, the futures are pointing to a higher opening for the equity markets. Investors have elected to focus on hopes that an agreement on the European debt relief package can be worked out. This morning, the European Commission's Olli Rehn said that the euro area is approaching a consensus on solving its debt crisis. Stay tuned. - William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.