Stocks Finish Higher on Stimulus News

Indexes recouped some of Tuesday's big losses as investors eyed news that a final deal on stimulus legislation was near.


U.S. stocks closed higher Wednesday as indexes staged a partial rebound from Tuesday's major market sell-off. Investors were keeping a wary eye on Washington, as news reports indicated the White House and Congress are near a deal on a trimmed-down, $789 billion version of President Obama's economic stimulus program.

On Wednesday, the 30-stock Dow Jones industrial average ended higher by 50.65 points, or 0.64%, at 7,939.53. The broad S&P 500 index was up 6.58 points, or 0.80%, at 833.74. The tech-heavy Nasdaq composite index added 5.77 points, or 0.38%, to 1,530.50.

On the New York Stock Exchange, 18 stocks were higher in price for every 12 that declined. Nasdaq breadth was 15-12 positive.

Treasuries were higher higher following a successful $21 billion 10-year note auction. The yield on the 10-year note was 2.77%. The dollar index was higher. Crude oil futures fell in New York trading following a mixed U.S. inventory report.

The stimulus news lifted the market out of an earlier mixed performance, where banks outperformed technology and energy issues due, respectively, to a profit warning from Research in Motion (RIMM) and a drop in energy futures. Financials rose as bank CEOs provided their first testimony in Washington on how they're spending TARP money.

Gold futures surged to over $940 per ounce on technical buying, and a flight to safety from uncertainties spawned by Treasury Secretary Timothy Geithner's failure to provide details Tuesday on financial rescue plan and the congressional battle over President Barack Obama's economic stimulus plan.

There was little reaction to a report the December U.S. trade deficit fell to $39.93 billion from $41.58 billion in November.

House and Senate negotiators agreed Wednesday to pare economic stimulus legislation below $800 billion and reached for a final deal with the White House on a bill designed to create millions of jobs in a nation reeling from recession. Several Democratic officials said there was an informal deadline of Wednesday afternoon for at least tentative agreement on an overall bill, a time that coincided with a scheduled formal meeting of House and Senate negotiators. The principal components of the emerging measure included money to help victims of the recession, as much as $44 billion in aid for states, which face cuts of their own as a result of lower tax receipts, and the president's proposed tax cut for lower and middle-income wage earners. Officials said there was agreement to accept the White House's call to provide the tax break to workers who pay Social Security taxes but do not earn enough to owe income taxes, although it was possible the amount would be scaled back somewhat. The president sought $500 for individuals and $1,000 for couples.

Working to accommodate the new, lower overall limit of the bill, negotiators effectively wiped out a Senate-passed provision for a new $15,000 tax credit to defray the cost of buying a home, these officials said. The agreement would allow taxpayers to deduct the sales tax paid on new car purchases, but not the interest on loans for the same vehicles. It also appeared a compromise was in the works on the administration's demand for school construction funds.

Chicago Fed President Charles Evans said Wednesday the U.S. economy faces a protracted period of weakness but policy actions taken by U.S. authorities and efforts by the private sector should help growth pick up later in 2009. However, Evans, in prepared remarks to the CFA Society of Iowa, cautioned that the full size and impact of the government's stimulus package are still unclear, so his forecast may need to be revised as more information becomes available. Treasury Secretary Timothy Geithner's plan, outlined on Tuesday, to move illiquid assets off banks' balance sheets should also help "attract more private capital and ease balance sheet restrictions on banks' lending capacity," he said. There are also signs that the U.S. central bank's various emergency lending programs that target key credit markets, coupled with rock-bottom interest rates, are beginning to help credit market functioning and ease financial strains, Evans said.

In economic news Wednesday, the U.S. trade deficit shrunk further to $39.9 billion in December, a size not seen since February 2003, though it was less narrow than the -$36.5 billion expected by markets. It comes after narrowing $16 billion to $41.6 billion in November. Exports fell 6.0%, the same as in November. Imports dropped 5.5% after a 11.9% decline in November, largely on falling oil prices. Excluding petroleum, the trade deficit narrowed to $21.1 billion vs. $21.9 billion in November. The deficit with OPEC narrowed to $4.66 billion from $5.6 billion in November, while the deficit with China narrowed to $19.9 billion from $23.1 billion previously.

"The trade report reflects weaker global trade flows that are being exaggerated by falling prices," notes S&P senior economist Beth Ann Bovino.

