April 20, 2021

Wall Street Halts Slide, but Ends Week Mixed

Stocks rose on Friday, as strong earnings from big companies lifted the Dow Jones industrial average, but the broader Standard Poor’s 500-stock index posted its first weekly loss of the year.

The Dow closed up 119.95 points, or 0.9 percent, at 14,000.57, its third-biggest daily gain this year. The S. P. 500 rose 13.18 points, also 0.9 percent, to 1,515.60. The Nasdaq composite index rose 30.33, or 1 percent, to 3,161.82.

The S. P. 500 and Nasdaq closed slightly lower for the week, while the Dow edged higher.

Bill Stone, chief investment strategist with PNC Wealth Management, said he expected stocks to hold up despite the volatility this week.

“You’re going to get bumps and bruises along the way, but we do believe things are actually getting better, so I think there’s underlying demand” for stocks, Mr. Stone said.

Investors sent stocks plunging Wednesday after minutes from the Federal Reserve’s latest policy meeting revealed disagreement over how long the Fed should continue to buy bonds in an effort to support the economy. The slide continued Thursday. The Dow lost 155 points over those two days.

Many analysts say the Fed’s bond-buying and resulting low interest rates have driven this year’s stock rally, which lifted indexes to their highest levels since before the 2008 financial crisis. The Dow is now just 164 points below its nominal record close of 14,164, reached in October 2007.

United States stocks followed European stocks higher after a survey of German business optimism showed an increase in sentiment, adding to evidence that the country would avoid a recession. Germany’s economic vitality is crucial for the beleaguered region, offsetting economic contraction in surrounding countries.

“Germany is really the bedrock,” Mr. Stone said. “If it gives way, then you have real problems.”

The CAC-40 in France rose 2.2 percent, and the Germany DAX gained 1 percent.

The biggest gainer on Friday in both the Dow and S. P. 500 was Hewlett-Packard, which beat all forecasts when it posted its first-quarter results late Thursday, a relief after months of bad news. H.P.’s shares on the New York Stock Exchange rose $2.10, or 12.3 percent, to $19.20.

Cabot Oil Gas was the S. P. 500’s second-best performer, a day after the company reported earnings above analysts’ expectations. Its stock rose $5.95, or 11.1 percent, to $59.81.

Shares in the American International Group jumped after the company’s fourth-quarter operating results exceeded analysts’ forecasts. Its net loss was $4 billion, mainly because of claims related to Hurricane Sandy. A.I.G. shares rose $1.17, or 3.1 percent, to $38.45. Abercrombie Fitch shares sank after a crucial sales measure declined in the all-important holiday quarter. The stock fell $2.19, or 4.5 percent, to $46.86.

Stock in WebMD Health, a health Web site operator, soared after the company reported better-than-expected revenue and an optimistic outlook for 2013. The shares rose $4.14, or 25.4 percent, to $20.44.

Texas Instruments stock rose strongly after the company said it would increase its dividend by a third and buy back up to $5 billion more of its own stock. Its shares gained $1.70, or 5.2 percent, to $34.18.

Interest rates were steady. The Treasury’s benchmark 10-year note rose 3/32, to 100 11/32, and the yield fell to 1.96 percent, from 1.97 percent late Thursday.

Article source: http://www.nytimes.com/2013/02/23/business/daily-stock-market-activity.html?partner=rss&emc=rss

Europeans Report Progress on Bank Rescue Plan

After negotiating through the weekend in Brussels in search of a comprehensive solution to the Continent’s sovereign debt crisis, European leaders reported progress on the framework of a broad rescue package.

If, as the leaders have pledged, the final details are announced when the summit meeting wraps up on Wednesday, it could quell the worst fears of investors by taking the risk of a financial collapse off the table.

But if the talks break down, some investors said Wall Street might need to brace for a repeat of the turmoil that followed the Lehman Brothers’ downfall in 2008.

“If Wednesday comes and there’s no real progress, we’ll see a riot in the markets,” said Mark D. Luschini, the chief investment strategist at Janney Montgomery Scott. “We need at least some broad schematics.”

