PortfolioCrafter - Market Commentary 8/17/06
Thursday, August 17th, 2006
Stocks ended higher after Hewlett-Packard Co declared strong quarterly results and as investors remained optimistic that economic growth has slowed enough for the Federal Reserve to hold interest rates steady. Falling oil prices added fuel to the fire
Today, the Dow Jones industrial average closed up 7.84 or 0.07% to 11,334.96, the broader Standard & Poor’s 500 index closed up 2.05 or 0.16%to 1,297.48, and the Nasdaq composite closed up 8.07 or 0.38% to 2,157.61.
Market breadth was positive. On the New York Stock Exchange, winners beat losers 17 to 15 as 1.57 billion shares changed hands. On the Nasdaq, advancers topped decliners by 17 to 12 on volume of almost 1.94 billion shares.
While concerns over an economic slowdown and downturn in the stock market down the road are alive, the markets may make a run at their recent highs over the next several weeks. The combination of the lower oil prices and the increased bets that the 2 year interest-rate hiking campaign is over have led a broad rally this week. The pair of inflation reports this week - on wholesale and consumer prices - seemed to support that scenario, providing comfort to investors.
While several economic reports having investors worried the economy is slowing too much, there was good news out of the Federal Reserve Bank of Philadelphia. The Philly Fed index on manufacturing activity rose from 6.0 in July to 18.5 in August, against the expected 7.8. This indicates that most manufacturing firms surveyed are growing. On the other hand, the composite index of leading economic indicators fell 0.1% in July after posting a 0.1% gain in June. The index is designed to forecast economic activity six to nine months ahead of time, and indicates that the economy is slowing down. On unemployment, fewer Americans filed for first-time benefits, although the number of workers continuing to collect unemployment benefits hit a six-month high. Initial jobless claims fell by 10,000 to 312,000 for the week ending Aug 12, against the expected dip to 316,000.
Shares of Hewlett-Packard Co closed up $0.72 or 2.1% to $35.15, after it reported quarterly earnings and revenue that rose from a year ago and topped Wall Street expectations. Additionally, the company also announced that it would buy back up to $6 billion in shares. The computing giant also said it plans to buy back $6 billion worth of H-P stock. The company said quarterly net income rose by nearly $1 billion from a year earlier, and the results were helped by cost cuts and stronger demand for printers and personal computers. Sales for the quarter rose just over 5%.
Shares of Merck & Co shares fell $2.53 or 5.7% to $38.83 after a federal jury in New Orleans found the drug maker negligent in the case of a man who alleged that he suffered a heart attack brought about by his use of the company’s painkiller treatment Vioxx. The jury has found that the drug maker misrepresented the risks of the arthritis painkiller and awarded the plaintiff more than $50 million in damages. Additionally, a New Jersey court judge tossed out an earlier verdict that favored Merck in a separate trial, based on new evidence stemming from a correction in the New England Journal of Medicine. The company said it plans to appeal the verdict from the New Orleans case.
Shares of Sears Holdings Inc. fell $8.71 or 5.8% to $141.29, after the No. 3 retailer reported higher quarterly earnings that beat estimates. However, investors took a ’sell the news’ approach and sent the stock lower. The company posted an 83% increase in second-quarter profit, helped by reduced expenses and improved gross margins. But, investors are worried that a hike in inventories, at a time when consumers are reining in spending, could add more risk to the company. The company has a cash trove of about $3.7 billion. This could be invested in any number of acquisitions, joint ventures and partnerships that will offer attractive return opportunities.
U.S. light crude for September delivery retreated $1.83 to $70.06 a barrel on the New York Mercantile Exchange. The retreat in prices is owing to the cease-fire in the war between Israel and Hezbollah militants in Lebanon.
All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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