Stocks Snapped Three Week Decline on Better than Expected Economic Data

Published on Saturday, 04 September 2010 10:30 Written by TradersHuddle Staff

Weston, September 4^th (Tradershuddle.com) – Stocks gained for the week, snapping a three-week slide, with the Dow Jones Industrial Average turning positive for the year. Largely better than expected economic data, along with fewer jobs lost in August, eased concern the economy is sliding back into a recession.

For the week, the blue chip index gained 2.93%; the S&P 500 index rallied 3.75% and the NASDAQ jumped 3.72%.

At the start of the week, the market started on the weak side after personal income and consumer spending data, along with fresh M&A news failed to inspire market participants to bid stocks higher. Investors remained cautious ahead of more economic data later in the week.

On the M&A front, Genzyme (NASDAQ:GENZ), rejected an unsolicited bid from French drug giant, Sanofi Aventis (NYSE:SNY) for $69 per share. Also Intel (NASDAQ:INTC), the world’s largest chipmaker, announced plans to acquire the wireless unit Infineon Technologies for $1.4 billion in cash, as the chipmaker attempts to diversify to spur growth.

Over the weekend, also the bidding war for 3Par (NYSE:PAR), the utility storage company, between tech giants Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL) turned, as 3Par deemed HP's bid of $30 per share superior to the offer of $27 per share that it had already accepted from Dell.

Financials, consumer discretionary, and industrials, were the worst performing sectors in the anemic volume session, as uncertainty from economic data later in the week kept many market participants in the sidelines.

Home Depot (NYSE:HD), the largest home improvement retailer, fell 2.61% to $27.99, making it the worst Dow component, as consumer discretionary stocks fell 1.8%, as a group on concern over economic sluggishness in the U.S. will further erode the consumer.

Financial shares fell 2.2%, posting the biggest decline among the 10 key S&P 500 sectors. Bank of America (NYSE:BAC) fell more than 2.50%, as financial shares struggled the whole session on economic woes. Bank of America in particular has more exposure to the domestic consumer, sparking speculation that hedge funds are trimming their holdings on the stock as they shift into positions in the financial space that have more international exposure.

American Express (NYSE:AXP), the credit card issuer, was also weaker, dragged down by the financial sector and by concern over consumer spending in an economic slowdown.

The energy sector lost 1.6%, as crude oil fell on Dollar strength, as the economic outlook remains a concern.  The contract for October delivery fell 0.6% to $74.71 per barrel.

On Tuesday, most Stocks advanced trimming monthly losses, as increases in home prices and consumer confidence tempered concern about economic slowdown in the world’s largest economy.

Investors shrug off the Chicago PMI reading, which came short of expectations, as they focused on the broader Conference Board index. The overall market remained in positive territory with little reaction to the release of the minutes from the last FOMC meeting. At the meeting several members said the Fed should consider more stimulus if the economy weakens, and that reinvesting in mortgage-backed securities, in addition to Treasury securities, may be an option.

Telecom, financials, utilities, and materials were the best performing sectors. Technology and healthcare fell, dragging on the overall market and causing the tech heavy NASDAQ to underperform the other major benchmark indices.

AT&T (NYSE:T), the owner of the second largest U.S. wireless carrier, jumped 1.50% to $27.03, posting the biggest percentage gain in the Dow Jones Industrial Average and helping lead the sector to a 1.1% gain.

Financials bounced back in the session with a gain of 0.9%. JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC), the U.S. largest lenders, were among the five top Dow components as their shares gained at least 1.14%, after the Federal Deposit Insurance Corp. said U.S. lenders posted their biggest quarterly profit in almost three years, even as the number of banks at risk of failure rose to 11% of insured institutions. News that home prices gained in June also helped their cause.

Materials posted a modest 0.3% gain, with DuPont (NYSE:DD), the life sciences Company, adding 1.12% to $12.46. DuPont advanced the same day that Monsanto (NYSE:MON), issued a tepid outlook that send its shares tumbling. Investors piled on DuPont as it leads the Dow components in year to date gains.

