Stocks Climb on Economic Data
Reports of a pick-up in M&A activity stimulated some investor demand.
Investor Warren Buffett was more optimistic on the economy, saying that the situation is immeasurably better than a year ago when he referred to an "economic Pearl Harbor" in a CNBC interview Wednesday. Bullish statements from Citigroup (C) on its business appeared to be another supporting factor for stocks.
On Wednesday at around 2:22 p.m. ET, the 30-stock Dow Jones industrial average was higher by 107.62 points, or 1.11%, at 9,791.03. The broad Standard & Poor's 500-stock index added 14.74 points, or 1.40%, to 1,067.37. The tech-heavy Nasdaq composite index gained 28.69 points, or 1.36%, to 2,131.33.
On the New York Stock Exchange, 24 stocks were higher in price for every five that declined. Nasdaq breadth was 18-8 positive. Trading was moderate. The market appeared to be in the midst of a short squeeze ahead of the so-called Quadruple Witching expiration of options and futures later in the week, reports S&P MarketScope.
Treasuries were mixed in a volatile session. The dollar index was lower. Gold futures were up. Oil futures were up after the Energy Dept.'s weekly inventory report showed crude oil stocks fell by a more than expected 4.7 million barrels, gasoline stocks rose 500,000 barrels and distillate stocks rose 2.2 million barrels.
With Wednesday's session winding down, traders were looking ahead to Thursday's key economic releases: August housing starts, and the Philadelphia Fed index for September.
Citigroup (C) CEO Vikram Pandit said Wednesday "we've turned the corner on capital strength" and are "largely through mark-to-market writedowns," among other optimistic references. Pandit also sees signs of moderation in consumer delinquencies.
Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., increased holdings of government-related debt last month to the most in five years and cut mortgage securities.
In M&A news Wednesday, Adobe Systems (ADBE) agreed to acquire Omniture (OMTR) in a deal valued at about $1.8 billion on a fully diluted equity-value basis.
Adobe also posted third-quarter non-GAAP earnings per share (EPS) of $0.35, vs. $0.50 one year earlier, on a 21% revenue decline. Wall Street was looking for EPS of $0.34.
American Capital Ltd. (ACAS) agreed to sell all the shares of Axygen BioScience Inc. to Corning (GLW) for about $400 million in cash.
In other company news, Genworth Financial (GNW) said it has priced a public offering of 48 million Class A common shares at $11.75 per share. In addition, Genworth has granted the underwriters an option to buy up to an additional 7.2 million shares to cover over-allotments, if any. BofA-Merrill upgraded Amazon.com (AMZN) to buy from neutral.
UBS analysts downgraded Verizon Communications (VZ) to neutral.
The chief financial officer of JPMorgan Chase (JPM) said the bank could boost its dividend.
Shares of Apple (AAPL) jumped after Jim Cramer, host of the CNBC program Mad Money raised his target price on the stock to $264 from $200, according to S&P MarketScope. Cramer thinks Apple's EPS will "skyrocket," maybe by as much as 40%, due to a yet-to-be announced accounting change, which Cramer says will allow the company to start recognizing all of its iPhone sales, earnings when they happen, instead of over a two-year time period as dictated by the current standard, according to Cramer.
In economic news Wednesday, the September National Association of Home Builders sentiment index rose to 19 from 18 in August. In line with expectations. Homebuilder sentiment has been improving since hitting a record low of 8 in January, with all components above last year's levels. The index was 17 a year ago. The single family sales index rose to 18 from 16 in August. However, the future index slipped to 29 from 30 (it was 28 a year ago), perhaps a function of the expiration of the first time homebuyer credit at year end. The index of prospective buyer traffic rose to 17 from 16 (14 a year ago).
U.S. industrial production rose 0.8% in August from an upwardly revised 1.0% gain in July (was 0.5%). That brought capacity utilization up to 69.6% from 69.0% (revised from 68.5%). Manufacturing output rose 0.6%, helped by a 5.5% surge in auto production. But, strength was broadbased as production excluding vehicles rose 0.6%. Utility production climbed 1.9% after a 1.6% decline in July (was -2.4%). Mining was up 0.5% after a 0.6% increase in July (was 0.8%). The data are much better than expected and support the more encouraging outlook on the recovery.
Consumer prices rose 0.4% in August, and were up 0.1% excluding food and energy. The increases were in line with the consensus estimates. Energy prices surged 4.6%, but remain down 23% from a year earlier. New car prices dropped 1.3% in August, reflecting the treatment of the "cash for clunkers" program. This should reverse in September. Overall, the CPI is down 1.5% from a year ago, and up only 1.4% excluding the food and energy components. There is no evidence of inflationary pressures in this report.
The current account deficit narrowed to $98.8 billion in the second quarter from $104.5 billion in the first quarter, putting the deficit at the lowest level in 8 years even though it was a bit worse than the consensus estimate of $92.0 billion. The goods and services deficit narrowed to $83.0 billion in Q2 from $92.4 billion in the first quarter, but the surplus on income narrowed to $16.4 billion from $18.3 billion as investment income dropped. Transfers to foreigners increased $1.9 billion to $32.2 billion.
U.S. Treasury capital flows data showed foreigners sold a net $97.5 billion U.S. assets in July, after selling a revised $56.8 billion the month before (previously -$31.2 billion). Private foreign investors sold a net $131.3 billion in July, while foreign officials purchased a net $33.8 billion.