Tech stocks, higher rates undo a rally

The Dow sees a small gain. Amazon.com is weak; the 10-year Treasury tops 2.9%. Retail sales in October were stronger than expected. Caterpillar is buying Bucyrus for $7.6 billion.

By Charley Blaine Nov 15, 2010 3:00PM

Charley BlaineUpdated: 7:30 p.m. ET

A rally that saw the Dow Jones industrials ($INDU) rise as many as 88 points at today's open faded away entirely in afternoon trading.

The pullback was due in part to weakness in technology stocks, especially Amazon.com (AMZN) and Google (GOOG), and a sell-off in bonds that pushed the yield in the 10-year Treasury note above 2.9% for the first time since August.

The Dow finished with a 9-point gain to 11,202. The Standard & Poor's 500 Index ($INX) was down 1 point to 1,198 after rising as many as 8 points during the day. The Nasdaq Composite Index ($COMPX) was down 4 points to 2,514, and the Nasdaq-100 Index ($NDX.X) was off 6 points to 2,131.


The bond sell-off came on a news report that an official at Moody's Investor's Service said permanent extension of the Bush tax cuts could damage the United States' credit rating.


Later, Moody's threw water on the report, saying the nation's Aaa rating is stable. "We are not contemplating changing anything anytime soon, that is the bottom line," Steven Hess, senior credit officer, told Bloomberg News.


Today's pullback came after early excitement caused by Caterpillar's (CAT) plan to buy mining-equipment maker Bucyrus International (BUCY) for $7.6 billion and the government's surprisingly robust report on retail sales in October. Futures trading suggests stocks will open moderately lower.


Tuesday includes earnings from Wal-Mart, Home Depot (HD), Sears Holdings (SHLD) and Jacobs Engineering (JEC). The big economic reports are the Producer Price Index report for October and the Treasury's September report on foreign capital flows.


Amazon hit on Wal-Mart worries

Amazon.com helped sap the market's strength on worries that Wal-Mart Stores' (WMT) offer of free shipping for buying online would force price cuts and reduce the online retailer's holiday profits.

Amazon was off 4.1% to $158.90.  Wal-Mart, which reports quarterly results on Tuesday was off 0.3% to $53.95.

Google was off 1.3% to $595.47 on reports Facebook is about to start a new e-mail service.

After the close, upscale department store operator Nordstrom (JWN) shares fell 1.5% to $41.20, after the company's guidance for the 2010-11 fiscal year disappointed investors. The company expects full-year earnings of $2.60 to $2.65 a share. Analysts were looking for $2.64.


The company earned 53 cents a share in the fiscal third quarter, up from 38 cents a year ago and ahead of the Street estimate of 52 cents. Revenue was up 11.7% to $2.09 billion. Analysts had expected $2.07 billion.


Only 13 of the 30 Dow stocks were higher, led by JPMorgan Chase (JPM), up 1.2% to $40.08. Only 44 Nasdaq-100 stocks were higher.

The day's big catalysts

While the close was a disappointment, there were three big developments that initially drove the rally:

General Motors initial public offering: Originally expected to price at $26 to $29 a share, CNBC's Kate Kelly reported that there's enough demand that it may sell for $32 to $33 a share. Other reports pegged the offering price at more than $30 billion.

And there was speculation that the size of the offering may be boosted from 365 million shares. The pricing is set for Wednesday with trading expected to start Thursday.

 

GM had a collateral effect today. Ford Motor (F) shares were up 4.3% to $17, their first close at $17 or higher since May 2002. Many analysts think it is a stronger company financially than GM.

The strong retail sales report: Sales grew 1.2% in October, the Commerce Department said, more than expected. Analysts had expected a 0.7% gain. Most of the gain was in automobile sales. 

But retailers added substantially to inventories, in expectation of a decent holiday shopping season.

 

Lowe's (LOW), which reported today, was down 1.1% to $21.46. Home Depot was down 0.2% to $31.39.

The deals -- Bucyrus and Isolin: Start with Caterpillar's deal to buy Bucyrus. That reflects the expectation that the demand for natural resources will continue to grow rapidly for some time.

Caterpillar will pay $92 a share in cash for Bucyrus. Bucyrus shares jumped 29% to $89.80; Caterpillar was up 1% to $81.82. It was the second-best performer among the 30 Dow stocks on a percentage basic. Its gain did add nearly 6 points to the Dow.


Shares of Bucyrus rivals Joy Global (JOYG) and Terex (TEX) were up 7.5% to $77.77 and 2.9% to $25.13, respectively. Joy Global was the top Nasdaq-100 stock.

Separately, shares of storage company Isilon Systems (ISLN) were up 28.5% to $33.77 after the company agreed to merge with rival EMC (EMC) for $2.25 billion. EMC was off 1.2% to $21.45.

Energy prices -- New York close
 

Mon.

Fri.

Month chg.

YTD chg.
Crude oil 

$84.86

$84.88

4.21%

6.93%
(per barrel)











Heating oil

$2.3709

$2.3632

5.95%

12.07%
(per gallon)











Natural gas 

$3.8450

$3.7990

-4.78%

-30.99%
(per mil. BTU)











Unleaded gasoline

$2.1950

$2.2099

6.58%

6.92%
(per gallon)











Retail gasoline

$2.8920

$2.8910

2.95%

9.59%
(per gallon; AAA)












Dollar's up; so are gold, oil and interest rates
The surge came as a rally in the dollar failed to depress stocks of any kind. In recent weeks, stocks would rise as the greenback fell.

The dollar was higher against the euro in particular on continuing concerns about whether Ireland would need a new rescue package.

