Markets & Finance

Stocks Buck Trend and Post Strong Gains


Stocks finished Monday with impressive gains as investors rallied around a mid-quarter update from fast-food giant McDonald's (MCD).

Dow Jones industrials index component McDonald's said it expects second-quarter earnings above analysts' average forecast, due to stronger foreign currencies in the countries where it operates. The shares gained 2%. Financials and techs on the index also boosted the Dow index.

Good news from retail stocks, led by Wal-Mart (WMT), pushed the broader market to its highs of the session. Late Monday afternoon, Wal-Mart said strength in food and seasonal items is powering sales growth for June.

The 30-stock Dow index finished higher by 213.21 points, or 2.25%, to 9,687.42 -- the biggest single-day gain in over a month. The Nasdaq composite index gained 48.55 points, or 3.23%, to 1,553.29. And the Standard & Poor's 500 index climbed 28.90 points, or 2.87%, to 1,036.17.

The markets may see choppier waters Tuesday, as investors will contend with a burst of economic reports. The latest update on U.S. housing starts should show a rise of 2.9% to a 1.6 million unit pace in May, says S&P MMS. Permits should remain unchanged at 1.63 million units. The rise in starts would follow two consecutive monthly drops, but would be consistent with the ongoing strength of the housing sector.

MMS expects a modest 0.1% rise in May in the consumer price index, with the core measures expected to rise 0.2%. The gauge of inflation at the consumer level, like its counterpart the producer price index, should show that energy helped hold back the overall index. MMS predicts a 1.5% decline in the energy component, led by a 3.0% drop in gasoline. Data in line with these expectations should support buying of bonds.

Investors have been daunted lately by ugly news about corporate misdeeds. CEO indictments, insider trading scandals, and a stream of lackluster profit outlooks from high-profile companies have led the major indexes close to lows reached post-September 11.

However, buyers seemed to emerge Monday, albeit on light trading volume. Stocks across sectors including semiconductors, Internet, biotech and financials posted gains.

Shares in energy companies rose Monday in tandem with oil prices, which jumped more than 1%. Oil prices are shooting higher on a warning from Baghdad that crude exports from Iraq may stop since the United Nations has not yet approved prices for its sales.

Meantime, the telecom sector continues to see more shakeout. Qwest (Q) announced the resignation of its CEO Joseph Nacchio and named Richard Notebaert, CEO of Tellabs (TLAB), to replace him. Nacchio will also resign from his post as a member of the Board. Investors bid up Qwest shares on the news.

XO Communications (XOXO) filed for bankruptcy protection under Chapter 11. The voice and data company said it submitted a two-pronged reorganization plan.

In other news, paper and wood products concern Georgia-Pacific (GP) registered for an initial public offering for its consumer products business CP&P Inc., which makes Brawny paper towels and Quilted Northern toilet paper. The company hopes to raise $1 billion in the offering.

Agricultural-equipment giant Deere & Company (DE) plans to close two plants that make commercial lawn mowers and consolidate operations at a third plant. The plans include 300 job cuts and a $50 million charge in the third and fourth quarters.

Shares of Martha Stewart Living Omnimedia (MSO) fell amid concerns over how Stewart, who heads the company, is connected to an insider trading investigation of biotech concern ImClone Systems (MSO), according to media reports.

Treasury Market

Treasuries finished lower as investors shifted assets to a rebounding U.S. equities market. On Tuesday the news flow picks up with the latest on the consumer price index and housing starts and completions. Thursday will finish the data week with current account, goods/services trade, initial jobless claims, leading indicators, and the Philadelphia Fed index of economic activity in the Northeast.

Bond traders are also awaiting Wednesday's announcement regarding the next auction of two-year notes, and possible debt limit contingencies.

World Markets

European markets ended higher on the heels of strong gains in U.S. markets. In London, the Financial Times-Stock Exchange 100 index finished up 126.00 points, or 2.72%, to 4,756.80. In France, the CAC 40 ended higher by 167.29 points, or 4.35%, to 4,010.36. And in Germany, the DAX Index increased 171.25 points, or 3.98%, to 4,475.10.

In Asia, the markets finished lower. In Japan, the Nikkei fell 256.52 points, or 2.35%, to close at 10,664.11 amid uncertainty over the U.S. economy and disappointment in the Japanese government's second anti-deflation package. In Hong Kong, the benchmark Hang Seng index lost 123.26 points, or 1.13%, to close at 10,832.26.


Steve Ballmer, Power Forward
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