PortfolioCrafter - Market Commentary 9/15/06
Friday, September 15th, 2006
Stocks closed higher on the day and week with the Nasdaq Composite posting a 3.2% five-day gain, after data showing moderating consumer inflation outweighed investor disappointment with the details of a Ford Motor Co. restructuring plan. The mild reading on inflation means the Federal Reserve won’t have to raise rates when it meets again.
Today, the Dow Jones industrial average closed up 45.46 or 0.29% to 11,572.85, within striking distance of its record high of 11,722.98. The broader Standard & Poor’s 500 index closed up 4.18 or 0.27% to 1,320.46, and the Nasdaq composite index closed up 6.65 or 0.31% to 2,235.38. For the week the Dow Industrials gained 1.4%, the S&P 500 advanced 1.6%, and the Nasdaq posted a rise of 3.2%.
Market breadth was positive. On the New York Stock Exchange, winners topped losers nearly 19 to 13 on volume of 2.18 billion shares. On the Nasdaq, advancers topped decliners by 15 to 13 on volume of 2.51 billion shares.
The market cheered that the CPI rose 0.2% in August, and the core CPI, which strips out volatile food and energy prices, also increased 0.2% as expected. The CPI moderated as gasoline and home ownership costs rose at a slower pace. These figures are right in the middle, and therefore, both inflation hawks and doves can feel happy. A mild report is welcome ahead of the Fed policy meeting next week. However, the Fed has its eye on core inflation, and that’s still a concern, but the drop in energy prices in September has been good and as the Fed looks ahead to the September CPI, that drop should help counter inflation.
Manufacturing activity in the New York area held steady at a moderate rate in September and the NY Empire State index, rose to 13.8. This is of interest to traders as it’s seen as an early forecast of the ISM factory survey due out in two weeks. In August, the ISM factory index inched lower to 54.5% from 54.7% in the previous month. The prices paid index fell to 41.0 from 44.3 in August. Rounding out Friday’s data, the University of Michigan’s preliminary September consumer sentiment index showed a reading of 84.4, up from 82.0 in late August.
Stock of Adobe Systems closed up $3.35 or almost 10% to $37.00, after reporting quarterly earnings and revenue that topped estimates. The company also issued bullish current-quarter earnings and revenue guidance. The company reported that fiscal third-quarter profit fell to $94.4 million or by 35% as it booked charges related to its acquisition of Macromedia Inc. that helped the company boost its sales by 24%. Revenue for the quarter climbed to $602.2 million against the expected $595.3 million.
In restructuring news, shares of Marsh & McLennan gained 1.8% to $27.69. The company said it would cut 750 jobs, as part of its plan to reduce costs by $350 million by the end of 2008. It also expects to take a $225 million charge as a result of this restructuring.
Shares of Ford Motor Company closed down $1.06 or 12% to $8.03, on announcing that it would cut thousands more jobs than previously announced. In a bid to save $5 billion, it is offering buyouts to all of its 75,000 hourly workers, speeding up plant closings and suspending its dividend. Merrill Lynch has downgraded the stock to a “sell” from “neutral”, saying the much-anticipated details of the restructuring fell short of expectations.
Stock of Daimler Chrysler closed down $3.51 or 7% to $49.39, after it cut its 2006 profit forecast, citing tough market conditions and higher fuel costs. It has lowered its operating profit to roughly $6.4 billion, due to an expected loss of about $1.2 billion from its U.S. operations.
U.S. light crude oil for October delivery closed up 17 cents to $63.39 a barrel on the New York Mercantile Exchange. There was initial decline following the news that the OPEC cut its 2006 demand forecast.
All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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