Stocks finished solidly higher Monday, though off their best levels of the session, as upside momentum continued for Wall Street. Two stronger-than-expected economic reports lifted the major indexes to new recovery highs.
The Dow Jones industrial average finished 57.3 points higher, or 0.58%, to 9,858.4. The broader Standard & Poor's 500 index added 8.3 points, or 0.78%, to 1,059.01. The tech-heavy Nasdaq composite index gained 35.49 points, or 1.8%, to 1,967.7. Chip stocks were higher following a bullish report from the Semiconductor Industry Association. Gold and airline issues were lower.
In economic news, the October Institute for Supply Management's factory index was better than expected, at 57 -- the highest since January 2000 -- up from a September level of 53.7, reflecting the expansion in manufacturing continued to accelerate in early fourth quarter. Production surged to 62.6 from 57.3, reports MMS, pointing out that employment increased to 47.7 from 45.7. New orders continued to climb, rising to 64.3 from 60.4. Prices paid slipped to 58.5 from 56.0.
Looking closely at the trade components of the report, MMS adds: "U.S. trade is both accelerating and shifting its mix toward more balanced strength in exports and imports, which likely reflects accelerating growth in the capital goods sector that depends on parts produced and assembled in multiple countries. The data bode very well for GDP growth in the fourth quarter, and the first quarter of 2004.
A.C. Moore, chief market strategist at Dunvegan Associates in Santa Barbara, Calif., says that the day's rise in stocks, and dip in bonds is "not without cause." The ISM numbers are "the most important numbers in the economic series," he says, calling them the most efficient, and able to give a better read on the economy than any other releases or reports.
The Commerce Department's read on construction spending in September came in up 1.3% to a $910.6 million annual pace, from an upwardly revised 0.7% gain in August (vs. 0.2% originally), well above median expectations of a 0.3% gain -- the highest rate on record, reports MMS. "The bulk of the gains were in private spending, which grew 1.7% against public spending that was unchanged," says MMS.
Most of the domestic, U.S. unit vehicle sales have arrived. So far, October sales are nearing 15.7 million units, 5% lower than previously. "While this is a solid rate on a historical basis, it is well below the nearly 19 million unit rate seen in August," says MMS. "The data suggest the auto component of both retail sales and [comsumption spending] will be a large drag on the month."
Ford (F) reported that its overall sales declined 2% in October from a year earlier, led by a 9% drop in cars, which was partially offset by a 2% gain in trucks. Vehicle sales at General Motors (GM) were "a big disappointment," says MMS. GM sales dropped 7% year over year, with cars off 6% and trucks down 8%.
In company news, the CEO of money management firm Putnam Investments, Lawrence Lasser, has been replaced amid fraud charges by Charles Haldeman, Putnam's managing director and co-head of investments, according to a statement by parent company Marsh & McLennan (MMC). Marsh also named Steven Spiegel vice chairman, a new position for the company. Marsh stock finished 5% higher.
Teva Pharmaceutical (TEVA) has posted third quarter earnings of 53 cents, vs. 36 cents on a 29% net sales rise. S&P reaffirmed its accumulate rating. The stock gained 2.6%.
In energy, Dynergy (DYN) surged 4% higher on news that it inked a deal with Exelon (EXC) whereby Exelon will acquire substantially all assets, and liabilities of Illinois Power in a deal valued at about $2.225 billion. Exelon was 2.5% higher.
First Health Group (FHCC) slumped 25% to $18.45 after posting third quarter earnings of 42 cents per share, vs. 32 cents on a 7% rise in revenue. The company sees lower-than-expected 2004 EPS of $1.50 to $1.55 on revenue of about $950 million. S&P kept its hold rating, while Banc of America cut its estimate and target of the stock.
Cereal maker Kellogg (K) posted third quarter earnings of 56 cents, vs. 49 cents, on a 6.8% rise in sales. The company raised its 2003 EPS guidance to a range of $1.89 to $1.91 range, and sees a 2004 EPS as high as $2.09. The stock added 5.3%.
Jefferies upgraded WebMD (HLTH) to buy from hold. WebMD gained 7.1%.
Boeing (BA) finished 1% higher on news that it received a $823 million contract for 15, ground-based interceptor missiles, and other work on the U.S. anti-missile shield due to become operational next year.
Strayer Education (STRA) has posted third quarter earnings of 25 cents, vs. 19 cents (excluding gains) on a 30% rise in revenue. The education company raised its 2003 EPS to an upward range of $2.16, compared with an upward range of $2.08 (excluding gains); and sees 2004 EPS as high as $2.65 on a 20% to 23% revenue rise. The stock added 6.1%.
Ameritrade Holdings (AMTD) has filed with the SEC for a proposed offering by certain shareholders to sell about 44.1 million shares. Concurrent with the offering, the company plans to purchase 7.5 million shares from the selling shareholders. The stock lost 3.9%.
May Department Stores (MAY) posted 4.2% lower September same store sales, and 2.4% lower total sales, and ended up 2.3%.
Electronics Boutique (ELBO) cut its third quarter earnings guidance to a range of 5 cents to 6 cents, down from an upward range of 18 cents. The company cites an expected 7% decline in its third quarter, same store sales, and sees fiscal 2004 earnings as high as $1.66. S&P reiterates accumulate. The stock shed 18%.
The week will be dominated by economic news, but Tuesday's slate is relatively light. The Challenger job-cut report highlights on Tuesday, but little more than a kneejerk reaction is expected, says MMS. The schedule picks up again on Wednesday with the ISM non-manufacturing index and factory orders data. Weekly jobless claims arrive on Thursday, along with chain store sales, and productivity data. And on Friday, the much-anticipated updated on employment for October is scheduled. MMS expects the unemployment rate to stay put at 6.1%. Wholesale trade and consumer credit are also scheduled for Friday.
Treasury prices ended lower Monday, having eroded over the course of the session, grinding lower following the data and only supported late in the day by weak auto sales and the latest bombings near U.S. headquarters in Iraq, says MMS.
Meanwhile, the Treasury revised its fourth quarter financing needs lower to $117 billion, down from the July estimate of $126 billion. Estimated first quarter 2004 borrowing is at $160 billion. The Treasury revised its quarter-end cash balance down to $35 billion, from $45 billion; and projects a $20 billion cash balance for the end of the first quarter. Actual third quarter borrowings totalled $82 billion -- less than the $104 billion forecast. "The smaller borrowing need probably won't be of much help to Treasuries given the large first quarter requirement," says MMS. "The $117 billion fourth quarter estimate is also consistent with an unchanged $60 billion to slightly higher November refunding package."
Gold fell $9 to $376 per ounce, and the dollar made a strong comeback vs. other major currencies on the session.
European stock finished substantially higher on Monday, despite a quiet corporate news day. An overnight report from the U.S. semiconductor industry association showing chip sales rose 17% in October has helped the tech sector.
London's Financial Times-Stock Exchange 100 index gained 40.4 points, or 0.94%, to 4,328.00, following reports that U.K. retail sales rose in October at the fastest rate in 18 months, and that U.K. manufacturing rose at the strongest rate since 1999.
In Paris, the CAC 40 finished 65.87 points higher, or 1.95%, to 3,439.07. Germany's DAX index had added 88.51 points, or 2.42%, to 3,744.5. Infineon Technologies was higher as a trade group reported increased demand for chips used in personal computers, and mobile telephones.
In Asia, Hong Kong's Hang Seng index gained 196.71 points, or 1.61%, to 12,386.81. Japan's Nikkei 225 index was