Markets & Finance

Stocks End Sharply Higher


Stocks finished sharply higher Tuesday on a stronger than expected report on retail sales and earnings news from retail giant Wal-Mart (WMT). An upgrade of Intel (INTC), plus speculation for good earnings from Applied Materials (AMAT), prompted tech-stock short covering and bargain hunting.

Tech stocks led the way, pushing the Nasdaq Composite up 4.03%, or 66.52 points, to 1,719.06. The Dow Jones industrial average jumped 189.20 points, or 1.87%, to 10,298.90. And the broader Standard & Poor's 500 index gained 22.72 points, or 2.11%, to 1,097.28.

On Wednesday, investors will digest more earnings news. After the market close, Applied Materials reported second quarter earnings of $0.03 per share, a penny better than the consensus estimate. Revenues fell 45.9% from a year ago to $1.16 billion, while new orders of $1.69 billion increased 51% from the first fiscal quarter of 2002.

Meanwhile, computer and printer maker Hewlett-Packard (HPQ) reported second quarter EPS of $0.25, a penny below the consensus estimate. Revenue was $10.62 billion, less than the consensus forecast of $11.14 billion.

On the economic front, the consumer price index, industrial production and capacity utilization data, and the latest report on business inventories are due out Wednesday.

S&P MMS expects the overall CPI to rise 0.5% in April, while the core index reveals a more subdued 0.2% gain. Energy prices are again expected to account for the bulk of the strength, as the aggregate jumps over 4% thanks to 9% surge in gasoline prices. Assuming a tame result for the core index, these data will likely get just a glance from the market.

On Tuesday, the government reported retail sales in April rose 1.2%, much higher than economists predicted and the biggest jump since October, 2001. Excluding autos, retail sales rose 1.0%. The report shows consumer spending has been much stronger than anyone could have imagined immediately following the September 11 attacks, says S&P MMS. The data suggests that first quarter GDP could be revised higher (to 6.0% from 5.8%), and that second quarter economic growth should top 4.5%, says S&P MMS.

The tech sector got a boost from Robertson Stephens' upgrade of Intel to 'buy' from 'market perform' on the premise that the company may not cut prices of its desktop Pentium 4 chips in its fiscal third quarter. Analyst Eric Rothdeutsch says this would be the first quarter without a price cut since the peak of the 1995-96 upgrade cycle.

Dell Computer (DELL) also rose on positive comments from Merrill Lynch analyst Steven Fortuna, who says he thinks the PC maker will deliver first quarter results (after the market close Thursday) in line or ahead of his $0.16 EPS and $7.9 billion revenue estimates. He believes Dell benefited from a stable demand environment, superlative execution, and maybe even from distractions surrounding the Hewlett-Packard and Compaq merger proxy fight.

In earnings news, Wal-Mart reported first quarter EPS of $0.37, vs. $0.31 a year ago, on 8.1% higher same-store sales and 14% higher total sales. Its EPS was a penny above analysts' consensus forecast.

In other news, WorldCom (WCOM) shares were under pressure again to $1.25 after it was dropped from the S&P 500 index.

And Standard & Poor's stock indexing and ratings group on Tuesday unveiled a new methodology to calculate operating earnings for companies in the S&P 500 index. The move to promote stricter standards comes in the wake of the Enron debacle and need for investors to have earnings reports that are clear, consistent, and understandable.

Treasury Market

U.S. Treasuries fell in price, sending yields higher. Much better than expected retail sales data torpedoed the 10-year note and the entire curve as traders unloaded positions in droves. Surging stock strength and crude oil prices also weighed heavily and conspired as Treasuries were battered for large losses, says S&P MMS.

World Markets

European markets ended higher, thanks to the robust U.S. retail sales report. In London, the Financial Times-Stock Exchange 100 was up 34.70 points, or 0.67%, to 5,239.50.

In Germany, the DAX Index gained 73.60 points, or 1.48%, to 5,049.08, even though the Zew Center for European Economic Research said German institutional investor confidence fell in May for the second consecutive month as IG Metall strikes were seen harming the economy. And in France, the CAC 40 climbed 71.73 points, or 1.64%, to 4,447.12.

In Asia, the markets ended mixed. In Japan, the Nikkei gained 19.24 points, or 0.17%, to close at 11,356.19 amid renewed concerns over corporate earnings. Investors were reportedly sidelined prior to the earnings announcement from Applied Materials. In Hong Kong, the Hang Seng lost 43.12 points, or 0.37%, to close at 11,690.31.


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