Wall Street kicked off the third quarter on a positive note Wednesday as stocks advanced even though the latest economic gauges raised more questions about the timing and strength of a possible second-half recovery than they answered.
Today’s Markets
The Dow Jones Industrial Average rose 57.06 points, or 0.68%, to 8504.06, the Standard & Poor's 500 added 4.01 points, or 0.44%, to 923.33 and the Nasdaq Composite picked up 10.68 points, or 0.58%, to 1845.72. The consumer-friendly FOX 50 advanced 4.54 points, or 0.67%, to 684.01.
While the markets closed comfortably in the green, they ended well off their highs, drifting lower throughout the afternoon. Some traders scratched their heads over Wednesday's gains as the new reports were hardly all positive, revealing private employers cut another 473,000 jobs last month as the manufacturing sector recovered by less than expected and home sales grew at a glacial pace.
“I’m kind of surprised at the market's strength today. The [employment] number certainly didn’t give any more positive spin to the economic outlook,” said Michael James, senior equity trader at Wedbush Morgan Securities.
Joe Saluzzi, co-head of trading at Themis Trading, echoed that sentiment, saying: “That market has a mind of its own. The numbers weren’t great. There wasn’t anything exciting to them."
The Dow was led higher Wednesday by defensive stocks like Kraft (KFT) and Coca-Cola (KO). Only a few blue-chip stocks lost ground, led by financial companies Bank of America (BAC) and American Express (AXP).
Even though the S&P 500 capped off its best quarter since 1998 on Tuesday, the markets have largely traded sideways for the past two months as the bulls and bears battle over whether the impressive surge from the March lows is for real. While the bulls are just happy stocks have given back little of those gains, the bears see an opening.
“Sideways is the new up? I don’t know if I buy that,” said Saluzzi. “It was an impressive rally but I thought it was built on sticks. For you to get the next step up, you need to see growth and positive news.”
Mixed Economic Signals
Instead of growth and positive news, the markets received a cloudy picture on the state of the U.S. economy on Wednesday from a quartet of economic reports.
The Institute for Supply Management’s manufacturing index, which is thought to be the second-most important monthly report, climbed to 44.8 last month. That was up from 42.8 in May but below the Street’s view of 45. Still, the report marked the sixth-straight monthly increase -- the longest such streak since the aftermath of the 2001 recession -- and the highest reading since August 2008.
Home builders like Centex (CTX) and Lennar (LEN) closed mixed after the National Association of Realtors said its pending home sales index climbed 0.1% in June, slightly better than estimates. The NAR report marked the fourth-straight monthly increase in sales activity -- the longest winning stretch since 2004.
At the same time, the Commerce Department said construction spending tumbled by 0.9% in May, the fifth decrease of the last six months.
The markets shrugged off the ADP private employment report, which revealed the U.S. shed 473,000 private jobs in June, well above the 393,000 jobs economists expected to have been cut. While the number was worse than expected, the pace of job losses have continued to slow month-to-month since the beginning of the year.
The ADP data could set the bar lower for Thursday’s more-closely watched Labor Department report, which is expected to show the U.S. unemployment rate climbed to a hefty 9.6%.
Crude oil took another wild ride as the commodity gave back early gains after a new report showed a larger-than-expected jump in gasoline stockpiles. Despite a sharply weaker dollar, crude closed down 58 cents per barrel, or 0.83%, to $69.31.
Meanwhile, global auto makers disclosed their latest sales declines in a series of reports. Ford (F), which has emerged as the strongest U.S. auto maker, reported an 11% drop in sales from a year ago, the best results for any car company in more than a year. On the other hand, Chrysler said its sales tumbled 42% and General Motors suffered a 33.6% sales drop-off.
Corporate Movers
American International Group (AIG) saw its shares dive a day after the bailed-out insurer unveiled plans for a 1-for-20 stock split. Thanks to the maneuver, the onetime penny-stock is now trading at $20 per share. AIG also voted in a new slate of government-backed directors.
General Motors needs to have its “363” sale approved by the bankruptcy court by July 10, an Auto Task Force advisor testified Wednesday. If the sale is delayed past that date, the U.S. said it will cut off its debtor-in-possessor funding for the auto maker, pushing it into liquidation.
Chrysler Group’s cash burn slowed after the auto maker emerged from bankruptcy, CEO Sergio Marchionne told Bloomberg News. Marchionne, who also leads Italian auto maker Fiat, told the news agency the company isn’t looking for another partner in Europe or Asia even though it lost its bid to acquire GM's Opel business.
General Mills (GIS) beat the Street with an adjusted quarterly profit of 86 cents per share. The maker of Cheerios also boosted its full-year guidance above estimates.
Citigroup (C) raised rates on up to 15 million U.S. credit card accounts ahead of new regulations that would prevent such rate hikes, the Financial Times reported. The bailed-out New York bank has reportedly boosted rates on 13 million to 15 million cards it co-brands with retailers.
CardioNet (BEAT) lost more than one-third of its market value and fell to 52-week lows after the medical technology company slashed its 2009 outlook. CardioNet also withdrew its guidance for 2010 and 2011 amid disappointing reimbursement rates and volume growth.
Oshkosh (OSK) surged more than 25% a day after the company beat out three others by winning a $1.1 billion contract with the Pentagon to build more than 2,000 armored trucks to be used in Afghanistan.
Constellation Brands (STZ) topped estimate with an adjusted-profit of 33 cents per share even as sales tumbled 15%. The wine and spirits company also reaffirmed its full-year guidance.
Starwood Hotels & Resorts (HOT) suffered from an analyst downgrade from Barclays Capital, which predicted the entire lodging sector’s recovery will “significantly lag” an economic rebound. The firm also cut Marriott (MAR) and Choice Hotels (CHH) to “underweight” from “equal weight.”
Ball Corp. (BLL) rose sharply after the company unveiled a deal to buy part of Anheuser-Busch InBev’s packaging business for $577 million.
Global Markets
London's FTSE 100 soared 2.15% to 4340.71, France's CAC 40 gained 2.44% to 3217 and Germany's DAX advanced 2..07% to 4905.44.
Asian markets ended mixed overnight as Japan's Nikkei 225 fell 0.19% to 9939.93 and Hong Kong's Hang Seng slipped 0.81% to 18378.73 but China's Shanghai Composite rose 1.65% to 3008.15.
