Stocks finished with strong gains on Tuesday after the long Labor Day weekend, as oil and gas prices continued to retreat and the floodwaters in New Orleans started to recede. A report showed better than expected strength in the services sector. Also boosting equities: Fed funds futures were pricing in a pause or halt in the Federal Reserve's monetary tightening cycle by November or December, reflecting expectations the Fed will stay accomodative in order to bolster the economy in the wake of the Katrina disaster, reports Standard & Poor's MarketScope.
The Dow Jones industrial average jumped 141.87 points, or 1.36%, to 10,589.24. The broader Standard & Poor's 500 index rose 15.37 points, or 1.26%, to 1,233.39. The tech-heavy Nasdaq composite index climbed 25.79 points, or 1.2%, to 2,166.86.
Some of the strength in the stock market likely reflected buying by professionals returning to the market after the Labor Day holiday weekend, which for many represents the end of the low-volume summer season, says Standard & Poor's MarketScope.
Crude oil prices fell $1.61 to $65.96 a barrel. Japan and Venezuela pledged to release oil reserves in order to offset loss of supply from Gulf Coast, after IEA's pledge to provide stocks Friday. Oil companies have restored over 25% of production shut by Hurricane Katrina, according to the U.S. Minerals Management Service, while the Department of Energy stated that tanker shipments of crude oil has been operating at 75% capacity for several days and should have been back to 100% as of late yesterday, reports Action Economics.
Among the releases coming Wednesday, the revision to second-quarter productivity is expected to be unrevised from the 2.2% gain released in the advanced report. The component data are expected to be largely unrevised as well. "Overall, the data should be consistent with a still-strong secular trend in productivity, though we are clearly seeing a cylical moderation from the peak rates registered in 2003, and corresponding upside pressure on unit labor costs," says Action Economics.
In economic news Tuesday, the ISM services index surged to 65.0 in August after retreating to 60.5 in July. Strength was fairly broadbased. New orders rose to 65.8 from 61.9. Employment rose to 59.6 from 56.2. Prices paid fell to 67.1 after accelerating to 70.3 in July. "The data are stronger than expected and should put some upward pressure on yields and the dollar," says Action Economics.
Among stocks on the move Tuesday, Cisco Systems (CSCO) shares rallied after Lehman Bros. raised its rating to overweight on the networking giant.
U.S. drugmaker Chiron (CHIR) rejected a $4.5 billion bid, or $40 per share, from Novartis of Switzerland to acquire the remaining 58% interest in Chiron it doesn't already own.
Andrx (ADRX) shares fell sharply amid news that the FDA's Florida District office has placed Andrx in Official Action Indicated status, thereby placing FDA approval of the company's abbreviated new drug applications on hold. This resulted from an FDA inspection of the company's manufacturing facilities.
Chartered Semiconductor (CHRT) expects a third-quarter net loss at the mid to low end of its previously provided guidance.
Apparel retailer Jos. A. Bank Clothiers (JOSB) reported second-quarter earnings per share of 37 cents, vs. 24 cents a year ago, on 4.9% same-store sales rise and 20% total sales rise. It raised fiscal year 2006 EPS guidance to at least $2.15-$2.19.
Treasury yields rose on the strong headline and component gains in the August ISM services index, which suggested the economy had a stiff tailwind heading into the hurricane disruptions and confounded expectations of a modest decline, says Action Economics. Fedwatchers also debated about whether the central bank will keep hiking rates or stand pat. The 10-year note yielded 4.08%.
European stock markets finished the session higher.
London's Financial Times-Stock Exchange 100 index was up 21.4 points, or 0.4%, to 5,359.2. The government reported U.K. July industrial production fell 0.3%, which was worse than expected. Scottish Power was higher on takeover speculation; the company said it hasn't received bid from E.ON.
Germany's DAX index climbed 58.39 points, or 1.19%, to 4,968.28 as German July manufacturing orders rose more than expected 3.7% thanks to a 7.7% surge in export orders.
In Paris, the CAC 40 index rose 42.46 points, or 0.96%, to 4,472.55.
Asian markets lost ground on Tuesday.
Japan's Nikkei 225 index fell 35.45 points. or 0.28%, to 12,599.43 amid profit taking after gains over the past four days.
In Hong Kong, the Hang Seng index fell 67.05 points, or 0.44%, to 15,160.78. Shares of banks and select property companies fell on profit taking after recent price strength, says Standard & Poor's MarketScope.