MarketView for January 28

Summary 

Wall Street took another dive on Thursday as both Motorola and Qualcomm dented optimism with outlooks that were considerably less than overwhelming in the technology sector while worries about Greece's fiscal health dragged on sentiment. News that Athens will not be able to service its heavy debt unnerved investors and prompted them to shun riskier investments, including stocks, although the country's prime minister said it has not asked for a bailout.

Qualcomm closed down 14.2 percent at $40.48, while Motorola ended the day down 12.4 percent at $6.48. After the closing bell, Microsoft added a small gain of 1.7 percent to close at $29.64 after reporting quarterly profit rose 60 percent, aided by solid sales of its new Windows 7 operating system.

Also after the close, Amazon.com managed to tack on 2.8 percent to $129.59, the result of fourth-quarter earnings numbers that were well ahead of Street expectations. Amazon also forecast stronger-than-expected revenue for early 2010. However, higher earnings did not help everyone. 3M fell 1.9 percent to $80.75 despite reporting stronger-than-expected earnings. The global jitters overshadowed positive earnings from Procter & Gamble, which added 1.4 percent to $61.68 after its second-quarter earnings exceeded expectations and raised its sales outlook for the year.

Stocks added to losses during the regular session following news that Ben Bernanke was confirmed by the U.S. Senate, causing the benchmark S&P 500 to close below the key support level of 1,085.

New orders for durable goods edged higher in December, and the number of workers filing claims for jobless benefits fell last week, an indicator that the economy remains on the path to recovery.

Economic Data Continues to Improve

The Commerce Department reported Thursday morning that durable goods orders rose 0.3 percent last month, held back by a surprise drop in civilian aircraft orders that appear to be temporary. Details of the report were much stronger, however, with a proxy for business spending plans -- non-defense capital goods orders excluding aircraft -- increasing a solid 1.3 percent.

Civilian aircraft bookings fell 38.2 percent last month, building on a 40.0 percent drop in November, the Commerce Department said. Boeing said in December it had received 59 orders, up from November's nine, and those orders are expected to lift the government's measure of orders.

New durable goods orders excluding transportation rose 0.9 percent last month after increasing 2.1 percent in November, the department said, beating market expectations for a 0.5 percent gain. Durable goods orders are a leading indicator of manufacturing activity, which in turn provides a good measure for overall business health.

Shipments, which go into the calculation of gross domestic product, surged 2.9 percent last month -- the biggest rise since July. They rose 0.8 percent in November. Strong shipment numbers means that fourth-quarter GDP could exceed market expectations.

Meanwhile, the Labor Department reported that initial claims for state unemployment benefits fell by 8,000 claims to 470,000 last week, less than expected. The number of claims reported has been higher for each of the three past weeks.

The Street had been looking for a much larger decline in new claims for jobless benefits last week, seeing a drop to 450,000, compared with the 470,000 reported on Thursday by the Labor Department. That was down from 482,000 for the prior week, which had been elevated due to a backlog of applications from the holidays. The report showed the four-week moving average for new jobless claims, a better measure of underlying trends, rose for the second week after 19 weeks of decline.

Bernanke Confirmed

The Senate voting 70-30 on Thursday approved Ben Bernanke's nomination to a second four-year term as Chairman of the Federal Reserve, despite deep misgivings over his perceived policy missteps. The Senate voted after clearing a procedural hurdle with the support of 77 senators.

The confirmation came amidst the stiffest opposition to any nominee for Fed chairman in the nearly 32 years the Senate has voted on the position.

Senators credited Bernanke with steering the economy through a wrenching financial crisis but leveled withering criticism at him for policies they argued sowed seeds for the turmoil and for an initial slow response.

Although Bernanke has managed to survive a revolt by lawmakers responding to a surge of public anger at big banks and their regulators, including the Fed, he still faces acute political pressure to ease economic strains. Praised by economists and investors for his unprecedented response to the crisis, Bernanke has endured heavy criticism for failing to see the crisis as it brewed.

President Barack Obama and allies in the Senate Democratic leadership were forced to intervene over the past week to press senators to get the 60 vote super-majority needed to overcome efforts to block the nomination.

Bernanke’s largest task in coming months will be to decide when and how to eventually dismantle or "exit" emergency measures that he helped put in place, without stunting the fragile economic recovery or alarming financial markets. In considering Bernanke's nomination, some lawmakers pressed him to do more for the economy, highlighting the unusually high degree of political pressure now on the Fed.

The Fed guards its independence jealously and is more likely to respond to the political mood by pushing forward on consumer-friendly regulatory initiatives than by steering monetary policy in a direction palatable to lawmakers.

Smartphone Marketplace is Cutthroat

Nokia and Motorola are regaining some of their prior dominance in smart phones, and while Nokia has profited from the gains, Motorola predicted a loss in the current quarter. As a result, Nokia’s shares posted their largest one-day gain in nine months. At the same time, Motorola fell more than 12 percent on worries its turnaround will take too long.

Nokia and Motorola dominated the mobile industry just a few years ago, but they have lost ground to the iPhone and the Blackberry. Both firms responded by shrinking their phone portfolios: Nokia has halved its smartphone launch plans for 2010, and Motorola co-chief executive Sanjay Jha is betting his company's future on smart phones based on Google's Android software.

Motorola turned a small quarterly profit in the holiday shopping-fueled fourth quarter versus a deep loss a year ago. Sales of 2 million smart phones helped, including its Droid phone, which was championed by Verizon Wireless. Nonetheless, Jha warned that smartphone sales would fall this quarter, some investors worried that Motorola's ascent in smart phones was slow alongside a sharper-than-expected drop in sales of cheaper feature phones, its biggest seller.

Jha said Motorola is spending a lot on developing new smart phones this quarter, a period that typically sees fewer phone sales than the busy fourth quarter. As a result, Motorola forecast a first-quarter loss of 1 cent to 3 cents.

The weak outlook sent Motorola’s shares down 12 percent, while Nokia closed 9.9 percent higher at 9.91 euros in Helsinki, its largest one-day gain since April of last year. Over the last 12 months, Motorola stock has gained 60 percent while Nokia is down 6 percent.

Still, Jha said he is forging ahead with plans to separate the phone unit from the rest of Motorola, emboldened by Droid's popularity and improving mobile market conditions.

Nokia said the cell phone market returned to growth in the quarter after a year of shrinking. It said its market share in smart phones rose to 40 percent from 35 percent in the previous quarter.

Despite hype around Apple's iPhone, it was a clear market share loser among top vendors in the quarter. Its 8.7 million iPhone sales missed Street forecasts. Shares in Apple fell 3.6 percent.

Strong demand from emerging markets helped Nokia sell 127 million phones in the quarter, above expectations. Nokia said revenue from smart phones jumped 26 percent from the previous quarter to 3.9 billion euros. Average smart phone prices dipped to 186 euros from 190 euros in the third quarter as the firm tried to win back customers with discounts.

The results cap a tough year for cell phone makers, which have been hammered as consumers cut spending in the recession. Nokia forecast a first-quarter phone operating profit margin closer to 12 percent than last quarter's 15.4 percent.