European officials appeared to reach an agreement on Sunday evening that the size of the bank recapitalization plan would be about 100 billion euros ($138 billion).

But more has yet to be decided. Officials still had no final answer on how they might increase the firepower of a separate euro zone rescue fund known as the European Financial Stability Facility. Nor had they reached agreement on how steep the write-offs would be that holders of Greek debt might be required to take.

Expectations among investors have been modest. Many said they were not necessarily expecting to see a detailed solution come out of the meeting, but hoped to see signs of significant progress.

“I think we will get something; it will probably be half-baked and it will probably give us two to three months of room to figure out the next steps,” said Jaime Valdivia, head of global emerging markets research and strategy at BlueCrest Capital. “If we get something mediocre out of the euro zone, markets can climb higher because the expectations have been so low.”

Even as European officials suggested that $138 billion would help the banks shore up their balance sheets, investors were still trying to assess the severity of the banks’ problems.

There are doubts that $138 billion will be enough to cushion the blow from big losses on Greek debt and that of other fiscally troubled European nations.

In July, banks and other institutional investors agreed to take losses of about 21 percent on Greek debt.

But as Greece’s economy has deteriorated, some policy makers are now suggesting that banks will need to take much bigger losses, perhaps as much as 60 percent.

Greater clarity about the extent of the problem could remove some of the fear hanging over the markets, many investors said.

“There are rumors flying all over the place on how big the recapitalization needs to be — from 100 billion to 400 billion euros,” said Christopher Orndorff, who helps oversee global fixed-income investments at Western Asset Management.

“I think the number that they come out with needs to be a credible number,” he added.

Milton Ezrati, a senior economist at Lord Abbett Company, said, “Even if they say the losses are going to be a larger number, at least people would know where the line is.”

Since the summer, the markets have swung wildly with each burst of news from the Continent. As reports emerged last week that European officials were nearing a deal on a rescue plan, the Standard Poor’s 500-stock index rose 1 percent.

Asian markets rose on Monday morning, but that was partly a result of a report showing that Japan’s exports had increased more than expected. The Nikkei 225 in Tokyo was up 1.5 percent, while the S. P./ASX 200 index was up 2 percent.

Even if the recapitalization plan is seen as credible, there is still the question of whether the banks will be able to raise money without disrupting the markets.

The plan under discussion calls for banks to turn to private investors before tapping government-backed funds.

A similar arrangement was used successfully in the United States after stress tests in 2009. There is concern that European banks may find it difficult to raise capital from private investors and instead start selling assets and spark a fire sale.

“The global economy could take another hit,” Mr. Valdivia said.

Julie Creswell and Graham Bowley contributed reporting.

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As Dizzying Week Ends on Wall Street, Dangers Linger

The main American stock indexes finished the week down less than 2 percent after a second consecutive day of gains on Friday. Although there was a sense of relief that the economy had not fallen off a cliff — the Standard Poor’s 500-stock index started the week plunging nearly 6.7 percent — there was little to celebrate as new data showed consumer sentiment had sunk below levels seen during the financial crisis three years ago.

The week ended on a quiet note, but many think that the Wall Street roller coaster ride is likely to continue — and that there may be more stomach-churning drops before the cars return to the platform.

“Heightened volatility is here to stay,” said Sam Stovall, chief investment strategist for Standard Poor’s equity research.

“The markets are much more interconnected than they have ever been, and new players are exacerbating the swings,” he added. Investors’ memories of 2008 are “very fresh and will cause them to sell first and ask questions later.”

Further undermining investor confidence is the fact that nearly all of the Western markets appear to be moving in lockstep, undergoing disruptive episodes simultaneously. That makes it difficult for investors to find a safe place to park their money — hence the rush to cash and other havens like United States bonds and gold — and stirs even more anxiety about interconnected risks between the European and American debt crises.

