Markets & Finance

Stocks End Moderately Higher


Major indexes finished off the best levels of the session as Wall Street attempted to extend Tuesday's rally

U.S. stocks closed marginally higher Wednesday as the market struggled to extend strong gains won Tuesday. Financials climbed further on a report that JPMorgan Chase (JPM) was profitable in the first two months of 2009, echoing Citigroup's (C) profit declaration on Tuesday.

Also scoring more gains were techs, which rose after an analyst upgraded Hewlett-Packard (HPQ) and word or phrase (AAPL) unveiled a new iPod.

There was little reaction to report the Treasury posted a $192.78 billion deficit in February, narrower than the Wall Street forecast of a $230 billion deficit. The market was bracing for Thursday's initial jobless claims and retail sales reports.

On Wednesday, the 30-stock Dow Jones industrial average finished higher by 3.91 points, or 0.06%, at 6,930.40. The broad S&P 500 index was up 1.76 points, or 0.25%, at 721.36. The tech-heavy Nasdaq composite index added 13.36 points, or 0.98%, to 1,371.64. NYSE breadth was 18-13 positive, while Nasdaq breadth was flat at 13-13. Trading was active.

The dollar index fell. Bonds turned sharply higher. Oil futures declined. Gold futures climbed.

U.S. stocks closed sharply higher Tuesday, with a bank-led rally driving the Dow industrials, S&P 500, and Nasdaq composite indexes up 5.8%, 6.4%, and 7.1%, respectively, on the day. The rally came after Citigroup said it was profitable in the first two months of 2009, and as reports surfaced that U.S. regulators are considering reinstating the uptick rule to slow the pace of short selling.

"One day is not a bull market, but Tuesday's statistics were impressive," wrote Miller Tabak strategist Phil Roth in a note Wednesday. "The first-tier S&P 500 soared 6.4%, with 97% of its components rising (there were just 13 losers), and the second-tier Russell 2000 did even better, gaining 7.1%, with 96% of its components finishing higher."

President Barack Obama signed an omnibus spending bill Wednesday. Obama said that Treasury Secretary Timothy Geithner will seek coordinated action at the weekend G-20 finance ministers and central bank governors meeting to make the global financial system solvent. Geithner will hold a briefing Wednesday ahead of the meeting. Also, Neel Kashkari, interim assistant secretary of the Treasury for financial stability, testifies on the Troubled Asset Relief Program (TARP).

The Mortgage Bankers Association said Wednesday that its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans increased 11.3% to 723.4 in the week ended March 6. Overall mortgage applications last week were 7.7% above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 4.3%.

The ABC News/Washington Post consumer comfort index rose one point to -48 in the week ended March 8 from -49 a week earlier. The survey said 5% of respondents expressed confidence in the economy, unchanged from the week before. Also, 48% of those polled said their own finances were in good standing, the same as in the prior week. In assessing the buying climate, 25% of respondents said it was good, up from 24% a week earlier.

The Federal Reserve's "easy money" policies during the first part of this decade didn't cause the housing bubble, former Chairman Alan Greenspan wrote in the Wall Street Journal. A surge in growth in China and other emerging markets led to an excess of savings that pushed global long-term interest rates down between early 2000 and 2005, Greenspan wrote in an article. That caused mortgage rates and the benchmark Fed-funds rate to diverge after moving "in lockstep" from 1971 to 2002, he said.

Treasury Secretary Timothy Geithner pledged to "do what is necessary" to jolt the United States out of recession but said the rest of the world should agree to act in a coordinated way. On Public Broadcasting Corp's "Charlie Rose Show," Geithner claimed that steady overseas demand for U.S. Treasury debt was a vote of confidence that the Obama administration was on the right track in countering the "deep mess" the economy is in, Reuters reported. "This president is going to do what is necessary to get us through this. ... We're a terrifically strong country with abundant resources, and we will get through this," said Geithner. But ahead of this weekend's Group of 20 gathering of finance chiefs near London, and a later one in April for political leaders, Geithner said the United States will push for action by others to match the aggressive U.S. approach.

Geithner also spoke about the Obama Administration's plans to use capital injections as an incentive to get U.S. banks to sell distressed securities to investors. The private investors will also get federal loans to buy the assets, in a two-pronged strategy intended to revive trading in mortgage-backed debt. with government financing.

