The Fed's Beige Book said the economy is stabilizing, but labor markets are still weak. Gold prices fell on profit taking
Stocks closed higher, but off the best levels of the day after the Federal Reserve's Beige Book report said the economy is stabilizing, but also cited continuing labor market weakness and flat retail sales.
This afternoon's Beige Book, which the Fed will use for the Sept. 22 FOMC meeting, said economic activity continued to "stabilize" in July and August -- a more upbeat assessment than the prior reports that said the pace of declines was moderating, says Action Economics. "However, there were still a lot of "weak" and "soft" adjectives seen, leaving the report more mixed than suggested by the headlines," says Action Economics.
The outlook for the economy from most Fed districts was cautiously optimistic, says Action Economics. The majority of Districts reported flat retail sales, with the "cash for clunkers" boosting auto sales. Improvement was noted in home sales, though downward price pressures were generally seen, while commercial real estate markets remained weak. Also, loan demand was described as weak, with credit standards still tight. Labor market conditions also remained weak, though some areas reported a pick up in demand for temporary help. Wage and price pressures remained minimal across all Fed districts, says Action Economics.
In a speech in New York, former Fed Chairman Alan Greenspan said the U.S. economy will start to pull out of a recession by yearend, helped by "remarkable growth" in productivity and a depletion of inventories. "A lot of pieces are falling into place for recovery," Greenspan said. He predicted "a fairly pronounced recovery not only in the U.S.," but globally.
On Wednesday, the 30-stock Dow Jones industrial average rose 49.88 points, or 0.53%, to 9,547.22. The broad Standard & Poor's 500-stock index gained 7.98 points, or 0.78%, to 1,033.37. And the tech-heavy Nasdaq composite index advanced 22.62 points, or 1.11%, to 2,060.39.
In the commodities markets, gold prices fell $7.10 to $990.80 after hitting a high of $1,009 on Tuesday. Crude oil futures were slightly higher, up 32 cents to $71.42, amid reports OPEC ministers will not change quotas or output goals at their Vienna meeting.
The dollar index slipped to 77.08. Bloomberg News reported some investors, such as the George Washington University endowment fund, are increasing holdings of commodities such as oil and natural gas out of concern that a return to inflation rates last seen in the 1970s may ravage the value of its $1 billion endowment. Bloomberg also reports UBS AG, the world's second-largest currency trader, lowered its forecasts for the dollar against currencies such as the euro and the pound, citing improving risk appetite and gains in stocks
Treasuries were mixed after a 10-year note auction; the 10-year note yield settled at 3.479%.
Among stocks in the news Wednesday, Apple (AAPL) shares were lower after the company unveiled some new products. It also announced price cuts to existing iPod Touch models. Apple CEO Steve Jobs took the stage at its San Francisco event for the first time since his nearly six-month-long medical leave.
Palm (PALM) shares fell after the company introduced its Palm Pixi phone. Credit Suisse downgraded the stock to neutral from outperform.
Industrial conglomerates such as General Electric (GE) rose after Goldman Sachs raised its view on the U.S. multi-industry group to attractive from neutral. Goldman raised target prices on GE and 3M (MMM), and upgraded Illinois Tool Works (ITW) to conviction buy from neutral.
Capital One Financial (COF) moved up after Citi Investment Research upgraded the stock to buy from hold, citing an expected improvement in credit losses. Citi also raised its price target to $44 from $28.
McDonald's (MCD) posted 2.2% higher August global same-store sales, which disappointed investors.
Talbots (TLB) posted $0.33 second quarter loss per share, vs. $0.17 loss from continuing operations a year ago, on 25% lower total sales. The Street was looking for $0.52 second quarter loss. The retailer sees $0.24-$0.30 third quarter loss from continuing operations, based on expected top line sales decline in the range of about 14%-17%.
Microchip Technology (MCHP) said based on good starting backlog and strong bookings and sales activities for the first two months of the quarter, it now expects its net sales to be up 12%-14% from last quarter. It sees $0.26-$0.27 non-GAAP EPS ($0.20-$0.22 GAAP). It now sees gross margins about 350-400 basis points above first quarter level, vs. previous guidance of up 250-350 basis points. It cited strong demand for all of its microcontroller and analog product families.
Altera (ALTR) said that, based on quarter-to-date results and a broad improvement in market conditions, it now expects third quarter sales to be flat to up 3% from the second quarter. Previous guidance had been for sales to decline 1%-5% quarter-to-quarter. All market segments, except for telecom and wireless segment, will be up sequentially in the third quarter. The decline in telecom and wireless is more moderate than previously anticipated as a result of better-than-forecast demand from OEMs supplying Asian wireless networks, the company said.
Landry's Restaurants (LNY) announced its board has authorized its Special Committee to review strategic alternatives for the company, including a possible sale of the company.
United Natural Foods (UNFI) posted $0.36, vs. $0.30, fourth quarter EPS as lower operating expenses offset 6.4% lower sales. It expects fiscal year 2010 EPS of $1.48-$1.58.
Pep Boys-Manny, Moe & Jack (PBY) posted $0.15, vs. $0.10, second quarter EPS as improved gross margin and tight spending control offset 2.3% lower same-store sales and 2.2% lower total sales. While EPS were a penny ahead of Street view, revenue of $488.9 reportedly fell short of analysts view of $503 million. On Sept. 2, S&P said in a research note that it expected flat same-store sales.
Korn/Ferry International (KFY) posted $0.05 first quarter loss (excluding restructure charge), vs. $0.36 EPS a year ago, on 43% lower total revenue.
NYSE Euronext (NYX) said it has agreed in principle on a framework with leading liquidity providers and market making firms to sell a significant equity interest in NYSE Amex options, one of its two U.S. options exchanges. NYX will remain the largest shareholder in the entity, which aims to enhance the competitive position of NYSE Amex options.
Thursday's release of the July trade deficit is expected to be unchanged at $27.5 billion. Exports are expected to rise 0.2%, and imports are expected to climb 0.1%, says Action Economics.