Market up Triple Digit for second straight day
Stocks rallied Tuesday, with the Dow Jones industrials posting their second straight triple-digit gain, as investors welcomed better-than-expected corporate results, signs of stability in the housing sector and solid auto sales.
Treasury prices rose, lowering the corresponding yields, while a weaker dollar lifted commodity stocks.
Stocks are rising this week as investors step back in after a two-week selloff that saw the S&P 500 lose almost 7%. Worries about President Obama’s plan to limit trading at big banks, China’s lending curbs and global debt worries all led to the selloff.
While the concerns haven’t disappeared, investors nonetheless used the selloff as an opportunity to dip back into stocks at a lower level.
“We’re seeing a little bounce here, but I think we could still see more selling in the short term,” said Dave Hinnenkamp, CEO at KDV Wealth Management.
He said fourth-quarter earnings have been strong, but that was already anticipated by investors and is having little impact on the broad market.
“People are focusing on the outlook for banks, China and the deficit, and not really paying attention to the earnings,” he said.
Auto sales: Major automakers, including Ford Motor (F, Fortune 500), General Motors and Nissan all reported improved January sales. However, Toyota (TM), which earlier this month recalled millions of cars due to a faulty gas pedal, saw a bigger-than-expected decline in January sales.
Corporate results: UPS (UPS, Fortune 500) reported lower quarterly revenue and earnings versus a year earlier, but the results topped analysts’ expectations. The company also issued a 2010 earnings forecast of $2.70 to $3.05 per share, up from 2009. Analysts are expecting $2.81 per share. Shares were little changed in the early going.
Homebuilder D.R. Horton (DHI, Fortune 500) reported quarterly earnings of 56 cents per share in its fiscal first quarter, surprising analysts who thought it would report a loss. The company benefited from a big tax gain. The company also said new orders and completed sales rose significantly in the quarter. Shares gained 10% in active New York Stock Exchange trading.
With around 48% of the S&P 500 having reported results, earnings are currently on track to have risen 204% from the prior year, according to the latest estimates from Thomson Reuters. But the improvement is mostly because of cost-cutting and easy comparisons to a wretched fourth quarter of 2008.
The financial sector is expected to lead the advance, rising 73% versus a year earlier. Strip out financial sector results and earnings are only expected to rise 15%.
Revenue is set to rise about 8% year over year. Excluding financial firms, revenue is expected to rise about 3%.
Housing: The National Association of Realtors’ pending home sales index rose 1%, in line with expectations. The index fell 16.4% in the previous month.
Washington: The Senate Budget Committee held a hearing on the 2011 budget. In his testimony, Treasury Secretary Timothy Geithner said a bipartisan effort is needed to trim a deficit the Obama White House mostly inherited from the Bush administration. He said the economy is recovering, but it will take time for the private sector to create new jobs.
Volcker: Testifying at a Senate Banking Committee meeting, White House economic adviser Paul Volcker sought to expand on Obama’s call for greater limitations on bank trading.
Last week, Obama called for limiting commercial banks ability to make high-risk trades and stopping them from owning or investing in hedge funds. The change is seen as a throwback to a Depression-era law that was essentially tossed out a decade ago.
The former Federal Reserve Chairman said limiting banks from engaging in certain high-risk trades would limit the number of institutions that are deemed to be “too big to fail.
World markets: In overseas trading, Asian markets ended higher, gaining for a second week in a row after last week’s selloff. European markets also ended higher.
Commodities and the dollar: The dollar fell versus the euro and the yen.
COMEX gold for April delivery rose $13.10 to settle at $1,117.40 an ounce.
U.S. light crude oil for March delivery added $2.80 to settle at $77.23 a barrel on the New York Mercantile Exchange.
Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.64% from 3.65% late Monday. Treasury prices and yields move in opposite directions.