Dow up 202 on hopes for debt-ceiling resolution

Apple profit jumps 121%; shares briefly top $400. Stocks soar as a Senate budget plan wins cheers from Wall St. IBM's earnings start the rally. Goldman Sachs disappoints. Zillow goes public.

By Charley Blaine Jul 19, 2011 1:32PM

Charley BlaineUpdated: 10:20 p.m. ET 

 

The Dow enjoyed its best day in seven months today, thanks to positive signs in the debt-ceiling debate and strong earnings from IBM (IBM) , and then the icing on the cake arrived in the form of Apple (AAPL).

 

The tech giant reported that fiscal-third-quarter earnings more than doubled from a year ago on the strength of a 142% gain in iPhone sales and a 185% gain in iPad sales. Shares briefly pushed past $400 in after-hours trading.


The company said earnings jumped 121% to $7.89 a share as revenue jumped 75% to $28.6 billion. The consensus estimate had been for earnings of $5.85 a share and revenue of $25 billion.


The shares had finished up 0.8% to a record $376.85 in regular trading. Trading was halted ahead of the report. When trading reopened at 4:50 p.m. ET, the shares immediately surged to $401 but slipped back to $394, up 4.6% by 7:20 p.m.


Apple's results came after stocks enjoyed their biggest rally of the year on news that a bipartisan group of senators had crafted a $3.7 trillion deficit reduction plan that won praise from President Barack Obama. The Dow Jones Industrial Average ($INDU) closed up 202 points -- the best finish for the blue chips since Dec. 1.


The Dow gained 1.6% to 12,587. The Standard & Poor's 500 Index ($INX) added 21 points, or 1.6%, to 1,327, its best point and percentage gains since March 3. The Nasdaq Composite Index ($COMPX) rose 61 points, or 2.2%, to 2,827.  The Nasdaq's gain was its best since Sept. 1, at the start of the fall 2010 rally; its percentage gain was the best since Oct. 5.


The spending plan, devised by six senators, would cut spending, overhaul entitlement programs such as Medicare, rework the tax code and make significant changes to Social Security. Obama said "some progress" was made in weekend meetings and praised the proposal as broadly consistent with his approach. It wasn't clear if the plan would win the approval of the House of Representatives.


Investors cheered the news by quickly bidding up stock prices. Gold promptly fell below $1,600. Crude oil moved higher. The market had been rallying as IBM's solid earnings and the expected blowout earnings from Apple more than offset disappointment with a big miss from Goldman Sachs (GS) and a big loss from Bank of America (BAC)


Futures trading suggests a modestly higher open for stocks on Wednesday. The National Association of Realtors will issue their June report on existing-home sales. Earnings results are due from Dow components American Express (AXP) and United Technologies (UTX), money manager Blackrock (BLK), chip giant Intel (INTC) and telecom company Qualcomm (QCOM).


In addition, Zillow (Z) will trade for the first time. Late today, the online real-estate and home-valuation company sold nearly 3.5 million shares for $20 each in an initial public offering raising $69 million. The IPO valued that company at about $540 million.


Apple's huge quarter

Apple said it sold 9.25 million iPads, up from 3.27 million units sold a year ago. IPhone sales jumped to 20.3 million from 8.4 million units a year ago. Macintosh sales jumped to 3.95 million units, up 13.7%.


The company's gross margin, a key profit measure, rose to 41.7% from 39% a year ago.


The company said it expects $25 billion in revenue and $5.50 a share in earnings. Nobody believes it. The Street estimate is for $27.76 billion in revenue and $6.42 a share in earnings.


The earnings report came after The Wall Street Journal reported that the company's directors have started to think about a succession plan in the event that CEO Steve Jobs can't come back full time. Jobs, who has been on leave since January. Jobs told the Journal the discussions were "hogwash."


Gold takes a tumble on Washington news

Gold (-GC) was trading at $1,587.30 an ounce in electronic trading, down $14.80 from Monday. (It settled at $1,601.10 an ounce in New York trading.) Silver (-SI) was off $1.357  to $38.985 an ounce after settling at $40.22.


Crude oil (-CL) rebounded from Monday's pullback and was at $97.50 a barrel, up $1.57 from Monday.

Crude's gain pushed airline stocks lower and kept the Dow Jones Transportation Average ($DJT) somewhat in check.  GATX (GMT), which leases transportation equipment like rail cars and ships, was the leader, up 3.1% to $37.24. The index was up 64 points, or 1.2%, to 5,347.


Housing added a little cheer to the market when the Commerce Department said starts in June jumped 14.6% from May and building permits were also higher.


Energy prices -- New York close



Tues.

Mon.

Month chg.