Despite weakness in healthcare, Merck (NYSE:MRK), the pharmaceutical company maker of Singluair and Zocor, gained 1.24% to $35.16, posting the second biggest percentage gain in the blue chip index.

And crude oil tumbled 3.7%, trading below $72 per barrel on concern that some Federal Reserve policy makers saw increased risks to the U.S. economic recovery. Meanwhile, Treasuries gained, extending their monthly gain. The yield on the benchmark 10-year note slip to 2.47%.

Mid week, stocks surged as global manufacturing data outweighed an ADP report that showed job losses for August. The improved tone helped stocks staged a rally on the first day of a month that is traditionally seen as a bad month for the equity market, with short covering helping to augment the move.

The market extended their advance after the August ISM Manufacturing Index increased to 56.3, when a decline was expected. The gains during the first day of the month that is traditionally a bad month for the market surprised participants, specially coming after a gloomy August.

The biggest gainers were in the industrials, financials, energy, and consumer discretionary sectors that had been beaten down during August. Bank of America (NYSE:BAC), surged more than 6% to $13.21 as shorts covered their bearish bets on the stock. Bank of America posted the biggest percentage gain in the Dow Jones Industrial Average.

JPMorgan (NYSE:JPM), the U.S. second largest lender also moved higher, climbing 3.80% to $37.74 for the third biggest gain in the blue chip index.

Industrial shares gained 3.9% as a group, with Caterpillar (NYSE:CAT), the world’s largest earthmoving equipment company, jumping 4.60% to $68.16. Caterpillar gained as the Dollar fell 0.9%, its worst single-session slide in a month, as investors were willing to hold riskier assets.

General Electric (NYSE:GE), the diversified conglomerate and economic bellwether also benefited from strength in the industrial group as market participants looking for bargains moved back into economic sensitive stocks. General Electric gained 3.66% to $15.01.

The energy sector gained 3.8% as crude oil prices spiked 2.8% to $73.91 per barrel as the Dollar weakened and as global economic data signaled that demand would likely grow. Chevron (NYSE:CVX), the U.S. second largest energy producer, benefited from the higher oil prices as its shares climbed 3.63% to $76.77.

And Apple (NASDAQ:AAPL), the maker of iPhones and iPads, jumped close to 3% as it traded above the $250 per share level, as the company unveiled its new line of iPods for the holidays and its redesign Apple TV, which at $99 will likely become a popular item as it promises to make streaming music and movies wirelessly in an effortless manner to your TV. Apple will include a Netflix (NASDAQ:NFLX) app that will let consumers rent HD movies for $0.99 per movie thru the Internet.

On Thursday the market started on a flat note despite weekly jobless claims report was better than expected and GDP in the euro zone increased 1% in the second quarter, with the European Central Bank leaving interest rates unchanged.

The Labor Department reported that initial claims for unemployment fell 6,000 to 472,000 last week. The drop was largely in line with the 475,000 claims that were widely expected. However stocks were able to muster support after housing news were better than expected as pending home sales for July jumped a surprising 5.2%, according to The National Association of Realtors. Economists had forecasted a 1.0% drop.

Burger King (NYSE:BKC), the hamburger fast food chain, surged more than 25%, as it confirm reports that it will be acquired by 3G Capital for $24 per share or $3.26 billion. Wendy’s Arby’s Group (NYSE:WEN) jumped 6.80%, as investors speculate the fast food chain will also be a candidate for a private equity deal.

Consumer discretionary, industrials, materials, and financials were the best performing sectors, with utilities as the only declining sector among the 10key S&P 500 sectors.

Consumer discretionary stocks gained 1.8% in the session, helped by retailers, which had mixed same-store sales reports, but largely beating back to school sales expectations. On the bright side, Nordstrom (NYSE:JWN), the high-end department store operator, jumped more than 8% after the department store operator reported August sales climbed 6.3%, beating analysts’ expectations. On the same line, Limited Brands (NYSE:LTD), the operator of specialty stores like Victoria Secret and Bath and Body Works, also surged more than 6% on better than expected same store sales in August.