“This has been an unbelievable week. You just had fear totally take over,” said Scott Wren, the senior equity strategist for Wells Fargo Advisors. “And the problems have not been solved. European sovereign debt issues are not going to go away. The debt and deficit situation is not going to go away.”

On both sides of the Atlantic, investors had been bracing for a sell-off on Monday, after Standard Poor’s stripped the United States of its top credit rating. The S. P. plunged 6.66 percent. Tuesday, the Federal Reserve provided investors with a whiff of relief when it pledged to keep interest rates near zero for the next two years. The S. P. leaped 4.7 percent on the news.

The European Central Bank also moved to steady the markets, buying Italian and Spanish bonds to calm investor concerns that those countries would not be able to pay their debts.

 The rally did not last long. By Wednesday morning, American and European bank stocks were under attack as investors feared a repeat of the crisis or another recession. The S. P. lost 4.4 percent.

On Thursday, upbeat earnings news and reports of a ban on short-selling by several European countries, provided relief. The S. P. jumped 4.6 percent. Friday, upbeat retail sales helped break the up and down cycle and the S. P. was up half a percent, ending the week 1.7 percent lower.

“The markets are having a lot of trouble assessing the full extent of this,” said Tobias Levkovich, Citigroup’s chief United States equity strategist. “We are used to volatility, but these intraday swings are just remarkable.”

Analysts and others on Wall Street who were doing a postmortem on the turbulence had plenty to choose from. New data suggested the United States economy was worsening and could even slip back into a recession, forcing investors to scale back their growth expectations. The downgrade of government bonds by Standard Poor’s further rattled confidence among consumers and businesses. On Friday, despite the rising retail sales, preliminary data for one of the leading barometers of consumer confidence fell in August to its lowest levels since May 1980.

In addition, there are growing concerns about the solvency of European governments and fears that troubles in its financial system could spread to American shores.

Still, the Euro Stoxx 50, an index of large companies on the Continent, fell 2.9 percent last week and is down nearly 12 percent this year. That is nearly double the 6.3 percent decline of the S. P. 500 since January.

Julie Creswell and Ron Lieber contributed reporting.

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Stocks & Bonds: Shares Advance Modestly, Led by Commodities

Occidental Petroleum and Halliburton gained at least 1.6 percent as oil climbed after a report showing that distillate fuel supplies in the United States fell to a two-year low. Freeport-McMoRan Copper Gold advanced 2.4 percent as copper rose after Deutsche Bank said prices were likely to rebound. Fifth Third Bancorp and BBT increased more than 1 percent after Fitch Ratings said it probably would not downgrade German banks because of their holdings of Greek debt.

The Standard Poor’s 500-stock index rose 4.19 points, or 0.32 percent, to 1,320.47. The Dow Jones industrial average rose 38.45 points, or 0.31 percent, to 12,394.66. The Nasdaq rose 15.22 points, or 0.55 percent, to 2,761.38.

“It’s a risk-on day,” said Russ Koesterich, the global chief investment strategist based in San Francisco for the iShares unit of BlackRock. “On days when you get a little bit more conviction about the economic recovery, stocks and commodities move up. The risk-on day is also a manifestation of companies most tied to the economy.”

The S. P. 500 has fallen 3.2 percent from an almost three- year high on April 29 on concern about Europe’s debt crisis and weaker-than-forecast economic data. Indexes of commodity producers slumped at least 5 percent during that period. Still, the benchmark gauge rose 5 percent since the end of 2010 on government stimulus measures and higher-than-forecast profits.

Barometers of energy and raw material shares rose at least 1.3 percent on Wednesday, the two biggest gains of 10 industry groups in the S. P. 500. The Thomson Reuters/Jefferies CRB Index of 19 raw materials rallied 1.6 percent. Oil rose above $101 a barrel in New York. Copper gained the most in a week as Deutsche Bank said that prices were likely to rebound, after similar comments from the Goldman Sachs Group and JPMorgan Chase.