YTD chg.
Crude oil (-CL)

$97.50

$95.93

2.18%

6.70%
(per barrel)











Heating oil (-HO)

$3.0980

$3.0777

5.15%

21.79%
(per gallon)











Natural gas (-NG)

$4.5330

$4.5460

3.64%

2.91%
(per mil. BTU)











Unleaded gasoline (-RB)

$3.1149

$3.0974

4.91%

26.97%
(per gallon)











Brent crude 

$117.06

$116.05

4.07%

23.55%
(per barrel)











Retail gasoline

$3.6780

$3.6760

3.87%

19.73%
(per gallon; AAA)












IBM leads the market higher
IBM shares were up 5.7% to all-time high of $185.21. The gain was responsible for 75 points, or 37%, of the Dow's gain.

IBM's results and outlook also set off a rally in tech stocks generally and chip stocks specifically. The Philadelphia Semiconductor Index ($SOX) was up 3.3% to 397, led by NetLogic (NETL), Broadcom (BRCM) and Cirrus Logic (CRUS).

The gains, welcome after Monday's pullback, were fairly broad. Even financial stocks overall were showing gains, although Goldman Sachs and Bank of America shares were trading at their lowest levels in more than two years.

News Corp. shares jump
News Corp. (NWSA) shares were up 5.5% to $15.79 following the appearances of CEO Rupert Murdock and his son James before a British parliamentary committee meeting today.


Both denied knowing in advance about staff attempts to hack into cell phones of a number of people, including member of the royal family, celebrities and the family of a murder victim. The scandal caused the company to shut down its News of the World tabloid newspaper and withdraw its bid for the 61% of British Sky Broadcasting (BSY) it doesn't own.


The hearing was brought to a dramatic halt after an activist attempted to hit Rupert Murdoch in the face with a paper plate covered in shaving foam. Murdoch's wife, Wendi Deng, leapt up to defend her husband and appeared to hit out at the attacker as security guards and police rushed across the room to apprehend him.

One reason for the stocks's gain is speculation that Rupert Murdoch may step aside.

IBM brings cheer to the Street
IBM credited strong sales growth across its hardware, software and services businesses for the better-than-expected quarterly earnings that it reported late Monday. IBM also lifted its full-year profit outlook to adjusted earnings of at least $13.25 a share, up from its prior guidance for earnings of $13.15 a share.


IBM's Power servers were competitive enough that the company was able to book 250 "competitive displacements" of rival equipment. That basically means Oracle (ORCL).


A welcome boost in housing starts
The Commerce Department said housing starts jumped 14.6% in June, to 629,000, from May's level of 549,000. Fueling the gain was a 31% increase in starts of apartment units. Rental demand has been strong this year. Single-family starts rose 9.4%.


Building permits also increased, by 2.5%, to 624,000, from 609,000 in May. Economists had been projecting a slight rise in housing starts to 570,000, from May's initially reported level of 560,000. Building permits were expected to dip to 609,000 in June, from May's originally reported level of 612,000.


Today's earnings results
Bank of America (BAC). Loss per share of 90 cents, down from earnings of 27 cents a year ago. Total loss was $8.8 billion. Revenue of $13.2 billion, down 55 cents from a year ago. Shares were off 1.5% to $9.57, the worst performer among the 30 Dow stocks.

Coca-Cola (KO). Earnings per share: $1.17, up 10% from 3 cents, up 33% from a year ago. Beats Street estimate by 2 cents. Revenue: $12.7 billion, up 47% from a year ago. The company expects the March 11 earthquake and tsunami in Japan will trim full-year earnings by 3 to 5 cents a share. Will buy back $2.5 billion in shares by year-end. Shares were up 3.3% to $69.32.

Harley Davidson (HOG). Earnings per share: 81 cents, up 7.4% from a year ago. Beats Street estimate by 10 cents. Revenue: $1.13 billion, up 18% from a year ago. Guidance: Expects to ship 228,000 to 235,000 motorcycles, up from earlier guidance of 215,000 to 228,000. Shares were up 8.9% to $45.11, the top performance among S&P 500 stocks.

Goldman Sachs (GS). Earnings per share: $1.85, up 137% from a year but misses Street estimate by 47 cents. Revenue: $7.2 billion, down 17.6% from a year ago. Will be cutting 1,000 jobs worldwide. Shares were off 0.7% to $128.49.

Johnson & Johnson (JNJ). Earnings per share: $1.28, up 5.8% from a year ago. Beats Street estimate by 4 cents. Revenue: $16.6 billion, up 8.3% from a year ago. Maintains full year guidance of $4.90 to $5 a share in earnings. Shares were off 0.6% to $66.72.

Peabody Energy (BTU). Earnings per share: $1.11, up 61% from a year ago. Beats Street estimate by 7 cents. Revenue: $2 billion, up 21% from a year ago. Guidance: Earnings at $1.05 to $1.25. Year ago: 99 cents. Shares were up 1.3% to $60.67.