The Mortgage Bankers Association said it's seasonally adjusted home purchase applications index slid 9.8% in the week ended Feb. 6 to 235.9, its lowest level since the end of 2000. Average 30-year mortgage rates slipped to 5.19% from 5.28 percent a week earlier, the trade group said. Reuters reported the rate has fallen more than a full percentage point in three months, but is up about 3/8 point from early this year and seen heading lower. Expectations that government steps could yank 30-year home loan rates near 4 percent, a proposed $15,000 home-buying tax credit and the outlook for still lower house prices has raised the incentive to wait.

Among stocks in the news Wednesday, Nike Inc. (NKE) says it may cut up to 4% of its workforce as part of a restructuring of its business to further enhance its consumer focus and drive innovation more quickly to market. Nike currently employs nearly 35,000 people worldwide.

Research in Motion expects fourth-quarter EPS and gross margin to be at the low end of previously guided ranges, and revenue to be at or near the mid-point of its earlier guided range. The company also expects net subscriber account additions for the fourth quarter to be over 20% higher than 2.9 million net subscriber account additions earlier forecasted. RIM notes it had record levels of net subscriber account additions throughout the month of December and continued to see strong levels following the holiday buying season.

Anadarko Petroleum (APC) sees 2009 total capital expenditures, including expensed geology and geophysics (G&G), of $4.0 billion-$4.5 billion. It sees average daily sales volumes of 208 million-212 million barrels of oil equivalent (BOE). Anadarko says that even with reduced year-over-year capital expenditures, it expects to increase its total sales volumes in 2009, while overcoming the impact of OPEC cuts, uncertainty of processing margins, and continued production shut-ins in the Gulf of Mexico from lingering third-party infrastructure issues related to 2008 hurricanes.

W.W. Grainger (GWW) posted 9% lower January daily sales, citing weakened demand across all customer end-markets and geographies. The company announced actions to reduce costs, such as eliminating merit increases for all executives and salaried employees, no payout of management incentive bonuses. Grainger will not fill open positions, and will eliminate 300-400 jobs across the company. The company expects these actions to result in severance charges anticipated in the range of $15 million-$20 million.

Dean Foods (DF) posted $0.46 vs. $0.27 fourth-quarter adjusted EPS despite a 5% revenue drop. The company sees first-quarter adjusted EPS of at least $0.38. For 2009, Dean expects to deliver mid-teens EPS growth, which implies adjusted EPS of at least $1.50. Wall Street was looking for $1.49 for 2009.

Reaynolds American (RAI) posted $1.27 vs. $1.15 fourth-quarter non-GAAP EPS despite 2.4% lower sales. Reynolds American posted $0.89 vs. $1.01 fourth-quarter GAAP EPS.

Applied AMterials (AMAT) posted breakeven first-quarter non-GAAP net results vs. $0.25 EPS on a 36% sales decline and a narrowed gross margin. Results were in line with Wall Street views.

Ingersoll-Rand (IR) posted $0.53 adjusted fourth-quarter EPS from continuing operations on a 58% revenue rise. Adjusted results exclude a non-cash impairment charge for goodwill and intangible assets, one-time acquisition costs, and restructuring costs. Wall Street was looking for $0.27-$0.28. IR sees approximately breakeven earnings for the first quarter on $3.1 billion-$3.2 billion in revenue, citing current turbulent economic conditions. The company expects pro forma 2009 revenues to decline by 6%-7% in real terms, 8%-9% including forex, and sees 2009 EPS from continuing operations of $1.85-$2.25 (excluding restructuring expenses).

Sanofi-Aventis (SNY) posted €1.25 vs. €1.07 fourth-quarter adjusted EPS on a 3.6% sales rise. For 2009, it expects growth in adjusted EPS excluding selected items of at least 7% at constant exchange rates, barring major adverse events such as the launch of a generic of Lovenox in U.S.

As part of its previously announced plans to increase cost-efficiency and adapt to market, Nokia (NOK) announced plans to close its mobile devices R&D site in Jyvaskyla, concentrating mobile devices R&D in Finland at its sites in Tampere, Oulu, Salo and Helsinki metropolitan area. Nokia also plans to scale down Salo production with staggered temporary lay-offs.

Arcelor-Mittal (MT) posted a $1.93 fourth-quarter loss per share vs. $1.72 EPS on a 21% sales drop. The company noted the sales decline resulted from a collapse in demand for steel products and a sharp fall in prices in the fourth quarter as a result of the global economic crisis, to which it responded with substantial production cuts starting in September, 2008, and increasing through the fourth quarter. The company noted a net debt reduction of $6.0 billion, and that liquidity increased to $13.4 billion in the 2008 fourth quarter vs. $12.0 billion in the prior quarter.