Occidental Petroleum, the biggest onshore oil producer in the continental United States, added 1.7 percent to $104.22. Halliburton rose 5 percent to $49.87 after Morgan Stanley raised its recommendation for the company to “overweight” from “equal-weight.” Freeport, the largest publicly traded copper producer, gained 2.4 percent to $49.98.

“The rally in stocks and commodities reflects the view that the global economic recovery is in place,” said Eric Teal, chief investment officer at First Citizens BancShares in Raleigh, N.C. “There had been some concern about softness in recent data and that’s why we saw a pullback. Profits and margins should be sustained at these levels. The trend is higher and the rally will be driven by companies most exposed to economic growth.”

Financial companies helped pace a rebound in benchmark indexes as Fitch Ratings said German banks had “manageable” risks related to Greek sovereign debt and the Mediterranean country’s economy.

“The worst consequence of any Greek sovereign default for German and other European banks would be a sharp increase in general capital market and creditor risk aversion at a time when many banks are still in rehabilitation mode,” Michael Dawson-Kropf, an analyst at Fitch based in Frankfurt, said in an e-mail.

Fifth Third Bancorp, Ohio’s largest lender, added 1 percent to $12.61. BBT rose 1.8 percent to $26.67.

Take-Two Interactive Software rose 3.2 percent to $16.62. The company, which produces the Grand Theft Auto video games, reported a fourth-quarter loss, excluding some items, that was 55 percent narrower than the average analyst estimate.

Bookings for goods meant to last at least three years fell 3.6 percent in April, the most since October, after a 4.4 percent increase in March, a Commerce Department report showed. Economists projected a 2.5 percent drop in April, according to the median forecast in a Bloomberg News survey.

Interest rates were steady. The Treasury’s benchmark 10-year note fell 5/32, to 99 30/32, and the yield rose to 3.13 percent from 3.11 percent late Tuesday.

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Wall Street Stocks Slip as Session Wears On

The three main indexes had initially rose as investors absorbed the announcement that Bin Laden had been killed in Pakistan.

“The Osama bin Laden situation really had a nice impact at the open,” Doug Roberts, the chief investment strategist for Channel Capital Research Institute, said. “It looks like a lot of that might have been short-covering.”

But the gains moderated and shares turned as the session wore on. At the close, the Dow Jones industrial average was 3.71 points lower, at 12,806.83 while the broader Standard Poor’s 500-stock index lost 2.04 points, or 0.18 percent, to 1,361.21. The technology heavy Nasdaq lost 9.46points or 0.3 percent at 2,864.08.

The Japanese and South Korean markets were already 1 percent higher before President Obama announced late Sunday that American forces had killed Bin Laden in Pakistan.

In Europe, the Euro Stoxx 50 index, a barometer of euro-zone blue chips, closed up less than a point. The CAC 40 in Paris rose 1.85 points and the DAX in Frankfurt rose 0.18 percent or 13.18 points. London markets were closed for a bank holiday.

Investors also took in latest earnings, corporate mergers and the economic reports, which showed that construction spending rose in March and that manufacturing in the United States continued to expand in April, but at a slower pace.

Among the mergers and acquisition, Teva Pharmaceutical Industries said that it had agreed to buy the biopharmaceutical company Cephalon for $6.8 billion, a deal unanimously approved by the boards of the two companies. Teva shares rose more than 3.5 percent, while Cephalon was up more than 4 percent.

The dollar was mixed. The euro rose to $1.4815 from $1.4806 late Friday, while the British pound slipped to $1.6693 from $1.6706. The dollar rose to 81.47 yen from 81.20 yen.

While the dollar had a slight recovery after President Obama’s announcement, the effect soon faded. The dollar has been weak across the board with United States interest rates low at a time when other central banks are tightening.

In addition, the debt limit negotiations in Congress were hurting the dollar, said Brian Dolan, the chief currency strategist at Forex.com.

“It is still a weak dollar environment,” Mr. Dolan said. Referring to news of Bin Laden’s death, he said: “It does not really alter the economic outlook for the global recovery.”

“That is the significant takeaway: the dollar downtrend is very much intact,” Mr. Dolan said.

