Stocks rose on Friday, partly reflecting covering by those who sold short into market weakness this week, says Standard & Poor's MarketScope. The quarterly expiration of futures and options drove NYSE and Nasdaq volume north of 2 billion shares, and likely influenced stock activity.
The Dow Jones industrial average rose 83.19 points, or 0.79%, to 10,641.94. The broader Standard & Poor's 500 index was up 10.18 points, or 0.83%, to 1,237.91. The tech-heavy Nasdaq composite index gained 14.2 points, or 0.66%, to 2,160.35.
October crude oil fell $1.75 to $63 a barrel. News that Gulf of Mexico underwater pipelines were largely intact following Hurricane Katrina provided the driving force for the sell-off, with products, gasoline in particular leading the charge, and shedding nearly 6%, or almost 11 cents a gallon, says Action Economics.
The main event next week is the Federal Reserve meeting on Tuesday. Most economists expect the FOMC to boost the target rate another 25 basis points to 3.75%. "There has been no Fedspeak since Katrina's tragedy to contradict that view, and given the Fed's desire for transparency, we believe this is a big indicator," says Action Economics.
Conditions prior to Katrina showed growth was solid, with upward pressure on overall consumer prices. And though GDP will likely take a hit in the third quarter and/or the fourth quarter, it should be temporary, with the rebuilding effort potentially tightening labor and commodity makrets further in early 2006, says Action Economics.
The key is whether the Fed will change its strategy of measured rate hikes. "Indeed, there could be some hint the FOMC could suggest the 4% area could be a point where they will pause and assess," says Action Economics.
Other than the Fed, housing starts will be released on Tuesday and leading indicators comes out on Thursday.
In economic news Friday, the preliminary reading for University of Michigan's September consumer sentiment plunged to 76.9 from 89.1 in August, which was revised down from the preliminary 92.7, and compares to 96.5 in July. The current conditions index fell to 97.7 from 108.2. The future outlook dropped to 63.6 from 76.9. The data will support gains in Treasuries but should weigh on the dollar, says Action Economics.
The second-quarter current account deficit narrowed to $195.7 billion, from a revised $198.7 billion in the first quarter ($195.1 billion previously). "The data are good news/bad news -- good news the deficit narrowed, but bad news that it did so from a higher level," says Action Economics.
Dow components Exxon Mobil (XOM) and Intel (INTC) rose on analyst upgrades.
In earnings news, Adobe Systems (ADBE) posted third-quarter earnings per share (GAPP) of 29 cents, vs. 21 cents a year ago, on 21% revenue rise. The software maker sees fourth-quarter revenue of $490 million to $510 million, and 27-29 cents EPS.
Sealed Air (SEE), which makes Bubble Wrap and other packaging, lowered its full year earnings outlook, citing higher raw material and energy related costs resulting from Hurricane Katrina, according to news reports.
Movie Gallery (MOVI) expects same-store sales for the third quarter to decline 8%-10%. The company notes that the current "slump" at the box office is impacting the entire home video industry. It sees comps for the fourth quarter flat to down 6%.
Treasury yields jumped, driven by inflation concerns. The bond market stayed defensive after the consumer sentiment report, while the wider than expected current account gap kept the focus on the deteriorating deficit picture and likely fiscal outlays ahead for hurricane relief, says Action Economics. The 10-year yield climbed to 4.27%, the highest level since the hurricane, says Action Economics.
European stock markets finished higher on Friday. London's Financial Times-Stock Exchange 100 index was up 24.4 points, or 0.45%, to 5,407.9, helped by lower Brent crude oil prices.
Germany's DAX index jumped 80.52 points, or 1.64%, to 4,986.5 in a short covering rally before Sunday's election. The market has been battered recently as polls suggested a coalition government would result, which would blunt reform hopes, says Standard & Poor's MarketScope. Also, Eurozone August CPI was revised up to 0.3% from 0.1%.
In Paris, the CAC 40 index rose 30.1 points, or 0.67%, to 4,509.49 despite a report saying the French current account deficit widened in July to 2.332 billion euros from 1.7 billion in June under pressure from rising oil prices.
Asian markets finished mostly lower on Friday.
Japan's Nikkei 225 index fell 28.10 points, or 0.22%, to 12,958.68. Profit taking ahead of a three-day holiday weekend limited market gains. Optimism about economic growth and foreign buying interest provided underlying support, says Standard & Poor's MarketScope.
In Hong Kong, the Hang Seng index fell 57.82 points, or 0.38%, to 14,983.20. Recent trading in Hong Kong has been cautious ahead of the Sept. 20 FOMC meeting in the U.S. The Federal Reserve's rate policy tends to influence rates in Hong Kong, says Standard & Poor's MarketScope.