Wall Street Sings A Better Tune

April 24, 2009 5:31PM

U.S. markets rallied on the shoulders of better-than-expected earnings from some of the nation's most influential firms, helping Wall Street brush off more sluggish housing and manufacturing data.

The S&P 500 rallied 1.68%, or 14.30 points, the Dow Jones Industrial Average rose 1.5%, or 119 points, and the Nasdaq Composite gained 2.36%, or 39 points. Market breadth was positive with advancing issues beating decliners by a 4 to 1 clip on the NYSE and 3 to 1 on the Nasdaq. The Dow fell 0.7% this week, while the Nasdaq closed higher for the seventh straight week.

Furnishings, paper, and REIT stocks outperformed the market while mortgage finance and renewable energy segments slipped over 2%.

The Treasury Department released murky details of its "stress test" performed on the nation's 19 largest banks to measure if they have adequate capital reserves. Financials were one of the best performing segments during Friday's session, boosted by Street-topping results from American Express (AXP). The credit card issuer and processor rung up Q1 net income of $437 million, or 31 cents per share, compared with $991 million, or 85 cents per share, during the same quarter one year ago. AmEx has been aggressively cutting expenses in response to rising debt payment defaults.

Major banks joined the American Express rally as JPMorgan (JPM: +3.2%), Bank of America (BAC: +5.8%), and Wells Fargo (WFC: +8.2%) all posted strong sessions.

In the tech space, shares of Microsoft (MSFT) jumped more than 10% after the firm reported strong cost control measures amid its first ever decline in revenues. The software giant record net income last quarter of $2.98 billion, or $0.33/share, down from $4.39 billion, or $0.47/share. Revenue fell 6% to $13.65 billion.

Ford Motor (F) surged yet again as the Dearborn-Michigan based motor vehicle producer posted a $1.4 billion Q1 loss, or $0.60/share, compared with a $70 million year-earlier profit. Ex-items, Ford lost $1.8 billion, or $0.75/share. Revenues dropped from $39.2 billion to $24.8 billion. Ford's results easily beat consensus estimates calling for a loss of $1.19/share on revenues of $21.8 billion. Ford's restructuring plan began back in 2005 is proceeding on schedule with CEO Alan Mullally affirming 2011 as the target year for automaker to be profitable.

Dow component 3M (MMM) traded up more than 5% despite worse-than-expected earnings while industrial giant Honeywell (HON: -2.8%) cooled after cutting its full-year guidance.

MACROECONOMIC DATA

New home sales dropped a higher-than-expected 0.6% in March to a seasonally adjusted annual rate of 356,000, compared with 358,000 in February. There was good news though as inventories of unsold homes decreased 5.2% in March to 311,000, representing a near 11-month supply. Inventories must be reduced in order for housing to stabilize because they represent overhang on the market. The median home price fell to $201,400 in March.

The session's other major macro data featured durable goods orders falling a less-than-expected 0.8% in March. Communication equipment orders decreased 8.1%, making up the largest drop in new orders.

COMMODITIES

Oil surged 4% on Friday, riding higher equity prices and inflation fears above $50. The front-month crude contract bubbled up $2.02 to $51.64. Heating oil followed crude up the ladder, rising 3.8% to $1.3687/gallon. Natural gas futures continue to trade inversely with crude, falling 3.6% to $3.286/MMBtu.

Gold futures hit a 3-week high in New York thanks to signs of increased purchases of metal reserves by China. Gold could retest $930 resistance after gaining 0.8% to settle just below $914/troy oz. Gold's precious metal cohort, silver, rose 0.9% to $12.90/troy oz.

BOND/CREDIT MARKETS

Investors fled from safety on increased appetite for risk, raising yields dramatically at the long-end of the curve. The benchmark 10-year yield approached the significant 3% mark while the 30-year bond climbed to 3.873%. The 15 and 30-year fixed mortgage rate are 4.72% and 5.1%, respectively.

LOOKING AHEAD

Next week features more earnings from the likes of Verizon (VZ), Valero (VLO), BP (BP), Bristol-Myers (BMY), Coca-Cola (KO), Pfizer (PFE), U.S. Steel (X), Aetna (AET), Starbucks (SBUX),Time Warner (TWX), Exxon (XOM), Dow Chemical (DOW), and Mastercard (MA). The FOMC meeting, advance GDP, jobless claims, and motor vehicle sales are on the macroeconomic docket.