While the political and psychological significance of Bin Laden’s death was still being felt, the stock market reaction was relatively mild.

“News of the death of Osama Bin Laden has had a limited impact on regional asset prices,” analysts at Royal Bank of Canada summed up in a note on Monday.

By the close the Nikkei 225 index had gained 1.6 percent and the Kospi by 1.7 percent. This took the Nikkei to 10,004,20 points, the first time it closed above the 10,000-point mark since the devastating earthquake and tsunami that struck the country on March 11.

The news about Bin Laden comes at the start of a week that culminates with the release of the latest retail sales numbers on Thurday and April’s employment report on Friday. Before the markets open, the Chrysler Group reported its first quarterly profit since going through bankruptcy reorganization in 2009, as the company sold more cars at higher prices. Chrysler said it earned $116 million in the quarter, after losing $197 million in the period a year ago. Revenue grew 35 percent, to $13.1 billion, while sales were up 18 percent.

On the economic front, the Institute for Supply Management, a trade group of purchasing executives, said its index of manufacturing activity dipped to 60.4 in April but remained above 60 for a fourth month. That was down from 61.2 in March and 61.4 in February, the fastest expansion in nearly seven years. A reading above 50 signals growth.

In addition, construction spending rose 1.4 percent in March, helped by an increase in spending on home-improvement projects.

In other news of deals, Arch Coal said that it would buy the International Coal Group in a cash deal worth $3.4 billion that will create one of the world’s largest coal producers. Arch was slightly lower, while International Coal rose more than 30 percent.

Dish Network and the EchoStar Corporation have agreed to pay TiVo $500 million to settle a patent infringement lawsuit involving TiVo’s video recording technology, putting an end to a long and costly legal battle. TiVo rose more than 5 percent.

Some of the sharpest reactions to the news of Bin Laden’s death were in the commodities markets.

Benchmark crude oil for June delivery declined 41 cents to settle at $113.52 a barrel in volatile trading in New York.

Many analysts cautioned, however, that bin Laden’s death could stoke, rather than ease, worries about oil supplies and global security in the longer run if it led to retaliatory attacks.

“This is a positive development in the campaign against terrorism,” Jonathan Ravelas, chief market strategist at Banco de Oro Unibank in Manila told Bloomberg News. “In the last 10 years, bin Laden’s presence has been a serious threat to global stability. The flip side is this could be followed by retaliation activities from his supporters.”

Gold, which also initially fell, also turned high in New York trading, rising $3.60 to $1,560 an ounce. The precious metal, which is seen as a safer investment and tends to rise during times of rising inflation and global unrest, has been hitting successive record highs in recent weeks.

Silver prices dropped more than 10 percent on Monday, a declined attributed to a decision by the CME Group, which is the parent of the Chicago Board of Trade, to increase the margins for futures trading on silver.

A commodities analyst at Commerzbank in Frankfurt, Carsten Fritsch, said the rule change, which took effect after business Friday, had made speculating in silver less attractive by requiring investors to tie up more capital while chasing the potential gains.

The price fell because with the higher margin requirement and a widespread sense that silver was overvalued, investors who bought early were selling to lock in gains while those who bought recently were selling to limit losses, Mr. Fritsch said. Silver is still up 45 percent on the spot market this year, the best performance of any commodity, he said.

In India, the Sensex index was 0.6 percent lower by midafternoon amid widespread expectations that the Indian central bank will once again raise interest rates on Tuesday in a bid to tame rising inflation. Most other stock markets in the region, including Singapore, Hong Kong and mainland China, were closed for a public holiday.

David Jolly contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=be029322f43a9991048134741f1c45c0

Fundamentally: The Case for Europe’s Blue Chips

Even as European leaders grapple for a solution to their region’s debt crisis, Wall Street is now debating another question: Should investors, who are flocking to blue-chip stocks for the first time in years, favor the European or domestic variety?