Meanwhile, interest rates moved higher. The 10-year Treasury yield was at 2.911% this afternoon, up from Friday's 2.76% and 2.4% on Oct. 6.

Crude oil settled down 2 cents to $84.86. Gold settled up $3 to $1,368.50 an ounce.

Should the Fed stop its bond-buying plan?
The Federal Reserve bought $7.92 billion in Treasury securities today as the debate over its $600 billion plan to stimulate the economy rages on.

A number of Republican-leaning economists called on the Fed to halt the program.

Dartmouth College economist David Blanchflower, a former member of the Bank of England's monetary policy committee, dismissed the criticism as wrong-headed and "dangerous politics."

The problem facing the U.S., he told Bloomberg Television today, is the lack of jobs. The White House and Congress won't deal with the issue, he noted. None of the critics has offered a credible plan to create jobs.

The Fed is stepping to the plate. "Good-on, Bernanke," Blanchflower said.

Short hits from the markets -- New York close
 
  Mon.

Fri.

Month chg.

YTD chg.
Treasury yields




 





13-week Treasury bill

0.130%

0.130%

8.33%

160.00%
5-year Treasury note 

1.493%

1.348%

26.63%

-44.42%
10-year Treasury note

2.911%

2.648%

11.45%

-24.25%
30-year Treasury bond

4.370%

4.270%

9.25%

-5.84%
Currencies







 

 
U.S. Dollar Index

78.673

78.231

1.57%

0.58%
British pound

$1.6062

$1.6134

0.05%

-0.71%
(in U.S. $)











U.S. $ in pounds

£0.6226

£0.6198

-0.05%

0.71%
Euro in dollars

$1.3592

$1.3687

-2.65%

-5.17%
(in U.S. $)











U.S. $ in euros

€ 0.7357

€ 0.7306

2.72%

5.45%
U.S. $ in yen 

83.33

82.48

3.00%

-10.39%
U.S. $ in Chinese

6.67

6.64

-0.39%

-2.31%
yuan











Canada dollar

$0.991

$0.988

0.88%

4.25%
(in U.S. $)











U.S. dollar 

$1.009

$1.012

-0.87%

-4.08%
(in Canadian $)











Commodities

 

 

 

 
Gold

$1,368.50

$1,365.50

0.80%

24.84%
(per troy ounce)











Copper

$3.9250

$3.8935

5.13%

17.29%
(per pound)











Silver

$26.0920

$25.9420

6.22%

54.89%
(per troy ounce)











Wheat 

$6.7275

$6.6925

-6.20%

24.24%
(per bushel)











Corn

$5.5550

$5.3400

-4.55%

34.02%
(per bushel)











Crude oil 

$84.86

$84.88

4.21%

6.93%
(per barrel)










 

9Comments
Nov 15, 2010 11:53PM
avatar

Active IRA Me thinks we need to end WELFARE for a whole lot of people and there not all wealthy.  We need a tax system that has no deductions for anything, one rate (10%) for the minimum level of livable income ($30-40,000) and a second rate (20%) for everything beyond a livable income.  There's nothing wrong with letting everyone enjoy the fruits of their labor or laziness no matter how much they earn. We then need to only spend the tax revenue generated and outlaw deficit spending unless there's an national emergency (famine, plague, war).  No education or health care for non-citizens.  No citizenship unless your parents entered the country legally.   Eliminate the socialism (free housing and whatever) that requires our leaders and government to devalue our currency else this class warfare will never end and may even reach a boiling point.  The Treasury should have declared a $600 billion tax holiday (10% reduction) on the first $6 trillion of income for all taxpayers (enterprises and individuals) instead of the FED buying $600 billion of debt that allows hedge funds and the likes to look for other investments  that create inflation for all of us.

 

 

 

 

Nov 16, 2010 3:40AM
avatar

Active,

For having an economics degree you sure don't know much. I suppose you should probably ask for a refund from the whichever institute of political correctness gave you that sheepskin. Liberty said he's gone 50% into TBT that would mean he did short bonds, duh.

Nov 16, 2010 1:43AM
avatar
800 thousand plus jobs created and 8 million plus jobs lost in the past 31/2 years. Yeah,.... the economy is booming with only 90% of total JOBS LOST! Eye-rolling Some of you have been eating to many kookoo puffs! Tongue out When reality finally hits you, it will be ugly! Crying
Nov 15, 2010 9:28PM
avatar

Glad I am not you,

 

How absurd, That is really the solution for everyone to declare they're are bankrupt.

 

 

Nov 15, 2010 6:58PM
avatar
Wow, Moody's talks and the market plunges.  There must be a lot of pretty dumb investors out there to be listening to Moody's.  You just have to see thier testimony in front of congress to know that they are liars.  Their "opinion" means squat.  They will rate anything AAA to please wall st.
Nov 15, 2010 4:03PM
avatar

Blanchflower is an idiot and is probably making a killing in the market just like Bernanke.  Giving the banks and Wall Street more money through QE to play with is not creating jobs, it devalues our currency and raises the prices on commodities which further weighs down an already strapped consumer.  This guy Blanchflower was on the Bank of England's monetary policy committiee and look where they are.

 

If BS was music most of these economist could form an orchestra.

Nov 15, 2010 7:48PM
avatar
Sigh, no internet for a week. Upgraded, Anyway, I have sold 1/3 of my silver position and 15% of my gold. I have put it into 50% tbt, 25% emerging market, 25% cash. what you guys think?
Nov 15, 2010 5:43PM
avatar
Bernanke & Co. got their degrees in kookoonomics 101 and are doing exactly what they were taught on how to fleece the sheep. Sick What goes around comes around to all scum of the Earth! Party
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