Outside the U.S., UBS AG (UBS) posted a larger-than-expected loss and China said exports plunged by a record, reviving demand for the currency as a refuge from the global recession. Japanese wholesale prices marked their biggest annual fall in nearly six years in February in a sign that Japan faced broader and deeper deflation than one merely reflecting the one-off effect of sliding oil prices.

A report showed Britain's economy shrank by 1.8% percent in the three months to February. Also, Britain's goods trade gap with the rest of the world widened more than expected in January, as a 16% fall in exports to countries outside the European Union outstripped a rise in exports to Europe.

German manufacturing orders fell by 8.0% on the month in January, posting their second biggest decline since reunification in 1990.

Among stocks in the news Wednesday, Staples Inc. (SPLS) posted $0.40 vs. $0.47 fourth-quarter GAAP EPS on a 14% sales decline (excluding the impact of Corporate Express). Wall Street was looking for EPS of $0.42. Staples expects the weak economic climate to continue throughout 2009. Due to limited near term visibility, the company isn't providing sales or EPS guidance.

Take-Two Interactive Software (TTWO) posted a $0.52 first-quarter non-GAAP loss per share vs. a $0.41 loss as operating expenses offset a 6.8% revenue rise. The loss was narrower than expected. The company sees breakeven to $0.20 EPS for full-year fiscal 2009, which is seen in line with its prior view. Take-two sees a $0.10-$0.20 second-quarter loss on revenue of $200 million-$220 million (vs. $256.8 million in the first quarter).

National Semiconductor Corp. (NSM) posted $0.09 vs. $0.29 third-quarter EPS on a 36% revenue drop. The company expects fourth-quarter sales to decrease sequentially by 5%-10%. In response to economic conditions and related business levels, the company will immediately eliminate 850 positions. It also plans to close plants in China and Texas, which will eventually result in elimination of an additional 875 positions. The company said it will incur between $160 million-$180 million in charges, of which $130 million-$145 million would likely be recorded in the fourth quarter.

UNUM Group (UNM) reaffirmed its full-year 2009 operating EPS guidance of $2.45-$2.55 and its capital management targets with holding company liquidity expected to be greater than $750 million, combined weighted average risk-based capital for its traditional U.S. insurance companies within a range of 330%-335%, and a leverage ratio within a range of 20%-21%, excluding non-recourse debt and associated capital of Tailwind Holdings and Northwind Holdings.

Goldman reportedly downgraded its rating on shares of American Express (AXP) to sell from neutral.

Moody's Investors Service downgrades MGM Mirage's (MGM) Probability of Default rating (PDR) to Caa2 from Caa1 and its Corporate Family Rating to Caa1 from B3. The ratings agency cited the rising probability of default given Moody's expectation that visitation to Las Vegas will remain soft and gaming revenues will decline, thereby further eroding the company's already troubled liquidity profile. Moody's affirmed MGM's SGL-4 Speculative Grade Liquidity rating, indicating weak liquidity.

Louisiana-Pacific (LPX) completed a major refinancing. Transactions include: 1) modification of covenants associated with the company's senior unsecured notes which mature in August 2010; 2) issuance and sale of units consisting of $375 million aggregate principal amount at maturity of senior secured notes which mature in 2017 and warrants to purchase an aggregate of approximately 18.4 million shares of Louisiana-Pacific common stock; and 3) the entry into a $100 million asset-based lending facility.

J. Crew Group (JCG) posted a narrower-than-expected $0.22 fourth-quarter loss vs. $0.39 EPS on 13% lower same-store sales, 3% lower revenue, and narrowed gross margins. Wall Street was looking for a $0.27 loss. Given the uncertainty surrounding the economic environment, J. Crew suspended providing annual guidance. For the first quarter, it sees $0.07-$0.12 EPS, excluding severance and other one time items.

FLextronics International (FLEX) announced restructuring plans which are intended to rationalize the Company's global manufacturing capacity and infrastructure as a result of the current macroeconomic conditions and decline in demand from its OEM customers. The actions will include job cuts and facility closings. The company expects to recognize $220 million-$250 million in pre-tax restructuring and impairment costs over the course of fiscal 2009 and fiscal 2010.


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