Both the Morgan Stanley Capital International Europe index and the Standard Poor’s 500 are up nearly 4 percent this year. “European stocks still offer compelling values,” said Mark D. Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

The price-to-earnings ratio for European shares is just 13.2, below the 15.2 of the S. P. 500. For many years previously, European stocks traded at a premium to American shares.

There’s also the currency advantage to consider. The Wall Street consensus is that the dollar is likely to weaken further against the euro this year, continuing a trend that’s been unfolding since last summer. If that happens, Americans who invest in European shares will enjoy a lift — over and above any stock price gains — just because of the euro’s relatively stronger value.

They’re already enjoying that tail wind. Shares of Siemens, the German conglomerate, for example, have gained 2 percent this year, as the company has enjoyed better-than-expected profits — partly because of sales growth in rapidly expanding emerging markets. But tack on the effect of the weakening dollar and those returns more than double, to 5 percent.

“A weak dollar is good if you’re an American investing overseas,” said Alec Young, international equity strategist at S. P. Equity Research Services. But “if it lasts too long,” he added, “it could turn out to be bad.”

Just as a falling dollar can improve prospects for American investors abroad, it can be a boost for domestic companies trying to export their products overseas. That’s because a weakening currency makes their products cheaper for foreign customers. Conversely, a stronger euro makes it harder for European companies to export their goods.

“There is a price at which the currency exchange rate impacts the business model,” said David R. Kotok, chief investment officer at Cumberland Advisors. “It’s north of $1.40,” he said, referring to the current exchange rate of just under $1.40 to the euro. “But is it $1.50, $1.60, $1.70? I have no idea.”

For now, he said, European stocks still look attractive.

But it’s not just the weakening dollar that investors must weigh, some strategists say. Another consideration is why the dollar is falling against the euro in the first place.

One reason is that the European Central Bank has signaled that it may soon raise short-term interest rates to combat a rising threat of inflation. In fact, Jean-Claude Trichet, the central bank president, recently hinted that a rate increase could come as early as next month. By comparison, most investors think the Federal Reserve will hold short-term rates in the United States steady until the start of 2012.

Why are the European bankers considering such a quick move? Consumer prices in the region have risen 2.3 percent over the last year, noticeably faster than the 1.6 percent gain in the United States. And rising oil prices, spurred by the political turmoil in the Middle East, is likely to feed European inflation fears.

If the European Central Bank does tighten its monetary policy, it will not only be tapping the brakes on the region’s economy, but may also put further pressure on the dollar, because global investors will be rewarded with higher yields for parking their cash in euros. That, in turn, may add to the pressure European exporters — and their earnings.

“With slower growth and slightly higher inflation there, I would imagine the profit squeeze in Europe will be a little bigger than in the U.S.,” said Nariman Behravesh, chief economist at IHS Global Insight.

Would that be enough to snuff out the European rally?

Mr. Young said he didn’t think so. “If we were talking about rates moving from 4 percent to 5 percent, this would be a bigger issue,” he said. But since rates are only about 1 percent now, “It’s not that big a factor,” he said.

James W. Paulsen, chief investment strategist at Wells Capital Management, disagrees. He said that if the European Central Bank soon raised rates, “European policy officials will probably come to realize by late summer that they tightened too early.”

He expects the domestic economy, meanwhile, to keep heating up. “The combination of hotter growth here and policy changes that could slow the growth there would seem to favor domestic large caps,” he said.

For the moment, investors who are wondering where to place bets may want to make decisions case by case and sector by sector, Mr. Kotok said.

Because of uncertainties about health care reform in the United States, he said, investors looking at pharmaceutical companies might favor Sanofi-Aventis — the French giant that recently bought Genzyme — over a domestic drug maker.

But, he said, if investors want to bet on energy, they might favor a domestic player like ExxonMobil over Royal Dutch Shell, based in the Netherlands, as Exxon is making a big push into the potentially promising domestic natural gas market.

When it comes to your overall portfolio, though, it’s ultimately not a case of either/or, he said. “You need to own stocks both here and over there to be properly diversified,” he advised.

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

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