Wells Fargo (WFC). Earnings per share: 70 cents, up 27% from a year ago. Beats Street estimate by 1 cent. Revenue: $20.4 billion, up from $20.3 billion from a year ago. Guidance: Not offered. Street expects 70 cents. Shares rose 5.7% to $28.41.

Yahoo (YHOO). Earnings per share: 19 cents before one-time charges, up from 16 cents a year ago. In line with Street estimates. Revenue after payment to ad partners: $1.08 billion, down 4.6% from ago. Outlook: Revenue: $1.05 billion $to 1.1 billion. The Street's consensus estimate has been $1.12 billion. Shares off 2.1% after hours to $14.28. They rose 1.2% to $14.59 in regular trading.

Short hits from the markets -- New York close



Tues.

Mon.

Month chg.

YTD chg.
Treasury yields











13-week Treasury bill

0.010%

0.020%

-50.00%

-91.67%
5-year Treasury note 

1.442%

1.426%

-17.79%

-28.47%
10-year Treasury note

2.891%

2.909%

-8.45%

-12.53%
30-year Treasury bond

4.196%

4.288%

-4.24%

-3.81%
Currencies











U.S. Dollar Index

75.513

75.793

1.18%

-4.76%
British pound

1.6145

1.6057

0.74%

3.45%
(in U.S. $)











U.S. $ in pounds

£0.619

£0.623

-0.74%

-3.34%
Euro in dollars

$1.42

$1.41

-1.92%

6.16%
(in U.S. $)











U.S. $ in euros

€ 0.704

€ 0.709

1.96%

-5.81%
U.S. $ in yen 

79.18

79.03

-2.14%

-2.69%
U.S. $ in Chinese

6.49

6.47

0.37%

-1.96%
yuan











Canada dollar

$1.054

$1.042

1.55%

5.00%
(in U.S. $)











U.S. dollar 

$0.950

$0.959

-1.52%

-4.76%
(in Canadian $)











Commodities

 

 

 

 
Gold (-GC)

$1,601.10

$1,602.40

6.54%

12.64%
(per troy ounce)











Copper (-HG)

$4.468

$4.403

4.33%

0.47%
(per pound)











Silver (-SI)

$40.2210

$40.3420

15.47%

30.01%
(per troy ounce)











Wheat (-ZW)

$6.9350

6.895

18.60%

-12.68%
(per bushel)











Corn (-ZC)

$6.9800

6.9625

10.97%

12.13%
(per bushel)











Cotton 

$1.0195

0.9795

-36.20%

-29.60%
(per pound)











Coffee

$2.4385

2.482

-8.10%

1.39%
(per pound)











Crude oil (-CL)

$97.50

$95.93

2.18%

6.70%
(per barrel)










 

88Comments
Jul 19, 2011 2:21PM
avatar
Stocks surge on housing starts, Wow, on the other hand wonder how many people lost their homes in this same time period to foreclosure? I guess that is not news because the traders cannot use it as BS to inflate the stock market. Take for instance oil, if it was where it should be somewhere in the 60's, our economy would be thriving, but due to Greedy Traders and Speculators, it is once again close to $100 a barrel. Gas has gone up over 20 cents a gallon in my area in less then a week. This should really help out the average Joe like myself who is striving to keep his head above water. These people know what high gas prices are doing to our country and it' people. A few people are getting rich while the rest of the country is scratching to make ends meet. These traders needs regulations to make them take physical delivery of the millions of oil futures they are buying electronically so they will be forced to pay storage fees, etc, then see how many futures they buy ahead. The playing field needs to be tipped the other way for a change.
Jul 19, 2011 2:52PM
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Once again, news of a purported deal fails to give the reader any details. For instance, wtf does a "rework of the tax code" actually mean? It could mean something good for tax payers or another bend over and take it for the tax payers. Then there are the significant changes to Social Security. What does that mean? Should seniors go and stock up on dog food again?

Finally, I absolutely resent it when the media refers to things like Medicare as an "entitlement". Hey moron look up what entitlement means. I don't know about you but I paid into this "entitlement" for many years so I guess I am damn well "entitled" to what I paid for.  This BS is just so bogus it's ridiculous.

Jul 19, 2011 2:00PM
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So stocks are up on the fact that our credit card may get a higher limit? Again, Wall Street is not in touch with reality. Thumbs down
Jul 19, 2011 3:14PM
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Isn't it funny that the ceiling is never lowered!?  As soon as it's raised, all of the politicians see dollar signs and work as fast as possible to spending more than the limit and then complain later when it was the other politicians that increased spending.
Jul 19, 2011 3:00PM
avatar

Maybe they can overhaul social security so public workers and the folks making the laws will pay into it. Then I would respect  those criminals in Washington a little bit more.

 

How much do you want to bet that most of the debt reductions won't happen in the next few years? Maybe I'm cynical in my views of Congress but they haven't shown me they want to balance the budget and pay down the debt.

