Reply #52: Closing time

[54anickel]

Dow 12,577.15 5.44 (0.04%)
Nasdaq 2,479.42 18.36 (0.74%)
S&P 500 1,430.62 1.28 (0.09%)
10-yr Bond 4.7870% 0.0360
30-yr Bond 4.8810% 0.0370
NYSE Volume 2,598,948,000
Nasdaq Volume 2,377,941,000

4:20 pm : Stocks closed lower Wednesday as mixed earnings and economic data left investors questioning valuations and earnings prospects, especially throughout the influential Tech sector (-1.3%).

Before the market even opened, equities were exhibiting a negative slant after Intel (INTC 21.04 -1.26) posted Q4 results that weren't inspiring enough to justify a run that left it as this year's best performing Dow component a day earlier. The tech bellwether beat expectations by a penny, but reported a 39% decline in Q4 profits and then said gross margins will narrow in 2007. With the market pricing in expectations for strong tech earnings and guidance, the Nasdaq-listed Dow component consolidating to the tune of 5.7% was a huge drag on all three major averages.

Cisco Systems (CSCO 26.98 -1.06) being downgraded for the third time in two days also took some steam out of what was this year's best performing sector. Cisco, which closed at a multi-year high last Friday, tumbled nearly 4% while Apple (AAPL 94.95 -2.15), ahead of its Q1 report, fell 2.2%.

On the economic front, investors first sifted through a questionable PPI report. Even though there have been sharp fluctuations in the PPI data over the last two months, the Labor Dept. today showing that Dec. core producer prices rose a slightly higher than expected 0.2% left the year/year rate at a bothersome 2.0% for first time since Sep. 2005. While we believe it is wrong to draw too much of a conclusion from a few monthly PPI numbers, the report raised concerns that tomorrow's more influential CPI data may also diminish the likelihood that the Fed will cut interest rates anytime soon.

Also keeping inflation in the spotlight was the 2:00 ET release of the Fed's Beige Book. The report showed that most districts expanded at a modest pace, with continued expansion in manufacturing activity contradicting much of the prevailing wisdom about near-contractionary levels seen in some recent data points. Be that as it may, since some districts also noted that certain business lines experienced wage increases and are concerned about increases in the benefit portion of compensation, such tight labor market conditions potentially contributing to the potential for inflation acted as an offset.

Not surprising, oil prices were in focus yet again. However, after plunging as much as 1.8% in early trading, cold weather forecasts renewed enough enthusiasm for the oversold commodity to close it at session highs. Crude for February delivery finished up about 2% and back above $52/bbl, reigniting some optimism about Energy's earnings potential but when it was all said and done, merely added to the market's overall sensitivity and nervousness about holding onto recent gains. DJ30 -5.44 DJTA -1.0% NASDAQ -18.36 SOX -0.8% SP500 -1.28 XOI +1.0% NASDAQ Dec/Adv/Vol 1680/1285/2.31 bln NYSE Dec/Adv/Vol 1561/1720/1.52 bln

3:30 pm : All three major averages continue to languish in negative territory, spearheaded by further consolidation throughout Tech. The influential sector is now down 1.4%, nearly halving its year-to-date leading advance. Intel (INTC 20.84 -1.46) is now down 6.5%, easily pacing the way among the 15 other Dow components losing ground. Hewlett-Packard (HPQ 42.41 -0.79), which was at a new all-time high just two sessions ago, ranks second with a 1.8% decline. A reversal in Microsoft (MSFT 31.06 -0.09) within the hour and a nearly 1.0% decline in IBM (IBM 99.95 -0.87) are also exacerbating the lack of enthusiasm for tech companies, especially ahead of Apple's (AAPL 95.63 -1.47) Q1 report after the close.DJ30 -10.45 NASDAQ -19.81 SP500 -1.85 NASDAQ Dec/Adv/Vol 1593/1324/1.85 bln NYSE Dec/Adv/Vol 1406/1875/1.20 bln

3:00 pm : Sentiment continues to deteriorate as the indices extend their reach to afternoon lows. Meanwhile, San Francisco Fed President Yellen has recently said that current Fed policy is "well positioned" to bring inflation down and that the economy is generally on a glide path to a soft landing. However, just as Yellen also said falling oil prices are easing inflation pressures and could boost growth in 2007, oil prices closed at session highs. Crude for February delivery finished up about 2% and back above $52/bbl as weather conditions appear to be headed toward below-normal temperatures. DJ30 -11.61 NASDAQ -17.46 SP500 -1.02 NASDAQ Dec/Adv/Vol 1500/1393/1.70 bln NYSE Dec/Adv/Vol 1349/1892/1.11 bln

2:30 pm : Absent a market-moving catalyst most of the afternoon, it appears as though today's last economic report isn't exactly providing the ideal perspective on the economic outlook. At the top of the hour, the Fed's Beige Book showed that most districts reported modest growth, with expanding manufacturing activity contradicting much of the prevailing wisdom about near-contractionary levels seen in some data points. However, since some districts also noted that certain business lines experienced wage increases and are concerned about increases in the benefit portion of compensation, such tight labor market conditions potentially contributing to the potential for inflation are currently acting as an offset. DJ30 +2.25 NASDAQ -13.29 SP500 -0.27 NASDAQ Dec/Adv/Vol 1468/1403/1.53 bln NYSE Dec/Adv/Vol 1167/2067/1.0 bln

2:00 pm : More of the same for stocks as the blue-chip averages and the Nasdaq continue to trade in opposing directions. The tech-heavy Composite continues to be plagued by a sell-off in two of the index's most influential components -- Intel (INTC 21.05 -1.25) and Cisco Systems (CSCO 27.18 -0.86). The latter is down more than 3% after its was recently downgraded at Merrill Lynch while the disappointing margin guidance from Intel still earmarks the bellwether as today's worst performing Dow component (-5.6%).

