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Stocks Recover From Early Weakness, Close Nearly Flat - U.S. Commentary

After moving notably lower in early trading on Monday, stocks staged a significant recovery over the course of the morning. Buying interest waned thereafter, however, and the markets eventually ended the session roughly flat.

Once again, the Dow reached an intraday high above 13,000 but ended the session modestly lower. While the Dow edged down 1.44 points or less than a tenth of a percent to 12,981.51, the Nasdaq inched up 2.41 points or 0.1 percent to 2,966.16 and the S&P 500 rose 1.85 points or 0.1 percent to 1,367.59.

Renewed concerns about the financial situation in Europe contributed to the initial weakness on Wall Street, with traders reacting negatively to a statement from the G20 finance ministers and central bank governors.

Following a weekend meeting, the G20 called for a further enhancement of Europe's bailout fund before the rest of the G20 nations can consider increasing their contribution to the International Monetary Fund's resources.

Upbeat housing data contributed to the subsequent recovery, as a report from the National Association of Realtors showed that its pending home sales index rose by more than expected in the month of January, reaching its highest level since April of 2010.

NAR said its pending home sales index rose 2.0 percent to 97.0 in January from a downwardly revised 95.1 in December. Economists had been expecting to index to increase by about 1.5 percent.

A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

While the markets also benefited from a pullback by the price of crude oil as well as news that Germany's lower house of parliament voted in favor of a second Greek bailout package, traders seemed somewhat reluctant to continue buying stocks in afternoon trading.

Among individual stocks, Transocean (RIG) rose by 5.3 percent after reporting a fourth quarter loss of $18.62 per share, including items that impacted results by $18.80 per share. Operating revenues rose to $2.42 billion from the year-ago's $2.13 billion.

Home improvement retailer Lowe's (LOW) also closed higher after reporting fourth quarter earnings of $0.26 per share on revenues of $11.6 billion. The results exceeded estimates. The company also updated its 2012 guidance, forecasting earnings of $1.75 to $1.85 per share on 1 to 2 percent sales growth.

Sector News

Contributing to the turnaround by the broader market, banking stocks showed a strong move to the upside over the course of the trading day. Reflecting the strength in the banking sector, the KBW Bank Index rose by 1.3 percent.

Wells Fargo (WFC) and SunTrust (STI) turned in two of the banking sector's best performances, advancing by 2.8 percent and 2.5 percent, respectively.

Significant strength also emerged among housing stocks, which benefited from the upbeat pending home sales data. After falling as much as 1.2 percent in early trading, the Philadelphia Housing Sector Index closed up by 1.2 percent.

Tobacco, airline, and chemical stocks also saw some strength on the day, while weakness remained visible among biotechnology stocks. The NYSE Arca Biotechnology Index fell by 1.5 percent amid a steep drop by Dendreon (DNDN).

Shares of Dendreon tumbled by 20.6 percent even though the biotechnology company reported a fourth quarter profit compared to a year ago loss. The profit was largely due to a $125 million payment associated with the sale of its royalty interest in Victrelis.

Gold, health insurance, and electronic storage stocks also moved to the downside, offsetting the strength seen in the aforementioned sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Monday. Japan's Nikkei 225 Index edged down by 0.1 percent, while Hong Kong's Hang Seng Index ended the day down by 0.9 percent.

The major European markets also moved to the downside on the day but closed well off their worst levels. While the French CAC 40 Index fell by 0.7 percent, the U.K.'s FTSE 100 Index and the German DAX Index dipped by 0.3 percent and 0.2 percent, respectively.

In the bond market, treasuries moved higher on the day despite the turnaround on Wall Street. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day down by 5.5 basis points at 1.922 percent.

Looking Ahead

Economic data is likely to attract some attention on Tuesday, with traders likely to keep an eye on reports on durable goods orders, home prices, and consumer confidence.

On the earnings front, Tenet Healthcare (THC), Autozone (AZO), and Office Depot (ODP) are among the companies due to report their quarterly results next week.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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