Markets & Finance

Stocks Finish with Small Gains


Traders Tuesday weighed a 65% jump in profit at Goldman Sachs and a higher than expected reading on core producer prices

U.S. stocks closed slightly higher Tuesday, overcoming an earlier mixed showing to extend gains won on Monday. Trading was slow, and buying was more cautious.

Goldman Sachs (GS), which posted second-quarter results after Monday's close, confirmed investor hopes for strong bank earnings. But there was little follow-through buying once the results were out, notes S&P MarketScope.

Other earnings reports painted a mixed economic picture, as did retail sales, producer price and business inventory data.

On Tuesday, the 30-stock Dow Jones industrial average finished higher by 27.81 points, or 0.33%, at 8,359.49. The broad Standard & Poor's 500-stock index gained 4.79 points, or 0.53%, to 905.84. The tech-heavy Nasdaq composite index added 6.52 points, or 0.36%, to 1,799.73.

Treasuries fell. The dollar index rose. Gold climbed. Crude oil fell.

Tech bellwether Intel (INTC) was set to reports results after the close of trading Tuesday.

The market was bracing for Wednesday's Empire State index and industrial production reports, and the minutes of the June Federal Open Market Committee meeting.

Goldman Sachs' second-quarter earnings jumped 65% to $4.93 per share on revenues of $13.8 billion, of which $1.44 billion came from investment banking.

"[Goldman] benefited from inexpensive funding, a surge in underwriting, and active clients. The firm was also able to hold costs down, aided by a lower headcount," wrote a Standard & Poor's equity analyst on Tuesday.

In economic news Tuesday, U.S. business inventories declined 1.0% in May, after a revised 1.3% drop in April (from -1.1%). Retailer inventories fell 1.6%. Sales slipped 0.1% in May, following a 0.3% dip in April. The inventory-sales ratio fell to 1.42 from 1.43. The ratio has declined from the cycle high of 1.46 hit in December and January.

U.S. PPI jumped 1.8% in June, while the core rate rose 0.5%. There was no revision to May's 0.2% increase in the headline index, and the 0.1% dip in the core. These data are much higher than expected

U.S. retail sales rose 0.6% in June, with the ex-auto component up 0.3%. May's 0.5% overall increase was not revised, though April's -0.2% was revised lower to -0.3%. The 0.5% ex-auto component from May was revised down to 0.4%, and April was revised down to -0.3% from -0.2%.

The Wall Street Journal reported late Monday that U.S. government officials are in advanced talks about providing some sort of aid to CIT Group Inc. (CIT), one of the country's primary lenders to small and midsize businesses, according to people familiar with the matter.

The Justice Department is investigating the market for credit-default swaps, according to Markit Group Ltd., the data provider majority-owned by Wall Street's largest banks. "Markit has been informed of an investigation by the Department of Justice into the credit-derivatives and related markets," spokeswoman Teresa Chick said in an e-mailed statement in response to questions from Bloomberg News. She declined to comment on the nature of the investigation.

Treasury Secretary Timothy Geithner said U.S. government policies are consistent with a 'strong dollar.' He pledged that the U.S. would take steps to rein in its borrowing while also attempting to address health care, financial regulation and other long-term issues, Bloomberg News reported. "The United States was on an unsustainable fiscal path before this crisis, and we will not succeed in establishing sustainable recovery without a credible commitment to address our long term deficits," Geithner said in a speech today in Jeddah, Saudi Arabia. He added during a question and answer session that the U.S. was committed to bringing "down our fiscal deficits." At the same time, the U.S. understands it has responsibilities as a leader of the global economy, he said.

In earnings news Tuesday, Johnson & Johnson (JNJ) reported better-than-expected second-quarter earnings per share (EPS) of $1.15, vs. $1.17 one year earlier, on a 7.4% sales drop. Wall Street was looking for EPS of $1.11-$1.12. The company confirmed its 2009 EPS guidance of $4.45-$4.55, which excludes the impact of special items.

CSX Corp. (CSX) posted better-than-expected second quarter EPS from continuing operations of $0.72, vs. $0.95, on a 25% revenue decline, primarily due to a 21% decline in volume and lower fuel surcharge recovery. Volumes continued to decline across the board, although the rate of decline in the coal market accelerated in the second quarter. Wall Street was looking for $0.62 EPS.

Dell Inc. (DELL) expects a slight quarter-over-quarter revenue increase in the second quarter, but sees a modest decline in gross margins due to higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand. Dell believes its customers are deferring IT purchases. Over a longer time horizon, Dell targets 5%-7% compounded annual sales growth, operating income at or above 7% of revenue, and cash flow from operations exceeding net income.

Martin Marietta Materials (MLM) says it now expects 2009 EPS to be in the $2.70-$3.30 range due to a weaker- and slower-than-expected than recovery of the general U.S. economy; a marked decline in transportation infrastructure spending resulting from a drop in state revenues and a longer-than-expected delay in federal stimulus projects moving to the construction stage; and an adverse weather-affected first half of 2009.

Take-Two Interactive Software (TTWO) cut its third-quarter guidance to a $0.65-$0.75 non-GAAP loss per share on revenue of $120 million-$130 million, and $0.30-$0.40 fourth-quarter EPS on revenue of $350 million-$400 million. The company cites reduced sales of catalog products and lower-than-anticipated initial retailer orders of new releases. It now sees a fiscal 2009 loss of $0.80-$0.95 per share on revenue of $960 million-$1.0 billion, reflecting several factors, most significant of which is the movement of its BioShock 2 launch from the fiscal 2009 fourth quarter to fiscal 2010 in order to provide additional development time.

Humana Inc. (HUM) announced that it has received word from the Department of Defense (DoD) that the company's wholly-owned subsidiary, Humana Military Healthcare Services, was not awarded the third generation TRICARE program contract for the South Region. Humana cannot yet anticipate what impact, if any, the loss of the TRICARE contract may have upon its earnings for the year ended December 31, 2009.


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