The Dow ended five sessions of selling yesterday as acquisitions and strong sales in two key retailers took center stage. But the day was marred by a sell-off in the last hour and the S&P 500’s failure to pop through its 1,100 line.
BHP Billiton Limited (NYSE: BHP) made an offer for Potash Corp. of Saskatchewan (NYSE: POT) for over $130 a share, but it was rejected, and now the stock appears to be “in-play” for another offer. And this caused a number of other suspected candidates to rally. CF Industries Holdings, Inc. (NYSE: CF) rose 4.7% and Monsanto Company (NYSE: MON) gained 2.5%.
The retail sector was strong, led by Dow component Wal-Mart Stores, Inc. (NYSE: WMT), which met analysts’ expected earnings. And The Home Depot, Inc. (NYSE: HD) also posted better-than-expected earnings, but issued a cautious forecast.
The market seemed to ignore a report that housing starts were lower than expected in July. The report showed that starts increased by 1.7% month-over-month to an annualized rate of 546,000 units, which was less than the expected rate of 565,000.
The producer price index for July increased by an expected 0.2%. And industrial production increased 1% in July versus an expected increase of 0.6%.
The 10-year note fell and its yield increased to 2.65%. And the euro rose to $1.2879 versus the U.S. dollar from $1.2821.
At the close, the Dow Jones Industrial Average gained 104 points to 10,404, the S&P 500 rose 13 points to 1,093, and the Nasdaq jumped 28 points to 2,209.
The NYSE traded 980 million shares with advancers over decliners by 3.6-to-1. The Nasdaq traded 514 million shares and advancers there were ahead by 3-to-1.
September crude oil rose 53 cents to $75.77 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) gained 89 cents, closing at $54.23.
December gold ended the session up $2.10 to $1,228.30 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 2.3 points to 177.38.
What the Markets Are Saying
Yesterday’s session was another of the low-volume rounds of trading that have characterized the markets since the series of lows starting in late March. But while equities have been getting little attention, the bond markets continue to hum despite pundits’ claims of overbought bonds versus oversold stocks. And along with the disparity between the yields of high-income blue chips and bonds is the enormous amount of cash still on the sidelines.
So why the disparity?
With political leaders at the bottom of almost everyone’s confidence index, regardless of party, it’s no wonder that neither the public nor the financial institutions, whether banks or investment houses, have enough confidence in the markets to step up to the plate.
The plain truth as far as the banks are concerned is “why take any risk when we can borrow at 0% and make 1% or 2% by sitting?” And the public has been burned so many times that most investors are just as happy to risk a little in the bond market while keeping most of their liquid assets in CDs and money markets.
The plain truth is that we need leadership in Washington, D.C., that favors something more than higher taxes and more regulation. That formula is so one-sided that any Econ 101 student can recite the ills of the 1930s and put together something more imaginable than what’s coming from D.C. these days.
Investors Intelligence has it right when yesterday it said, “The political winds from Washington appear to continue to favor taxes and regulations, which are the opposite of what is needed for growth and increased employment. However, as the election nears and pooling results are studied, the Democrats may be forced to shift direction and the markets could react to the upside.”
Maybe, but so far we’ve seen nothing but investor apathy.
The Dow gained slightly over 100 points yesterday, but it was off of a very oversold series of internal indicators and accompanied by pathetic volume. And the last hour of trading was spent taking back 55 Dow points in a slide that deprived the S&P 500 of a close above 1,100. Given more time, the selling could have turned things to the downside and resulted in another threat to the support zones starting at S&P 1,055.
Our internal indicators are oversold, but not at the extremes of May or early July. And with Q2 earnings winding down and only economic and political news available for a daily push, further rallies will likely hit a brick wall again at yesterday’s highs.
Today’s Trading Landscape
Earnings to be reported before the opening include: BJ’s Wholesale, Chico’s FAS, Citi Trends, Deere, Duoyuan Global Water, Eaton Vance, Gushan Environmental Energy, LeCroy, Suntech Power and Target.
Earnings to be reported after the close include: AFC Enterprises, Applied Materials, Brocade, China Distance Education, ChinaEdu, Gymboree, Hot Topic, Limited, NetApp, Netease.com, Open Text, PetSmart and Synopsys.
Economic reports due: MBA purchase applications and EIA petroleum status report.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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