The housing data and lower weekly jobless claims, spurred investors to bid homebuilders and home improvement retailers. Home Depot (NYSE:HD), the largest home improvement retailer, gained more than 2.58% to $29.41, posting the second biggest percentage gain in the Dow Jones Industrial Average.

Walt Disney (NYSE:DIS), the largest media company in the world, also benefited from the sector strength, as it shares climbed 1.19% to $3.91.

On the materials sector, Alcoa (NYSE:AA), the aluminum producer, jumped close to 3% to $10.83, posting the biggest percentage gain in the blue chip index and helping the sector to a 1.1% gain.

Economic sensitive stocks gathered strength as investors economic slowdown concern were tempered a bit ahead of August Jobs report. The industrial sector gained 1.3%, with Boeing (NYSE:BA), the world’s second largest commercial aircraft maker, as the third best Dow component, as shares climbed 1.77% to $63.39.

On the energy sector, reports of a fire in an oilrig platform in the Gulf of Mexico owned by Mariner Energy (NYSE:ME), send shares plunging on initial news more than 16%, before recovering to a loss of only 2.57% after initial reports showed that it was a fire and that all employees have been accounted for and no oil had spill as it was on an inactive well. Apache (NYSE:APA), who had agreed to acquire Mariner, also saw increased volatility.

Meanwhile, Treasuries fell again, as demand for safe haven decreased on the surprise jump in pending home sales. The yield on the benchmark 10-year note climbed 5 basis points to 2.62%.

At the end of the week, stocks gained, with the Dow Jones Industrial Average turning positive for the year, after a government report showed the economy shed fewer jobs than feared, easing concern the economy is heading to a double dip recession.

The Labor Department reported that non-farm payrolls fell by 54,000, which was much better than the 120,000 economists had predicted. The lower decline in overall payrolls was due to strength in healthcare and temporary staffing industries, as private employers added 67,000 jobs in August, better than the 44,000 that was projected.

The jobs figures together with better than expected data, especially in manufacturing earlier in the week helped eased the economic slowdown concern, reducing the probability of a double dip recession. However the early momentum suffered a slight set back after the ISM Service Index for August disappointed investors. It slipped to 51.5, which is below the 53.0 that had been widely expected.

Economic sensitive sectors, like financials, technology, consumer discretionary, and industrials were the best performing among the 10 key S&P 500 sectors. Financials posted the best gains, jumping 2.2% on news private employers added more jobs than expected. JPMorgan (NYSE:JPM), the second largest U.S. lender, led both the sector and the Dow Jones Industrial Average, as shares surged 2.63% to $39.17.

American Express (NYSE:AXP), the credit card issuer, climbed 2.25% to $41.80 on strength from the financial and consumer discretionary sectors. The credit card issuer sees increased volatility with every jobs related report that is released.

Technology shares, which had been hit hard during the August slump, performed well in the session, as market participants looked for beaten stocks chasing performance. Cisco (NASDAQ:CSCO), the largest maker of networking equipment in the world, jumped 2.53% to $21.04, lifting the tech sector to a 1.7% gain, and helping the tech heavy NASDAQ to outperform in the session.

The jobs gain in the private sector and the less than feared overall job losses helped consumer discretionary stocks to post a 1.5% gain. Walt Disney (NYSE:DIS), the largest media company in the world, rounded up the Dow top five components, as shares added 2.24% to $34.67. Disney, and Time Warner Cable (NYSE:TWC) reached a new long-term agreement that will keep all Disney-owned cable networks, including sports Web site ESPN3.com and local ABC stations, available to Time Warner customers without an extra charge.

Industrial stocks gained 1.4% as a group, with Caterpillar (NYSE:CAT), the world’s largest earthmoving equipment maker, adding 2.25% to $70.08.

Crude oil fell, after the drop in the services sector of the economy outweighed the better than expected jobs report from the Labor Department. The contract for October delivery slipped 0.6% to $74.60 on concern the recovery will be slow.