MarketView for January 24

Summary

It was another strong day on Wall Street on Monday, with stocks engaged in a strong rally that was led by natural resources and tech shares as share prices regained momentum. A share-buyback from Intel helped revive optimism that was reinforced by a continuation of strong earnings reports. Three-quarters of the 84 S&P 500 companies that have reported results so far in this earnings season have exceeded expectations.

Volatility indicators in the options market also suggested a turnaround after the S&P's decline last week when the benchmark index fell after seven straight weeks of gains. However, trading volume was the lowest of the year with about 7.02 billion shares changing hands on the three major exchanges. Last year's estimated daily average was 8.47 billion shares.

Nonetheless, the blue-chip Dow Jones industrial average neared the psychologically important 12,000 level, pulled higher by natural resources stocks like Alcoa while the Nasdaq gained more than 1 percent on large-cap tech shares. Alcoa ended the day up 4 percent to close at $16.43 after its chief executive said he sees continued demand for aluminum in 2011.

Copper prices rose as concerns about a decrease in Chinese demand were replaced by worries over supply constraints.

Intel closed up 2 percent at $21.24 after it raised its dividend by 15 percent and authorized another $10 billion for share repurchases. Chip-makers recovered from last week's fall with Nvidia closing up 11.4 percent at $24.76 after Barron's said its stock could nearly double in price this year. However, not every tech company did well. VMware saw its shares close down 2.3 percent at $86.50 in after-hours trading, reversing earlier gains after the company reported after the bell that its quarterly profit rose sharply.

Shares of American Express fell 1.4 percent to close at $45.15, while Texas Instruments ended the day down1.8 percent to close at $34.02 in extended-hours trading after both companies reported disappointing results.

The Credit Suisse Fear Barometer, a gauge for investor sentiment, hit a six-month high late last week and the CBOE Volatility Index .VIX, a similar gauge, also rose more than 10 percent from its lowest point over the past week.

Halliburton gained 1 percent to close at $39.55 in regular trading after reporting some solid earnings numbers. J.C. Penney chalked up a gain of 6.8 percent to close at $32.40 on news that activist investor William Ackman will join the department store operator's board next month, heading off a potential fight over the direction of its turnaround.

The Bad are Good

The Treasury's toxic asset funds have gained 27 percent since they were created to help revive the mortgage-backed securities market Monday. As part of the government's $700 billion bailout program, the funds were set up to remove illiquid securities from banks by matching private capital with taxpayer money and Treasury loans via funds run by private investment managers.

At this point, the government has been recouping taxpayers' money. The eight toxic asset funds, run by asset managers such as BlackRock Inc, Invesco Ltd and Marathon Asset Management, are all profitable.

Since the funds were established in 2009, they have used about $5.2 billion of Treasury's equity investment to buy toxic assets. As of the end of 2010, the funds have gained $1.1 billion to about $6.3 billion, according to the data.

Including some $300 million in equity distributions, the Treasury's investment increased by 27 percent or $1.4 billion, according to the data.

The Treasury Department had initially proposed buying up to $1 trillion in illiquid mortgage-related securities to help clean up banks' balance sheets. But the program was scaled down considerably as banks proved they could attract private capital in both the equity and debt markets without first selling off illiquid securities.

As of December 31, the funds had about $29.4 billion of purchasing power and had drawn down about 70 percent of the total amount, according to the data. The Congressional Budget Office has estimated the ultimate cost of the bank bailout, or the Troubled Asset Relief Program, will be as low as $25 billion.