An apparent agreement on the stimulus bill by Congress and a rebound in financial stocks following Tuesday’s bashing drove stocks higher Wednesday. But, overall, it was a quiet sideways market with a spurt of buying at the close in the oversold financial sector.
Genzyme (GENZ), Marsh McLennan (MMC) and Reynolds American (RAI) posted better-than-expected earnings, and the three closed higher. But the real winner was Citigroup (C), up 10.2%, and Bank of America (BAC), up 9.2%.
Energy stocks were under pressure, with Exxon Mobil (XOM) off 2.1%. The group closed lower due to bearish comments from the International Energy Agency, which cut its outlook for global demand for this year due to the worldwide recession.
The Dow Transportation Average (DJT) took a 3.3% hit due to several analysts’ cuts in earnings for the group.
J.B. Hunt (JBHT) fell 4.2% on an earnings reduction, and The Wall Street Journal reported that Stifel Nicolaus analysts cut their rating on J.B. Hunt citing “deteriorating fundamentals in U.S. rail intermodal.” They commented, “Transport stocks are suffering in a slowdown of international trade and economic activity in general.”
The Commerce Department reported that the U.S. trade deficit narrowed to the smallest gap in almost six years due to lower oil prices. Americans also cut purchases of imported food, cars and shoes.
At the close, the Dow Jones Industrial Average (DJI) gained 51 points, closing at 7,940. The S&P 500 (SPX) gained seven points at 834, and the Nasdaq (NASD) was up six points to 1,531.
The New York Stock Exchange traded 1.4 billion shares, with advancers ahead by 3-to-2. On the Nasdaq, 875 million shares traded with advancers ahead of decliners by about 7-to-5.
The March crude oil contract fell $1.61 to $35.94 a barrel after data showed that U.S. crude inventories rose for the seventh week to an 18-month high. The Amex Energy SPDR (XLE) fell 54 cents to $46.80. The next support for the XLE is a line drawn from the October low to the January low. That support line is now at $45.
Gold for February delivery rose again, this time up $30.10 to $943.80, and the PHLX Gold/Silver Index (XAU) gained $8.65, closing at $132.14.
What the Markets Are Saying
Tuesday’s sell-off may have been a classic case of buy on the rumor/sell on the news — heightened a bit by the president’s anticipatory remarks at his first press conference on Monday.
Whatever the reason for Tuesday’s sell-off, it will no doubt terrorize the public and have the letter writers running for even deeper cover.
Investors Intelligence reported that bullish letter writers moved down to 32.3% and bears rose to 38.7% — the highest percentage of bears since the Nov. 21 bottom. In addition, the American Association of Individual Investors (AAII) bears have increased for the fifth week in a row.
Since both of these services are contra-indicators, they are bullish and support the view that, despite the bad news, the market will more than likely continue to hold at the support zones that have been in place for more than four months.
But there will be areas of continued weakness, and most of those are oriented to the consumer.
Our ChangeWave research shows a “grim spending outlook … While our January consumer survey contained intriguing signs of a leveling off in the rate of spending decline, the February results show a reversal and represent the worst spending outlook ever recorded in a ChangeWave survey.”
Thus, short-side traders can still benefit from weakness in consumer-oriented shorts. (Check out today’s Trade of the Day for a specific way you can profit.)
Today’s Trading Landscape
Earnings of note to be reported include: ABB, Aetna, Airvana, Amkor Technology, APCapital, Argo Group Int’l Holdings Ltd, Ariad Pharmaceuticals, Baldwin Technology, BigBand Networks, BJ’s Restaurants and BorgWarner.
Cabot Oil & Gas Corp, California Pizza Kitchen, Capella Education Co, Cavalier Homes, Cephalon, CH Energy Group, CoBiz, Coinstar, Command Security, Constant Contact, DCT Industrial Trust, DDi Corp and Deltek.
Eastern Insurance Holdings, Ecolab, EHealth, Embarq Corp, Emergency Medical Services Corp, EnCana Corp, Endurance Specialty Holdings, FARO Technologies, Foundation Coal Holdings and Gardner Denver.
Hansen Medical, Hercules Technology Growth Capital, Inland Real Estate Corp, Journal Communications, Laboratory Corporation of America, Life Technologies Corp, Marriott Int’l, Martin Marietta Materials, McAfee, Momenta Pharmaceuticals and Monolithic Power Systems.
Netgear, Nexen, Novamed, NRG Energy, Olympic Steel, Panera Bread, Par Technology, Patterson-UTI Energy, Peet’s Coffee & Tea, Portfolio Recovery Associates, Potlatch, Progress Energy, Rackable Systems, RealNetworks, Revlon and Rio Tinto plc.
SCANA Corp, Senomyx, Smith & Nephew, Soapstone Networks, SonoSite, , Stifel Financial, Strayer Education, Sun Life Financial, Sunstone Hotel Investors, TechTarget, Teradata, The Cheesecake Factory, The Coca-Cola Co, The GEO Group, The Knot, Theravance and Total.
Ultralife Corp, Validus Holdings Ltd, ValueClick, Velcro, Ventas, Viacom, Waste Management and XenoPort.
Several economic reports are due including: initial jobless claims for the week ending Feb. 7 (the consensus expects an 11,000 decline), January retail sales (the consensus expects negative 0.8%), January retail sales excluding autos (the consensus expects negative 0.4%), December Business Inventories (the consensus expects a 1.0% drop), DJ-BTMU Business Barometer for Jan. 30, and Feb. 6 EIA Natural Gas Inventories.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