 

 

Jul 19, 2011 3:13PM
avatar

Both parties are so hopelessly out of touch with main street. Anyone who has been paying attentions knows that Wall street is their true master. In the end a meaningless compromise will come into play to raise the debt limit. It will buy us a little more time is all.

 

I'm so sick of this BS!

avatar
I guess the stock buyers do not understand that a mere $3.5 trillion bite into a $20 trillion deficit over 10 years is not going to help our national debt. 

Pretty much it's too little way way way too late folks.

We are so doomed.
Jul 19, 2011 3:37PM
avatar

but we can not pay down the debt at the expense of the working people and retirees

 

Jul 19, 2011 2:58PM
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I can't wait to see the bogus deal. Probably the only thing of significance will be the politicians found another way to borrow money with meaningless cuts. Like will save a couple of trillion dollars in year 2028 based on an unattainable project ion. But the increased borrwing today will play a significant role in this far out savings event.

 

Been there, done that, business as usual.

Jul 19, 2011 3:31PM
avatar

Wall Street Cheers America Jeers!  Good news everyone!  The debt ceiling goes up and so do energy prices and with that being said, everything else goes up!  Is that some distorted way of seeing this as good news?  Remember the 60 million barrel dump to force speculators out?  The price of oil dropped and for a brief glimmer of a moment people had more discretionary income and it showed on the indices across the board.  Anyone that says oil is tied to the value of the dollar is full of it.  If the dollar goes up oil goes up, if the dollar goes down oil goes up!  If this DJIA push from this news is so damn good why aren't people leaving commodities as investments?  Because nobody believes in this surge.  This is just a quick buy-sell moment on the ticker probably proliferated by some investment banks and hedge fund managers.  Oil and gold continue to be better than stocks, t-bills, bonds, and the such to harbor safe money in.  For once though I would like to see somebody buying oil as a commodity take delivery of it.  That would stop speculation.  How many suits have a place to store a million barrels of oil? 

Jul 19, 2011 2:55PM
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When a business spends more than it can afford (think Enron) no one screams "they failed because we did not give them enough of our hard-earned money".  But, when our government continually FAILS, many think that the answer is that our government failed because we did not give them enough of our money (and our kids and grandkids money) so they could be successful.  Increasing the debt ceiling would be THE definition of insanity!  STOP THE INSANITY
Jul 19, 2011 2:43PM
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So they are going to overhaul the Social Security - the little that we get for paying over 12% of our income entire life, haha. Are they going to overhaul the pensions of the public workers? I admit that this is more of problem for the local governments, but still... 
Jul 19, 2011 2:15PM
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All this is my friends, is yet another day in phonyville. More lies to beef up something that in reality does not even exist. The stock market is nothing more than a shell game, or the crane game you see at Chucky Cheese, where if you can lift the Pokémon out of the plastic bin, then you get to keep it. The odds of winning in either is about the same...ASTRONOMICAL.!!!
Jul 19, 2011 3:26PM
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Hard choices are going to have to be made, now or later.  You can't keep spending more than you make.  No matter what the American people are going to have to understand we are going to pay and pay big when the time comes.  Budget cuts need to be made now not later.  Of course if the government would do their jobs and cut all of the useless wasting of OUR money the cuts wouldn't have to be so deep.  But that's NEVER going to happen!!!
Jul 19, 2011 3:27PM
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wow!!! we can borrow more!!! its like u are in foreclosure....both unemployed....and ur credit card provider ups ur limit!!!

happy days are here again!!

Jul 19, 2011 5:19PM
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More proof that the Market does not reflect the actual condition of the economy or whats happening to the other 80% of the people.

I guess gas will go up  more this afternoon, again.

Jul 19, 2011 3:57PM
avatar

Fellucio-

Amen- tired of all this doom and gloom...reminds me of the 1970's, when the USSR, the Saudi's or Japan (pick one) were going to crush us...well, they didn't.

 

Name a decade, and I'll name the villian that was going to end America. Still here and standing, thank you.

 

Live in fear, or live.

Jul 19, 2011 3:49PM
avatar
Kick the can down the road. We all know the can is an inflation time bomb. Stocks are up - hurray. Next president gets inauguration present from last president which is guaranteed to turn hair gray. We knew they would not cut their own pay checks off - surprise - deal in the making.Sarcastic
Jul 19, 2011 3:17PM
avatar
Drown happy Wall Street. Keep debt going until the the dollar ain't gonna mean squat! Then what are you gonna steal? Air?
Jul 19, 2011 6:38PM
avatar

I'm old enough to remember the well-known quote from the late Senator Everett Dirksen (R - IL):

 

"A billion here, a billion there, pretty soon you're talking real money."

 

Of course now you need to substitute trillion for billion.  It just show how far we've come.

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