U.S. stocks closed higher Friday as companies including Ford Motor Co. (F), American Express (AXP), and Microsoft Corp. (MSFT) posted better-than-expected first-quarter financial results, and the government disclosed the methodology it used to stress test the 19 largest U.S. financial
institutions. Results of these tests will be made public May 4.
On Friday, the 30-stock Dow Jones industrial average finished higher by 119.23 points, or 1.50%, at 8,076.29. The broad S&P 500 index moved up 14.31 points, or 1.68%, to 866.23. The tech-heavy Nasdaq composite index gained 42.08 points, or 2.55%, to 1,694.29. On the New York Stock Exchange, 23 stocks were higher in price for every seven that declined. Nasdaq breadth was 19-8 positive.
Bonds and the dollar index fell. Gold and oil futures rose.
Friday's rally was enough to boost the Nasdaq composite -- but not the Dow industrials and S&P 500 -- to another weekly gain.
Regulators unveiled the stress test methodology used to determine the solvency of 19 leading U.S. banks. The Wall Street Journal reported that the Federal Reserve said any banks directed to raise new capital as a result of the government's stress tests should not be viewed as insolvent or unviable, one way
government officials are trying to manage the potential fallout from the high-stakes exams. The central bank released the methodology of its stress tests the same day bank executives across the country huddled with Fed officials to go over their results. The Fed is sharing with the banks how much capital each company might need to raise
to satisfy regulators that they can continue lending if the economy worsens significantly next year.
Some market players were disappointed by a lack of details in the report, according to S&P MarketScope..
Ford posted a smaller-than-expected first-quarter loss of $1.4 billion and said it doesn't need more cash in 2009. The Wall Street Journal reported the auto maker posted a per share loss of 60 cents compared with a profit of 3 cents or $70 million for the same period a year earlier. Ford posted a loss of $1.8 billion, or 75 cents a share, from continuing operations and excluding one-time items. Analysts were expecting a loss of $1.23 a share, according to Thomson Reuters. Ford managed to slow its cash burn to $3.7 billion -- far less than the $7.2 billion the company burned through in the fourth quarter. It finished the first quarter with $21.3 billion. Ford's credit arm also swung to a loss of $13 million compared with a profit of $24 million for the year-earlier period.
With a week remaining for Chrysler LLC to clinch a deal with Italy's Fiat, the U.S. automaker is readying a bankruptcy plan but still focused on reaching an alliance with the support of the Obama administration, people with knowledge of the discussions said. Fiat, meanwhile, also emerged as a potential buyer for General Motors' (GM) Opel unit in a deal that would mark the Italian automaker's emergence as a major global player with a role in the restructuring of two of Detroit's sputtering carmakers. Chrysler, which faces a government-imposed April 30 deadline to cement an alliance with Italy's Fiat or face a cut off of its federal funding that could trigger its liquidation in bankruptcy, has been preparing for a Chapter 11 filing as a contingency, a person with direct knowledge of the plans said.
The Group of Seven draft communique was released Friday and suggested its customary view that volatile and disorderly foreign exchange movements would be negative for economic and financial stability, reports Action Economics, welcoming China's move towards more flexible exchange rates that could lead to a firmer Renminbi. The G7 also noted the pace of economic decline was slowing, amid signs of stability emerging, though the outlook remained weak and downside risks persist. The global group vowed to continue to act to address toxic bank debt, restore jobs and growth, prevent future crises and ensure the soundness of systemically important institutions, which would be subject to broader regulations. G7 members also agreed to refrain from raising any new barriers to trade and investment.
Investors eyed another batch of quarterly earnings reports Friday.
Amazon.com (AMZN), after the close of trading Thursday, posted first-quarter earnings per share of $0.41, vs. $0.34 one year earlier, on an 18% sales rise. Wall Street was looking for EPS of $0.31. The company sees second-quarter sales of $4.3 billion-$4.75 billion, growth of 6%-17%, and operating income of $110 million-$190 million.
Also after Thursday's close, Microsoft Corp. (MSFT) reported third-quarter EPS of $0.33, vs. $0.47, on a 6% revenue decline. Current-quarter results included $0.06 in net charges related to severance and impairments. Wall Street was looking for EPS of $0.39. Microsoft offered fiscal 2009 operating expense guidance of $26.7 billion-$26.9 billion, including severance charges.
On Friday, Xerox (XRX) posted first-quarter EPS of $0.05, vs. a $0.27 loss, on an 18% revenue drop. Wall Street was looking for EPS of $0.04. The company sees second-quarter EPS of $0.10-$0.12, delivering full-year 2009 EPS of $0.50-$0.55.
3M Corp. (MMM) reported first-quarter EPS of $0.74, vs. $1.38, on 21% lower sales. The company said the global economic slowdown dramatically affected its first-quarter business. To reflect ongoing global economic uncertainty, 3M now expects 2009 EPS of $3.90-$4.30 vs. previous guidance of $4.30-$4.70. It now expects 2009 organic sales volume to decline between 11%-15%, vs. previous guidance of down 5%-9%.
Schlumberger Ltd. (SLB) reported first-quarter EPS from continuing operations of $0.78, vs. $1.06, on a 4.6% revenue drop. Wall Street was looking for EPS of $0.73.
Netflix (NFLX) reported first-quarter GAAP EPS of $0.37, vs. $0.21, on s 21% revenue rise. Non-GAAP EPS was $0.40. Wall Street was looking for EPS of $0.31. Netflix ended the first quarter with about 10.31 million total subscribers, representing 25% year-over-year growth and 10% quarter over-quarter growth. It sees second-quarter revenue of $403 million-$409 million (vs. $394.1 million in the first quarter), and GAAP EPS of $0.44-$0.53.
Honeywell (HON) posted first-quarter EPS of $0.54, vs. $0.85, on 15% lower sales. To reflect continued slow global economic conditions, the company adjusted its 2009 EPS guidance to $2.85-$3.20 on $32.3 billion-$33.2 billion in sales.
In economic news Friday, U.S. new home sales slid 0.6% in March to a 356,000 pace annual pace, compared to an upwardly revised 358,000-unit rate in February (was 337,000). January's 322,000 rate was revised to up to 331,000, for a net 31,000 revision over the prior two months. New home sales were running at a 513,000 unit pace a year ago. Sales were mixed across the four reported regions, falling in the Northeast and Midwest, unchanged in the South, and up in the West. The months' supply of homes fell to 10.7 from a revised 11.2 (was 12.2). There were 311,000 homes for sale in March, versus 328,000 in February (revised from 330,000). The median price fell to $201,400 versus $208,700 in February (revised up from $200,900).
"The tone of the entire report is a little better than expected and should keep equities and Treasury yields on the rise," says Action Economics.
U.S. durable goods orders declined 0.8% in March, not as deep a decline as expected. But February's 3.5% gain was revised much lower to 2.1%. January was revised lower too to -7.8% from -7.3% previously. Transportation orders fell 1.4%. Excluding transportation, orders dipped 0.6%. Nondefense capital goods orders excluding aircraft rose 1.5% after a 4.3% increase in February (revised from 11.0%). Shipments declined 1.7%. Inventories dropped 1.1%. The inventory-shipment ratio climbed to 1.90 from 1.88 (was 1.88). It was 1.56 a year ago.