U.S. stocks were sharply and broadly higher Wednesday as investors decided to buy after five straight days of losses to 12-year lows. Boosting investors' optimism were reports that Chinese Premier Wen Jiabao may announce new economic stimulus measures tomorrow, and higher commodities prices, according to S&P MarketScope.
Traders eyed a bigger-than-expected drop in the ADP private employment survey for February, and a smaller than expected decline in the Institute for Supply Management's service-sector index for the month. The Federal Reserve's Beige Book report doesn't expect an economic recovery until 2010.
On Wednesday, the 30-stock Dow Jones industrial average rose 149.82 points, or 2.23%, to 6,875.84. The broad S&P 500 index was up 16.54 points, or 2.38%, to 712.87. The tech-heavy Nasdaq composite index added 32.73 points, or 2.48%, to 1,353.74.
Trading was active as Treasury Secretary Timothy Geithner defended the Obama budget before a House panel. On the New York Stock Exchange, 25 stocks were higher in price for every six that declined. Nasdaq breadth was 19-8 positive.
April WTI crude oil futures shot up $2.86 to $44.51 a barrel following Dept. of Energy inventory report that showed crude oil stocks fell. But Treasuries and the dollar index wer lower. Gold futures fell to $907.50.
Building material stocks were up as Obama launched a home mortgage relief program. Energy issues and futures higher as a weekly U.S. inventory inventory report was weaker than expected and amid signs OPEC has managed to reduce output.
One stock that didn't participate in the rally was General Electric (GE), which fell to 6.69. A newswire report said that GE Capital's debt against default rose to a record high. The five-year credit default swaps (CDS) on GE Capital rose to 20% upfront, plus 500 basis points annually, according to the report, which cited Phoenix Partners Group.
In economic news, the U.S. ADP report showed private payrolls plunging 697,000 in February, after a downwardly revised 614,000 drop in January (from -522,000). Jobs in the goods producing sector fell 338,000, and are down for a 26th straight month. Manufacturing lost 219,000 jobs, a 36th consecutive monthly decline. Service producing jobs fell 359,000 from -279,000. Construction jobs fell 114,000, and have posted 25 straight monthly declines.
"The data are worse than expected, to suggest downside risk to the Friday's payroll. We now expected 625,000 jobs to be lost in February," says S&P senior economist Beth Ann Bovino.
The survey of purchasing managers at nonmanufacturing firms conducted by the Institute for Supply Management fell to 41.6 in February, from 42.9. The decline was a bit better than the market expectation of 41.0. Business activity fell 4.0, to 40.2, but employment improved to 37.3 from 34.4. Orders were mixed, with export orders up and domestic down. The index has been below 50, indicating contraction, for five consecutive months.
Traders were awaiting Thursday's reports on weekly initial jobless claims and January factory orders.
The Obama administration launched a $75 billion mortgage modification program aimed at preventing home foreclosures for single-unit home loans up to $729,750. Unveiling more details of the program, the Treasury said borrowers would be required to demonstrate financial hardship to their loan servicers, such as a job loss or an imminent payment increase that cannot be met. Loans considered for modification to reduce monthly payments must have been originated before January 1, 2009 on owner-occupied homes, the Treasury said. The new program is designed to help up to 9 million borrowers stay in their homes. "It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets," Treasury Secretary Timothy Geithner said in a statement.
China's main stock index surged 6.12% in heavy trading after the government said it would increase its fiscal spending plan and data supported hopes for an early economic recovery. China will increase spending in areas such as infrastructure and manufacturing on top of the 4 trillion yuan ($585 billion) stimulus package that it unveiled in November, a senior economic planning official said. This fuelled hopes that Premier Wen Jiabao would make a major announcement on fresh stimulus plans when he addresses parliament on Thursday. The market was also encouraged by news China's official purchasing managers' index (PMI) rose to 49.0 in February from 45.3 in January. Meanwhile, Chinese banks extended 1.1 trillion yuan in new loans last month, Market News International reported late on Tuesday, citing an unnamed senior banking source. That would be less of a slowdown than expected from January's record 1.62 trillion yuan.
Among other companies in the news, S&P Ratings Services lowered its counterparty credit rating on Hartford Financial Services Group (HIG) to BBB from BBB+ and its counterparty credit and financial strength ratings on all of the company's life (Hartford Life) and property/casualty (Hartford Fire) operating subsidiaries to A from A+. The outlook on all these companies is negative. S&P says if these market declines were to persist or worsen, the company will need to increase financial leverage materially to cover the funding shortfall at Hartford Life.
United States Steel (X) said further consolidation is necessary to maximize efficiency while meeting customer demands. Operations to be temporarily idled over the next several weeks are the finishing and coking operations at Hamilton Works in Hamilton, Ontario, and the steelmaking and finishing operations at Lake Erie Works near Nanticoke, Ontario. About 1,500 employees will be affected.
Costco Wholesale (COST) posted $0.55 vs. $0.74 second quarter EPS on 1% lower sales and 3% lower total sales. Costco said results were negatively impacted by continued weakness in non-food sales and related margins.
BJ's Wholesale Club (BJ) posted $0.89 vs. $0.80 fourth-quarter non-GAAP EPS on 1.7% higher same-store sales and 3.2% higher total sales (including unfavorable impact from gasoline sales). Wall Street was looking for EPS of $0.86 in the current quarter. The company posted 0.6% higher February same-store sales (including an unfavorable impact from gasoline sales). BJ's sees 2009 EPS of $2.26-$2.36.
Big Lots (BIG) posted $1.00 vs. $0.97 Q4 EPS from continuing operations on a 3.2% same-store sales drop and a 3.2% total sales drop. The company sees $0.34-$0.40 first-quarter fiscal 2010 EPS from continuing operations, and EPS of $1.75-$1.90 for the full fiscal year.