Meanwhile, investors are awaiting the release of the Fed's Beige Book, which will be out momentarily. The report will be used at the Jan 30-31 FOMC meeting to help policy makers formulate their views on business conditions compiled from the 12 regional Federal Reserve banks.DJ30 +14.92 NASDAQ -6.96 SP500 +1.92 NASDAQ Dec/Adv/Vol 1380/1490/1.37 bln NYSE Dec/Adv/Vol 1142/2079/930 mln

1:30 pm : Range-bound trading persists in stocks as investors sift through the day's first round of Fed speak. However, since Fed Governor Mishkin did not discuss the economic outlook in the prepared text of his speech, the market's response has been relatively muted. On a positive note, Mishkin did say that he thinks "central banks can take steps to ensure that sharp movements in the prices of homes or other assets do not have serious negative consequences for the economy."DJ30 +14.53 NASDAQ -5.48 SP500 +1.97 NASDAQ Dec/Adv/Vol 1366/1480/1.26 bln NYSE Dec/Adv/Vol 1130/2060/850 mln

1:00 pm : Not much has changed since the last update, even as Financials becomes the latest sector to turn the corner. Despite the rate-sensitive getting no assistance from Treasuries, which are still trading slightly lower, turnarounds in a few key components (e.g. BAC, JPM, and MER) are providing a floor of sector support. In fact, further deterioration in Technology suggests some rotation out of the likes of Semiconductor (e.g. INTC -5.3%, BRCM -1.5%), Hardware (e.g. HPQ -1.3%, AAPL -1.3%, DELL -1.2%) and Networking (e.g. CSCO -2.6%, TLAB -2.3%) and back into select Banks and Brokers.DJ30 +20.20 NASDAQ -4.85 SP500 +2.63 NASDAQ Dec/Adv/Vol 1329/1488/1.17 bln NYSE Dec/Adv/Vol 1158/2016/776 mln

12:30 pm : The market enters the afternoon session on an improved note. The Industrials sector recently climbing into positive territory is the most noticeable reason why the blue-chip indices are now in the plus column. After a downwardly revised 0.1% decline in November, December industrial production rebounding to the tune of 0.4% earlier, as manufacturers output checked in with the strongest gain (+0.7%) since June. That has been applauded by investors especially given the recent stall in factory orders. Notable gainers include CAT (+1.7%), EMR (+1.8%), DE (+1.8%) and ETN (+2.2%). With Transports consolidating recent gains, the sector is getting an additional lift from Parker Hannifin (PH 84.28 +5.91). The stock is up 7.5% after management said Q2 net income soared 50% and then raised FY07 guidance. DJ30 +15.90 DJTA -0.3% NASDAQ -3.85 SP500 +2.57 NASDAQ Dec/Adv/Vol 1325/1452/1.06 bln NYSE Dec/Adv/Vol 1181/1966/698 mln

12:00 pm : Stocks are trading modestly lower midday as market sensitivity following recent gains is exacerbated by a questionable PPI report disappointment from a tech bellwether. It is worth noting, though, that mixed market internals lend little conviction on the part of sellers.

Weighing most heavily on overall sentiment, as evidenced by its ability to impact all three major averages, is Intel (INTC 21.14 -1.16). The stock has plunged more than 5% after management said gross margins will narrow in 2007 following Q4 results that weren't inspiring enough to justify a run that left it as this year's best performing Dow component a day earlier. With the market pricing in expectations for better than expected tech earnings and guidance over the last few months, Intel's disappointment leaves investors questioning valuations and profit prospects throughout Technology, today's worst performing S&P sector.

Even though there have been sharp fluctuations in the PPI data over the last two months, the Labor Dept. today showing that Dec. core producer prices rose a slightly higher than expected 0.2% leaves the year/year rate at a worrisome 2.0% for first time since Sep. 2005. While we believe it is wrong to draw too much of a conclusion from a few monthly PPI numbers, the report has raised concerns that tomorrow's more influential CPI data may also diminish the likelihood that the Fed will cut interest rates anytime soon.

Not surprising, oil prices are again in focus. However, after tacking as much as a 1.8% decline onto Tuesday's 3.4% sell-off earlier, some short covering now leaves the commodity relatively unchanged, which is reigniting some optimism about Energy's earnings potential. In fact, the sector's rebound (+1.1%), coupled with Health Care eclipsing Technology as this year's best performing S&P sector (+3.0%), are big reasons why the indices aren't down much more than they are.

Meanwhile, Dow component JP Morgan Chase (JPM 48.21 -0.18) topped Wall Street expectations, which further plays into our Overweight rating on Financials. However, with JPM shares near multi-year highs in anticipation of a solid report, the stock is under some modest selling pressure and contributing to the absence of upside leadership from the S&P 500's most influential sector. BTK +0.1% DJ30 -8.73 DJTA -0.2% DJUA +0.2% DOT +0.1% NASDAQ -7.19 NQ100 -0.1% R2K +0.1% SOX -0.5% SP400 +0.2% SP500 -0.09 XOI +1.0% NASDAQ Dec/Adv/Vol 1415/1355/912 mln NYSE Dec/Adv/Vol 1367/1747/600 mln

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