Better that expected U.S. third-quarter economic growth boosted equities Thursday, with the Dow and S&P 500 each gaining over 2%
U.S. stocks closed sharply higher Thursday, reversing a four-session losing streak for the S&P 500 and Nasdaq composite indexes. The market was boosted by a 3.5% rise in U.S. gross domestic product in the third quarter and a 1,000 dip in weekly jobless claims. The reports rekindled investors' confidence in the economy.
On the earnings front, third-quarter results at consumer product giants Colgate-Palmolive's (CL) and Procter & Gamble (PG) topped expectations.
S&P MarketScope noted reports of some volatility due to hedge funds engaging in tax swaps before the last trading day of October.
On Thursday, the 30-stock Dow Jones industrial average finished higher by 199.89 points, or 2.05%, at 9,962.58. The broad Standard & Poor's 500-stock index was up 23.48 points, or 2.25%, at 1,066.11. The tech-heavy Nasdaq composite index gained 37.94 points, or 1.84%, to 2,097.55.
On the New York Stock Exchange, 25 stocks were higher in price for every five that declined. Breadth on the Nasdaq was 19-8 positive.
Treasury prices fell following mediocre results for an auction of seven-year notes. The dollar index also lost ground. Gold and oil futures rose.
On Friday, investors will be watching data on personal income and consumer sentiment for further clues to the strength of the recovery.
The positive mood on Wall Street Thursday came after deep losses in Asian equities Thursday. Tokyo stocks fell 1.83%, Hong Kong declined 2.28%, while Shanghai dropped 2.34%.
European stocks finished with solid gains after the U.S. GDP report, with benchmark indexes advancing 1.13% in London, 1.37% in Paris, and 1.66% in Frankfurt.
Earnings from Motorola (MOT) and Procter & Gamble (PG) also contributed to the brighter tone. Colgate-Palmolive's (CL) profits gained 18%.
On the downside, ExxonMobil's (XOM) profits plunged 68%.
Treasury Secretary Timothy Geithner testified Thursday before the House Financial Services Committee on proposed financial regulation changes. Geithner scrambled to fight off attacks from all sides on a new Obama administration plan for tackling financial risk in the economy unveiled just two days ago. After weeks of negotiations, the administration and Democratic Representative Barney Frank released a sweeping proposal to give regulators new powers to regulate, and even shut down, big financial firms threatening economic stability.
The financial services industry, not taxpayers, would bear the costs of government interventions to prevent the collapse of undercapitalized firms under the 253-page proposal, which tries to walk a middle line between bailouts and bankruptcy. Both Democrats and Republicans broadly criticized the strategy at a public hearing convened by the House Financial Services Committee chaired by Frank.
Real U.S. GDP rose at a 3.5% annual rate in the third quarter, better than the 3.2% expected by the market in updated consensus forecasts. The turnaround from the 0.7% second quarter decline was led by consumer durable spending, which jumped 22.3% as a result of "cash for clunkers." Exports rose 14.7% as world growth improved, and residential construction rose 23.4% as housing starts turned up. Inventories were still being cut, by a big $131 billion in the third quarter, but that was less than the $160 billion second quarter run-off and added 0.9 percentage point to GDP growth.
"Overall, a stronger number than expected and showing fairly wide-spread growth," said S&P economists in a note Thursday. "We still expect growth to drop off in the fourth quarter and in early 2010, however."
U.S. jobless claims fell 1,000 to 530,000 in the week ended October 24, from a revised 531,000 the week before (from 531,000). The latter was the lowest reading since the first week of January. Continuing claims fell another 148,000 to 5,797,000 in the week ended October 17, from a revised 5,945,000 the week before (from 5,923,000).
FDIC Chairman Sheila Bair, breaking with the Obama administration, said U.S. financial companies should prepay into a fund the government would use to unwind large failed firms. Congress should set up a Financial Company Resolution Fund and force institutions with more than $10 billion of assets to pay before a firm collapses, Bair said in testimony prepared for a House Financial Services Committee hearing today. Investors in failed companies also should take losses, she said. "A prefunded FCRF has significant advantages over an ex- post funded system," Bair said. "It allows all large firms to pay risk-based assessments into the FCRF, not just the survivors after any resolution, and it avoids the pro-cyclical nature of requiring repayment after a systemic crisis."
In company news Thursday, Exxon Mobil posted lower-than-expected third-quarter earnings per share (EPS) of 98 cents, vs. $2.58 EPS (including special items) one year earlier on a 40% decline in total revenues and other income. The company said third-quarter upstream earnings (excluding special items) fell 25% year-over-year as lower crude oil and natural gas realizations accounted for the majority of the decline; downstream earnings fell sharply, driven by lower refining margins.
Procter & Gamble posted fiscal first-quarter EPS of $1.06, vs. $1.03 EPS one year earlier, on a 2% rise in organic revenue. Wall Street was looking for EPS of 99 cents.
Motorola (MOT) reported third-quarter EPS from continuing operations of one cent, vs. a loss per share of 18 cents one year earlier, as lower costs and expenses offset a 27% sales decline. Wall Street was looking for breakeven result. Separately, the company announced that Edward J. Fitzpatrick, Senior V-P and acting CFO, has been appointed CFO, effective immediately.
Aetna (AET) reported third-quarter operating EPS of 69 cents, vs. $1.12 EPS one year earlier, as lower commercial underwriting margin and a previously announced increase in pension expense offset 9.1% revenue rise (excluding net realized capital gains and losses). The company expects that in 2010 ongoing uncertainty about the U.S. economy with respect to employment and growth will continue to impact provider and member behavior as well as customer preferences.