MarketView for April 19

Summary 

The major equity indexes ended the day somewhat higher on Tuesday as a result of some encouraging news from both the health care and the materials sectors although weak earnings from Goldman Sachs limited the day’s overall gains. Essentially, the Street was reluctant to make any sort of a large bet ahead of the upcoming stream of high-profile earnings. Volume was extremely low, with 6.65 billion shares changing hands on the major exchanges, a number that was well below last year's daily average of 8.47 billion shares.

The shares of Johnson & Johnson were among the first to rally following the posting of the company’s earnings results, rising 3.7 percent to $62.69 after J&J raised its profit outlook. The health care giant was the Dow's top percentage gainer.

Offsetting that was Goldman Sachs, whose shares declined 1.2 percent to $151.89 after posting a steep profit drop as trading revenue fell, the latest in a number of underwhelming reports from banks. The investment bank also warned that there were fewer opportunities to make money in the current environment.

A trio of major tech companies beating revenue expectations after the market's close suggested an encouraging trend for the group. Intel gained 5.7 percent to $21 in extended trading while Yahoo rose 4.5 percent to $16.85 and VMware was up 11 percent to $95.43. IBM announced that it was raising its full-year profit outlook after Tuesday's close, but the stock slid 1.2 percent in extended trading.

Materials were the S&P's top percentage gainers during the regular session. The rally in the materials sector came a day after Steel Dynamics forecast strong growth, lifting other steelmakers. The stock closed up 5.7 percent at $18.46, while U.S. Steel rose 4.5 percent to close at $52.74.

Home builders' shares were also higher after a report by the Commerce Department indicated that housing starts and permits for future home construction rose more than expected in March.

Pulte Group rose 5.1 percent to $8.24 and KB Home added 3.2 percent to $11.66.

Texas Instruments warned late Monday of slower-than-usual quarterly sales growth, citing damage to its factories in Japan after the huge earthquake there in March. The chipmaker's stock fell 0.7 percent to $34.54.

Intel’s Numbers Are Good

Intel forecast quarterly revenues well above Wall Street's estimates, defying fears the world's top chip maker is struggling to find its footing as personal computer sales growth wanes. Sales held up strongly despite a hiccup in sales of its Sandy Bridge processors after the discovery of a chipset design flaw. This eased fears that the growing popularity of smartphones and tablets would eat into the PC chip business.

Shares of Intel rose 3.5 percent in extended trading after closing up 1.22 percent on the  Nasdaq. The stock has been down about 12 percent of its value since Apple's first iPad hit store shelves in April last year.

Concerns that iPad tablets are squeezing traditional PC sales have hung over Intel, along with worries across the electronics industry about supply constraints after Japan's March 14 earthquake and tsunami.

Computer sales in the first quarter fell for the first time since 2009 as the iPad attracted buyers in droves and Japan focused on recovering from the earthquake and tsunami, according to research firm Gartner.

Tuesday's report was the first to include Intel's $7.68 billion acquisition of data security firm McAfee and its $1.4 billion purchase of Infineon's wireless unit. The fiscal first quarter also had one more week to it than usual. With those additions, Intel said revenue in the current quarter would be $12.8 billion, plus or minus $500 million.

CFO Stacy Smith said he saw no hindrance to Intel's chip production despite supply constraints that are limiting the shipment and availability of electronics parts from Japan.

Intel reported a 25 percent jump in first-quarter revenue to $12.8 billion. Net income was $3.2 billion, up 29 percent over the year-ago period. Excluding items, Intel earned 59 cents a share, above the consensus forecast of 46 cents.

Intel has no factories in Asia's second-largest economy, but investors have worried that hiccups in the supply of components made there could stall PC production. Some analysts say customers may have rushed to buy inventory after the disaster, helping front-load sales. Up to 10 percent of Intel's revenue comes from manufacturers in Japan.

With its shares trading at about 9.5 times expected annual earnings and paying a dividend yield of over 3 percent Intel has possibly become a bargain despite its problems. It is expected to ramp up sales of its Sandy Bridge processors over the next several months along with recently launched versions aimed at servers.

In February, shipments of Intel's new cutting-edge Sandy Bridge processors were interrupted after a flaw was discovered in a chipset used alongside them. Intel said the defect would mean $300 million less in first-quarter revenue, and cost $700 million to repair and replace. But it expects the lost sales to be made up for in later quarters.

Gross margins fell after a record 67.5 percent in the fourth quarter. Intel posted a 61 percent gross margin in the first quarter, about level with the 61.28 percent expected. However, the 62 percent forecast for this quarter appeared just a bit weaker than anticipated.