Stocks Show Resilience
The markets were hit this morning with a triple whammy of bad news before investors even had time to finish their toast. News on jobless claims, the Senator Jeffords party switch, and new home sales threatened to throw the Dow and NASDAQ into a tailspin early on, but investors yawned it all off as if to say, "hey, we've been through a lot worse".
By close of business, the Dow, which had been all over the map, was up 16.91 points, or 0.15 percent, at 11,122.42. Losers included International Paper (NYSE:IP -0.86), Alcoa (NYSE:AA - 1.07), Boeing (NYSE:BA -0.80), Caterpillar (NYSE:CAT -0.60), Merck (NYSE:MRK -1.50), and DuPont (NYSE:DD -1.62). Among the gainers were Citigroup (NYSE:C +0.56), IBM (NYSE:IBM +2.20), Philip Morris (NYSE:MO +0.64), Walt Disney (NYSE:DIS +0.19), and General Motors (NYSE:GM +1.41). The Nasdaq, ($COMPQ) gained 38.54, or 1.72 percent, to 2,282.01. Investors came back in late to scoop up tech stocks. The S&P 500 was up 4.12, or 0.32 percent, at 1,293.
Both initial and continuing jobless claims rose last week beyond economists' expectations. Whether it was enough to ensure another 50 point hacking by Chainsaw Alan & Co. at the Fed's June picnic, however, went largely undecided. Initial jobless claims rose 15,000 to 407,000 from a revised 392,000 in the prior week. This was 116,000 more than a year ago. And in another sign that hiring has slowed, continuing claims rose to 2,772,000 from 2,683,000 the previous week - the highest since June 11, 1994. Worse, however, is the expectation, expressed in Congress yesterday that the unemployment rate will continue to increase during the next several months before it improves. Interestingly, the markets shook off the news, ending with buyers tripping over themselves to get in before the close.
When Vermont Senator Jeffords announced his intention to become an independent, he threw the monkey wrench of uncertainty into the Bush administration's legislative agenda, and therefore the markets. The markets sold off a bit yesterday on the news. Nonetheless, today, Bush-sensitive stocks, such as oil, tobacco, and managed care did not tank and, in general, withstood the test.
The worst of the bad news of the day, however, was the precipitous drop in new home sales, which was much worse than expected, at 894,000, below the anticipated 975,000, and down 8.9 percent from last month. Until now, the housing sector had been surprisingly, and reassuringly, buoyant given the rising rate of unemployment. This steep April decline indicates that Joe Consumer is finally feeling the heat from rising layoffs and lowered job security. Homebuilders were off sharply from early session highs. Nonetheless, there was some skepticism of the data in the bond market, as traders noted that the numbers might have been exaggerated due to a statistical artifact.
Bad news such as the above used to be taken in stride during the long bull market of the nineties. Remember those days? Then, we went though a long, hard, Valley Forge of a winter where investors immediately started to get nervous at any bad news and automatically believed the worst case possibilities. Now, we seem to be back to the old blasť mode, which is pretty encouraging.
There was, however, controlled profit taking across technology early today, before the late afternoon rebound when Internet and software issues gained momentum. Bank shares also did well today, as did insurance and some retail shares after earlier turmoil. There was also some sector rotation into alternative energy and biotech shares. The latter group led the techs.
Semiconductor shares got hit again early today after Triquint Semiconductor (NASDAQ:TQNT -4.22) and Sawtek (NASDAQ:SAWS -4.86) released warnings, related to their recently announced merger and the consequent analyst actions. This was more an artifact of these two companies than a panning of the sector. Even though this entire group was due for a pullback, the Philadelphia Semiconductor Index came on strong during the last hour of trading to finish at 658.77, for a loss of a mere 1.37 points, or 0.21 percent.
Losing ground in a more substantial way were drug, airline, paper, chemical stocks after a downgrade, and oil services shares. The Oil Services Index ($OSX -2.28) has been retracing during the past two sessions, although demand and prices have been rising. The index may soon move higher on the news of the Pride merger and once the Bush administration energy policy is implemented. Memorial Day weekend demand just might jump start this sector.
Healthcare shares also were fairly resistant today, after coverage by Goldman Sachs. Wellpoint (NASDAQ:WLP +3.79) is making progress in getting some of its popular prescription drugs available over the counter. Others active in the sector were Universal Health Systems (NYSE:UHS +3.27), Cardinal Healthcare (NYSE:CAH +3.77), and Amerisource (NYSE:AAS +1.64). The latter two are nearing new highs.
Treasuries gained some strength early in Thursday's trading due to the aforementioned rise in jobless claims which may encourage the Fed to slash interest rates aggressively again in June. Fed Governor Laurence Meyer said in a speech that the U.S. economy will "gradually" return to growth of around 3.5 percent to 4 percent a year. Traders responded quickly by moving funds out of Treasuries back into equities. By the close, the Fed-sensitive 2-year note had lost 4/32 at 99 14/32, with a yield gain to 4.31 percent. The 5-year note shed 12/32 at 98 6/32, for a yield gain of 9 basis points to 5.04 percent. The 10-year dropped 22/32 at 96 10/32 for a yield gain of 9 basis points to 5.49 percent. Lastly, the 30-year long bond shed 26/32 at 93 7/32, an increase of 6 basis points, for a yield of 5.86 percent.
Finally, there has been much recent discussion about the truthfulness of the "pro forma" accounting practices used by many tech companies burdened by high investor expectations. I thought analyst Charles Payne illustrated the practice best today by comparing it to Tuesday's Sixers-Bucks game. The Sixers eked out an ugly 93-85 win, with a banged-up Allen Iverson scoring 34 points. If there had been a corporate press release it would have said that Iverson made 50 percent of his final shots. And then, in a minute footnote, there would have been the notation that his first nine attempts had been air balls.
Chairman Al is speaking in Manhattan tonight at the Economic Club of New York (unfortunately during the next Sixers-Bucks game!). The Street will be looking for any sign he'll be dribbling away the Fed's intentions at its June meeting, and also some kind of certification that a bottom has in fact been achieved in the economy. This could give a boost to tomorrow's market activity. Follow the bouncing ball.