Energy, Health-Care Stocks Lead Market Higher
Wall Street managed gains despite weakness in equity markets elsewhere after Shanghai stocks skidded into bear market territory on worries China's economic growth will slow.
Corporate news offered some support to the market, reports Action Economics, with farm equipment maker Deere & Co. (DE) beating expectations even as it reported a 24% drop in third-quarter sales. And Hewlett-Packard (HPQ) also beat estimates, despite a 19% drop in third-quarter earnings; the company raised its forecast for fourth-quarter earnings.
On Wednesday, the 30-stock Dow Jones industrial average finished higher by 61.22 points, or 0.66%, at 9,279.16. The broad Standard & Poor's 500-stock index gained 6.79 points, or 0.69%, to 996.46. The tech-heavy Nasdaq composite index added 13.32 points, or 0.68%, to 1,969.24.
Treasuries were higher Wednesday. The dollar index was lower after billionaire investor Warren Buffett and asset manager PIMCO expressed concerns that huge levels of U.S. government spending will erode the greenback's value. Gold futures were higher.
Oil futures climbed after the Energy Dept.'s weekly U.S. inventory report showed that crude stockpiles decreased by 8.4 million barrels, or 2.4%, to 343.6 million barrels, which is still 15.2% above year-ago levels. Analysts had expected a 1.1 million-barrel build in crude oil reserves on Wednesday for the week ended Aug. 14, according to a survey by Platts.
The news helped boost the S&P Oi& Gas Exploration & Production index by 1.5% in Wednesday's session.
Other top-performing S&P industry indexes included Health Care Supplies, up 2.1%; and Pharmaceuticals, up 1.5%.
There were no significant U.S. economic reports scheduled for release Wednesday. In recent sessions, economic reports have shown declines in retail sales, consumer confidence, and business inventories. The market was bracing for Thursday's reports on the Philadelphia Fed index, initial jobless claims, and leading economic indicators.
Bloomberg News reported that China's Shanghai composite index fell 4.30% Wednesday, putting it 20% below its Aug. 4 high and putting it into bear market territory. Analysts say they are worried China's economy is slowing down after a nine-month rally. The Shanghai gauge stands at less than half its record level on Oct. 16, 2007. Stocks have slumped this month as new loans in July declined to less than a quarter of June's level and companies including Yunnan Copper Industry Co.
PIMCO said the dollar will weaken as the U.S. pumps "massive" amounts of money into the economy, accordingto a Bloomberg News report. The dollar will drop the most against emerging-market counterparts, Curtis A. Mewbourne, a Pimco portfolio manager, wrote in a report on the company's Web site. The greenback is losing its status as the world's reserve currency, he said. "Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure," Mewbourne wrote in his August Emerging Markets Watch report.
The U.S. must address the massive amounts of "monetary medicine" that have been pumped into the financial system and now pose threats to the world's largest economy and its currency, billionaire Warren Buffett said. The "gusher of federal money" has rescued the financial system and the U.S. economy is now on a slow path to recovery, Buffett wrote in a New York Times commentary. While he applauded measures adopted by the Fed and officials from the Bush and Obama administrations, Buffett said the U.S. is fiscally in "uncharted territory." The U.S. government has reached an agreement with UBS AG (UBS) over a tax case, according to the Justice Dept. The Swiss government, which holds a 9% stake in UBS, says the process concerns around 4,450 accounts. As part of the deal, the U.S. government will withdraw its demands of disclosure of 52,000 UBS account holders' identity and a new treaty request will be submitted concerning the 4,450 account holders now in question. The Swiss government statement does not include any reference to possible fines for UBS.
In company news Wednesday, Merck (MRK) announced that the U.S. District Court for the District of New Jersey has ruled in the company's favor in a patent infringement suit against Teva Pharmaceuticals (TEVA). Teva was seeking FDA approval to sell a generic version of 4, 5 and 10 mg tablets of Singulair (montelukast sodium), Merck's asthma and allergic rhinitis medicine.
Hewlett-Packard posted third-quarter non-GAAP earnings per share (EPS) of $0.91, vs. $0.86 one year earlier, despite a 2% revenue decline (+4% in constant currency). Wall Street was looking for $0.90 EPS. H-P sees fourth-quarter revenue up about 8% sequentially, with non-GAAP EPS of about $1.12. For all of fiscal 2009, the company expects revenue and EPS to be in line with the mid-point of the outlook range provided on May 19, which called for a revenue decline of about 4%-5%, and non-GAAP EPS of $3.76-$3.88.
Deere reported third-quarter EPS of $0.99, vs. $1.32, on a 24% sales drop. The company sees net income of about $1.1 billion for 2009, despite the largest expected single-year sales decline in at least 50 years.
Lincoln National (LNC) entered into a deal to sell its Delaware Management Holdings unit and its subsidiaries, its asset management unit, to Macquarie Group. Lincoln National expects to receive cash consideration of about $428 million, subject to certain closing adjustments.