Broadgate: Market News 6/2
6 February 2013
Stocks climbed on Tuesday, recovering a day after the market’s biggest sell-off since November, as stronger-than-expected earnings brightened the profit picture.
Dell Inc’s stock rose after the world’s No. 3 computer maker agreed to be taken private in a $24.4 billion deal, the largest leveraged buyout since the 2008-2009 financial crisis. The stock gained 1.1 percent to $13.42.
All 10 S&P sectors were higher, and the S&P 500 and Nasdaq gained more than 1 percent.
The market’s bounce follows a sell-off on Monday that gave the S&P 500 its biggest percentage decline since mid-November. The benchmark remains up 6 percent since the start of the year and is less than 4 percent away from its all-time closing high of 1,565.15 from October 2007.
Analysts said fourth-quarter results have been among factors helping to boost stocks. On Tuesday, Archer Daniels Midland reported revenue and adjusted fourth-quarter earnings that beat expectations, boosted by strong global demand for oilseeds. Shares rose 3.3 percent to $29.38.
“There’s not a huge upside surprise by any means, but we’re definitely seeing slightly better-than-expected earnings overall,” said Bryant Evans, portfolio manager at Cozad Asset Management, in Champaign, Illinois.
The Dow Jones industrial average was up 99.22 points, or 0.71 percent, at 13,979.30. The Standard & Poor’s 500 Index was up 15.58 points, or 1.04 percent, at 1,511.29. The Nasdaq Composite Index was up 40.41 points, or 1.29 percent, at 3,171.58.
The market shot higher at the start of the year after U.S. lawmakers were able to come to a last-minute agreement to avoid a national “fiscal cliff,” but questions on spending cuts remain.
President Barack Obama on Tuesday urged Congress to pass a small package of spending cuts and tax reforms. Though the plan was quickly rebuffed by Republican leaders, investors are looking for an agreement.
“I think there’s some hopefulness out there that a reasonable compromise will be made,” Evans said.
Also in earnings, Estée Lauder Cos Inc reported a higher quarterly profit and raised its full-year profit forecast. The stock rose 6 percent to $64.71.
With results in from more than half of the S&P 500 companies, 69 percent have beaten profit expectations, compared with the 62 percent average since 1994 and the 65 percent average over the past four quarters. Sixty-six percent of companies have beaten on revenue.
Fourth-quarter earnings for S&P 500 companies are expected to rise 4.5 percent, according to the data, above the 1.9 percent forecast at the start of earnings season.
On the down side, McGraw-Hill shares slumped 10.7 percent to $44.92 after the U.S. Justice Department filed a civil lawsuit seeking $5 billion over mortgage bond ratings. Standard & Poor’s, a McGraw Hill unit, was accused of inflating ratings and understating risk out of a desire to gain more business from investment banks.
On Monday, McGraw-Hill stock suffered its worst one-day decline since the 1987 market crash.
Volume was roughly 6.7 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.
Advancers outpaced decliners on the NYSE by nearly 11 to 4 and on the Nasdaq by about 3 to 1.
The yen slumped to a 33-month low against the dollar and the euro on Wednesday as investors piled back into the easy one-way trade on the view that a more dovish Bank of Japan governor will soon be installed to push through aggressive easing measures.
The euro resumed its uptrend despite a call from French President Francois Hollande to protect the currency from irrational movements, while the Australian dollar dropped to a six-week low after soft Australian retail sales data.
The Japanese currency came under renewed pressure after BOJ governor Masaaki Shirakawa on Tuesday announced he will step down on March 19, three weeks before his five-year term ends in April.
Prime Minister Shinzo Abe, who has put the BOJ under intense pressure to do more to spur the economy, has made it abundantly clear he wants a governor who will be bolder than the outgoing BOJ chief in loosening monetary policy. Abe is expected to name Shirakawa’s successor later this month.
Despite sporadic complaints from some governments such as Germany and South Korea, Abe’s support for aggressive easing does not seem to have irked many other countries, making yen selling comfortable, said Minori Uchida, chief currency strategist at the Bank of Tokyo-Mitsubishi UFJ.
“The G20 finance ministers meeting next week is unlikely to discuss currencies much. The market is likely to test further downside on the yen in the near future,” Uchida said.
On Wednesday the dollar and the euro both surged to fresh 33-month high at 93.91 yen and 127.63 respectively, steadily moving towards their 2010 peaks around 94.99 and 134.37.
The dollar last traded at 93.77 yen, up 0.1 percent from late U.S. levels while the euro fetched 127.40 yen, also a gain of 0.1 percent during the day.
The single currency also held the upper hand against the dollar. It last stood at $1.3585, flat from late U.S. levels but up sharply from a one-week low of $1.3458 hit on Tuesday.
Spanish and Italian bonds rebounded on Tuesday after a steep selloff in the previous session, easing fears that political uncertainties in these countries could derail the euro zone’s efforts to contain its debt crisis.
Also helping to turn the euro higher was a survey on Tuesday showing the euro zone’s economy is probably recovering even though it also showed the gulf between the two biggest members has widened, a development that will no doubt worry policymakers.
As the French economy struggles, President Hollande urged the euro zone to set a mid-term target for its currency’s exchange rate.
But the market shrugged it off as the idea that appeared to have little support, with Germany opposing intervening on currency markets and Euro bulls had turned cautious earlier in the week, worried that the European Central Bank might do or say something to weaken the single currency at Thursday’s policy meeting.
While the ECB has been relatively upbeat about the outlook for the euro zone, a strengthening euro is unwelcome in a region still largely mired in recession.
“I would like to see how the ECB will change its tone after perhaps it became too bullish in January,” said Mitsubishi Bank’s Uchida.
Elsewhere, the Aussie crumbled to a six-week low of $1.0345 after weak local retail sales strengthened the case of further interest rate cuts this year. The last cut was in December.
It last traded at $1.0354, down 0.3 percent from late U.S. trade.
Sterling saw only partial relief ahead of the Bank of England’s own policy meeting on Thursday after having fallen to a fresh 5-1/2 month low of $1.5630 on Tuesday.
Concerns about the economy prompted some marginal talk that the central bank could opt for further quantitative easing to stimulate growth.
The consensus forecast, however, is for the BOE to stand pat. The market is also keenly waiting to hear what incoming BOE Governor Mark Carney says when testifying before a parliamentary committee on Thursday.
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