Stocks closed higher after a fresh batch of earnings reports from Exxon Mobil Corp., Comcast Corp and others carried the S&P 500 Index to its highest close in about six years. Additionally, falling oil prices and rallying tech shares recharged the rally and pushed the Dow to another record high, and the Nasdaq to its highest point in 5-1/2 years.
Today, the Dow Jones industrial average closed up 28.98 or 0.24% to 12,163.66, the broader S&P 500 index closed up 6.86 or 0.5% to 1,389.08, and the tech-fueled Nasdaq composite index closed up 22.51 or 0.96% to 2,379.10. This took the Nasdaq to its highest point since February 2001.
Market breadth was positive. On the New York Stock Exchange, winners beat losers 11 to 5 on volume of 1.733 billion shares. On the Nasdaq, advancers beat decliners by 2 to 1 on volume of 2.397 billion shares.
With oil prices falling and technology leading, the consensus is that the upward trend should continue. The fundamentals are good and indications are that the economy is growing at a good pace to sustain earnings, but not push inflation higher. There appears to be a bullish sentiment regarding the economy, with investors betting that as long as a so-called soft landing is on tap, stocks can handle it. Investors are perhaps considering that if the economy is slowing, interest rates will go down, and that will push up stock valuations. Alternately, if the economy is strong, rates will increase a bit more, but so will earnings. However, the third-quarter GNP growth report due tomorrow poses the biggest near-term threat.
The latest report on the housing sector offered a mixed picture. While the sales of new homes unexpectedly rose 5.3% in September, the median sales price of a new home fell 9.7% in the 12 months ending in September, the fastest price decline in nearly 36 years. This shows that the gains in overall sales were likely reflective of builders having to offer big price cuts.
Demand for U.S.-made durable goods soared 7.8% in September, the biggest jump in six years. However, the bulk of the gain came from a tripling in orders for new aircraft. Outside transportation, new orders rose just 0.1% - which is the first increase in three months. Core capital-equipment orders, considered the best monthly gauge of business investment, increased a healthy 1.1% in September, the biggest increase since May.
The star of the day, Exxon Mobil Corp. closed up $0.61 about 0.9% at $71.62, after it reported the second largest profit ever for a U.S. company. The company made $10.5 billion in the third quarter, on revenue of $99.6 billion. It was a 26% increase in earnings for the company and this trounced Wall Street estimates.
Stock of Sprint Nextel closed up $1.05 or 6% to $18.77, despite reporting lower third-quarter profit and weaker-than-expected subscriber growth. Investors focused on the company’s improved quarterly revenue and its pledge to turn around its wireless business. Its net income fell to $247 million, from $516 million a year earlier. Sales rose 34% to $10.5 billion, in line with analyst estimates, lifted by wireless gains and the acquisition of Nextel.
Shares of Boeing Co closed down $1.72 or 2.1% to $79.14, with investors continuing to express disappointment after it reported quarterly profit that fell from a year earlier, and raised its 2007 earnings forecast to a range that was still shy of analysts’ forecasts. Additionally, rival Airbus also won an order for 150 A320 aircraft from China. The agreement also included an option for China to buy an additional 20 of Airbus’ new wide-body A350 plane.
Shares of Red Hat Inc. closed down $4.73 or 28% to $14.78, after the Linux open source software distributor was rear-ended by Oracle. Oracle Corp. said it would offer full technological support for Red Hat’s Linux operating system at a much lower price than Red Hat currently charges for its support services.
Shares of Symantec closed down $1.38 or 7% to $19.40, after it posted earnings and issued an outlook that missed estimates. Likewise, shares of Renovis closed down $10.76 or 74% to $3.44, after the biotech said a late-stage trial of its experimental stroke medicine had failed. This news prompted licensing partner AstraZeneca to halt development of the drug.
U.S. light crude oil for December delivery fell $1.04 to $60.36 a barrel on the New York Mercantile Exchange. Traders were reluctant to extend the previous session’s rally on a surprise decline in inventories of oil and its products in the latest week.
All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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