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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Tuesday, February 3, 2009
Summary
It seems that Wall Street likes to alternate up days
and down days, with Tuesday being a definite up day. A surprise rise in
December pending home sales helped momentum, while a solid profit from
Merck offered up some welcome news in an otherwise gloomy earnings
season. However, bank shares fell due to uncertainty about
the Obama administration's plans to shore up the beleaguered financial
sector. JPMorgan, down 4.6 percent at $24.05, was the top drag on the
Dow, followed by American Express, down 5.2 percent to $16.09. Bank of America closed lower for the fourth
consecutive day, ending the day down 11.8 percent at $5.30. The Obama
administration is due to make an announcement about its bank plan next
week. Merck ended the day up more than 6 percent, making
health-care stocks one of the best sectors on Tuesday within
both the Dow Jones industrial average and the S&P 500 indexes.
Schering-Plough also posted quarterly results ahead of Wall Street
targets, sending its stock up more than 8 percent. Technology chalked up a solid advance for the second
straight day as shares of such bellwethers as Microsoft rallied on hopes
that government stimulus plans will boost consumer and business
spending, offsetting a disappointing outlook from SanDisk. Shares of
SanDisk fell 23.2 percent to $8.66, a day after it gave a disappointing
outlook and said it may undertake an equity offering that could dilute
shares as much as 20 percent. Microsoft ended the day up 3.8 percent to close at
$18.50, was the top performer among the stocks making up the NASDAQ, and
the shares turning in their strongest two-day run-up in nearly two
months. IBM led the Dow, finishing up 2.8 percent at $93.48. Merck shares finished up 6.4 percent at $30.24, while
Schering-Plough climbed 8.2 percent to $18.91. Drug companies are a
defensive play as their business is considered better able to withstand
a downbeat economy. Pending sales of existing homes rose 6.3 percent in
December, sending the shares Toll Brothers up 6.4 percent to $18.06,
while D.R. Horton ended the day up 21.4 percent at $7.42 after the home
builder posted a smaller-than-expected quarterly loss. Option
Traders Turning Bullish on Financial Sector Option players are turning bullish on the financial
sector on the idea that President Obama’s administration will soon offer
up a plan as to how it will stabilize the banking sector. As a result,
there has been activity tied to the Financial Select Sector SPDR XLF.P
has been building up recently in the popular exchange-traded fund that
tracks all the financial-related companies from the Standard & Poor's
500 index .SPX. Specifically there has been buying activity in the
ETF's upside call options. Much of that volume included spreads in which
downside put options were sold to pay for new call positions. The
interest in call options, which give buying rights to the fund's shares,
persisted on Tuesday as the ETF's stock dropped 2.44 percent to $9.01 in
late afternoon trading, after hitting a session low of $8.87. On Tuesday, there was buying activity on February $10
calls and sales of February $11 calls and $8 puts in huge size, a
bullish bet on the financial sector. There was large buying interest in
the February $10 XLF calls, giving the right to buy the ETF at $10 a
share by February option expiration. One trader is said to have bought the June $9/$11
call spread while selling June $6 puts, a bullish bet that the XLF will
move beyond $11 by June expiration, while the June $6 puts expire
worthless. The implied volatility, a measure of the market's estimate of
future stock moves, has also been moving higher. A Rise in
Pending Home Sales Pending home sales rebounded in December, as buyers
took advantage of lower prices and lower mortgage interest rates. The
National Association of Realtors pending home sales index, based on
contracts signed in December, rose 6.3 percent to 87.7. It was the first
increase since August. Compared with the same period a year-ago, pending
homes sale were up 2.1 percent in December. Data from the housing market, which is at the center
of the worst financial and economic crisis in decades, has sent
conflicting signals in recent days. Last week, the NAR reported an
unexpected rise in existing home sales in December, driven mainly by
distressed sales, with prices falling from a year earlier by the biggest
margin in over 40 years. The NAR's housing affordability index rose 10.9
percent in December to 158.8, the highest since it began tracking
records in 1970. The index rose on falling home prices and low mortgage
rates. However, government data released last Thursday showed sales of
new single-family homes fell in December by the largest margin since
1994. Stability in the housing market is critical to
economic recovery. Falling house prices, coupled with the stock market
collapse and tight access to credit, have hit consumer spending, which
accounts for about two thirds of Lower
Earnings Sends Disney Downward Disney reported lower-than-expected quarterly
earnings on Tuesday as global economic woes weighed on TV advertising,
DVD sales and theme parks attendance, pushing its shares 9 percent
lower. At the same time, weakness at Disney's retail and licensing
businesses also hurt overall performance, while its movie business had
difficult comparisons with last year's strong holiday DVD sales of
"Pirates of the Caribbean: At World's End" and "Ratatouille." Fiscal first-quarter net earnings were down 32
percent to $845 million, or 45 cents per share, from $1.25 billion, or
63 cents per share, in last year's first quarter. If you exclude gains
from the sale of investments in Latin American pay-TV services, earnings
fell to 41 cents per share. Revenue fell 8 percent to $9.6 billion, from
$10.45 billion a year earlier. Operating income at Disney's theme parks fell 24
percent to $382 million in the quarter, buffeted by slowing domestic
consumer spending and a stronger dollar. Revenue at the parks fell 4
percent to $2.67 billion, despite deep discounts for park stays and
tickets instituted last fall. At media networks, operating profit fell 29 percent
to $655 million and revenue slid 5 percent to $3.9 billion on lower
ratings for ABC programing and weaker ad sales at ESPN. The company said last month that it was cutting
hundreds of jobs at its theme parks, ABC Media Group and ESPN, and
consolidating ABC's production and network businesses. DVD sales for Disney Studios' "Wall-E" and "Prince
Caspian" were no match for last year's titles, bringing the unit's
operating profit down 64 percent to $187 million, and revenue down 26
percent to $1.95 billion in the quarter. The Consumer Products division
saw its operating profit fall 8 percent to $265 million, but revenue
rose 18 percent to $773 million for the quarter. Disney shares fell more than 9 percent to $18.70 in
after-hours electronic trade, after closing at $20.62 in regular
trading. Auto Sales
Collapse to 27 Year Low General Motors' domestic vehicle sales fell 49
percent in January while Ford's sales dropped 40 percent, starting 2009
at an abysmal pace for the whole auto industry as lower sales to fleet
buyers like rental car companies weighed down the results. For January, auto sales fell to near an annualized
low water mark of 9.8 million units, including heavy work trucks, GM
estimated. That would put our domestic market below On a full-year basis, sales for 2009 are expected to
drop to near 10.5 million vehicles, the lowest level since 1982. But
even that understates the depth of the downturn since our. population
has increased about a third since. Ford's belief that it can survive the downturn on its
own hinges on its view that the market will improve in the second half
as an expected fiscal stimulus package takes hold and consumer
confidence recovers. Ford said there were some encouraging signs in
January sales results: showroom sales appear to have stabilized even
though sales to rental agencies were down sharply. Also, used car prices
have stopped falling. Although the domestic auto industry is entering its
fourth year of declining sales, the deepening slowdown hit European and
Asian markets hard in the final months of 2008. New car sales in In Asia,
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MarketView for February 3
MarketView for Tuesday, February 3