The majority of December-quarter earnings should wrap up this week in what Standard & Poor's calls "a strong quarter." Economic research firm Informa/MMS reports that so far, 175 of the S&P 500 firms have reported results, and that nearly 65% beat estimates, with 21% in-line and 14% arriving below forecasts. "But with double-digit gains posted in 2003, concern has emerged that the market needs to pause with current valuations already pricing in fourth quarter profits outlook," says Informa/MMS.
The Dow Jones industrial average surged 134.22 points, or 1.25%, to 10,702.51. Gains from Merck (MRK
), which also lifted healthcare stocks, IBM (IBM
), and American Express (AXP
) paced the advance. The broader S&P's 500 index finished up 13.82 points, or 1.20%, to 1,155.37. The tech-heavy Nasdaq composite index tacked on 29.96 points, or 1.39%, to end at 2,153.83. Semiconductor, pharmaceutical, and financial issues helped lead the market higher.
As the current earnings season began, the question gnawing at Art Hogan, market strategist at Jefferies & Co., was, "Fourth quarter earnings are good, but how much is already priced into the market?" On Monday, he says, "we threw out that concern mid afternoon, and piled into this market place. It's the first significant move the market has made since earnings season began eight sessions ago. It's good to see the market pick a direction for a change."
New data released Monday showed that the housing market remains strong. Existing home sales for December, 2003, arrived ahead of analysts' expectations, at a 6.47 million unit annual pace, the second strongest on record, and up 6.9% from November's revised 6.05 million unit pace. The final six months of 2003 registered the six strongest showings for existing home sales on record, reports Informa/MMS. For all of 2003, 6.1 million homes were sold, up from 5.6 million in 2002.
American Express reported 12% higher net income, as its credit card customers put more of their purchases on plastic, and spent money on travel. Fourth quarter diluted net earnings were 59 cents, vs. 52 cents. The stock added 2%.
Pharmaceutical stocks were mixed Monday. On a positive note, Aventis (AVE
) has reportedly rejected a 47.8 billion euro takeover offer from Sanofi-Synthelabo SA (SNY
). Aventis gained 2.9%, Sanofi-Synthelabo was down 7.3%.
But another Big Pharma name, Schering-Plough (SGP
), delivered less-than-stellar fourth quarter results. The company posted a fourth quarter loss of 12 cents, vs. 21 cents on a sales drop of 18%. Schering-Plough cites the "unusual dynamics" of its hepatitis C business, dipping sales of its allergy drug Claritin, and the absence of revenues from LOSEC, an anti-peptic ulcer drug, from Europe. Schering-Plough shares finished 1.9% higher.
Airline stocks suffered, following three downgrades. First, a Merrill Lynch downgrade of Frontier Airlines (FRNT
) to 'neutral' from 'buy' -- noting fare tensions with United Airlines's budget airline alternative -- sent Frontier shares south by 7.5%. Goldman Sachs also downgraded America West (AWA
) and Atlantic Coast Airlines Holdings (ACAI
). America West dipped 6.1%.
In earnings news, Tyson Foods (TSN
) surged 11% after posting first quarter earnings of 16 cents per share, vs. 11 cents on a 12% sales rise. The company sees fiscal 2004 earnings ranging from 90 cents to $1.20.
Lexmark International A (LXK
) posted fourth quarter earnings of $1.05 per share, vs. 90 cents, on a 13% revenue rise. The printer maker sees first quarter earnings as high as 89 cents on mid-to-high single-digit revenue growth. Needham upgraded the stock to 'buy' from 'hold,' and S&P reiterated its 'accumulate' rating. The stock gained 7.2%.
Diaper and tissue maker Kimberly-Clark (KMB
), reported 91 cents, vs. 72 cents, earnings per share in its fourth quarter on an 11% sales rise. The company raised its quarterly dividend 18%. The stock added 3.5%.
Hilton Hotels (HLT
) has posted fourth quarter EPS of 17 cents, vs. 11 cents, and sees a 2004 EPS of 40 cents on $4.07 billion in revenue. Hilton stock eased by 2.9%.
) was expected to post its fourth quarter earnings after the market close Monday.
This week's earnings calendar will again be jam-packed with reports from top U.S. companies. Among the big names due to release results later this week are Amazon.com (AMZN
) and Caterpillar (CAT
) on Tuesday, and Altria (MO
) and Tribune (TRB
) on Wednesday.
Releases from Duke Energy (DUK
) and ExxonMobil (XOM
) on Thursday, and Wendy's International (WEN
) on Friday round out the week.
On the economic front, the highlights include the Federal Reserve's interest rate decision on Wednesday and the first look at fourth quarter GDP data on Friday. There is no chance the Fed will change its policy stance at the two-day meeting, says economic research outfit Informa/MMS, so all the attention will be on the policy statement, as it has been for the past several meetings.
There's plenty of new data for the markets to ponder. On Tuesday, the consumer confidence reading for January is seen decreasing to 91 from 91.3 in the previous month. On Wednesday orders for big ticket items are expected to register a 2.5% increase in December vs. a 2.5% decrease in the previous month. And on Thursday, jobless claims for the weekend ending Jan. 17 are due out.
Treasuries finished modestly lower in price Monday. Treasury losses were extended by another wave of mortgage related selling, according to Informa/MMS. "The better than expected strength in the housing data, however, along with the $26 billion two-year announcement, stemmed further steepening."
European stock markets finished lower Monday, as traders contemplated further declines in the U.S. dollar. "European exporters have gleaned some comfort from the latest dollar recovery, but this not been able to keep bourses afloat," says Informa/MMS.
London's Financial Times-Stock Exchange 100 index eased 15.30 points, or 0.34%, to 4,445.50. Tony Blair's labor government faces a critical vote on college tuition "top up" fees on Tuesday, as well as a possible censure from Lord Hutton's report on Iraq leaks on Wednesday. "Blair could fall but markets feel Chancellor Gordon Brown would take over, and maintain the U.K.'s current economic policies," says S&P's MarketScope. Legal & General Group was lower as its fourth quarter earnings lagged forecasts. BAE Systems was also lower as a Credit Suisse First Boston analyst downgrades the European aerospace, defense industry.
In Paris, the CAC 40 lost 17.64 points, or 0.48%, to 3,675.72, despite French business optimism hitting a three-year high. Loreal and Carrefour were weak in France, as Europe's biggest retailer was downgraded to 'hold' from 'buy' at Deutsche Bank.
Germany's DAX index slipped 23.15 points, or 0.56%, to 4,128.68, in spite of a report that shows German business confidence optimism is higher. German unions are threatening to strike this week. Weak stocks in Germany include DaimlerChrysler, which may face a strike this week. ThyssenKrupp, Allianz & Munich were also down.
Asian stocks finished lower on Monday as traders assessed the impact of the 'bird flu' virus that has claimed seven lives in Asia. In Japan, the Nikkei 225 index finished below 11,000, down 96.41 points or 0.87%, to close at 10,972.60. An accounting probe of Japan's fourth-largest lender, UFJ Holdings, weighed on markets there.
Hong Kong's Hang Seng index dipped 23.31 points, or 0.17% to finish at 13,727.27.