Stocks gain on strong jobs, services reports

US companies expand their workforces far more than expected. Qualcomm will buy Atheros for $3.2 billion. A gauge of service-sector activity rises in December.

By TheStreet Staff Jan 5, 2011 8:33AM

TheStreetWall Street © Comstock Images/agefotostockBy Melinda Peer, TheStreet

 

Updated at 12:30 p.m. ET

 

Stocks swung into positive territory Wednesday as better-than-expected reports on jobs and the service industry overcame declining commodity prices.

 

At 12:30 p.m. ET, the Dow Jones Industrial Average ($INDU) was up by 42 points, or 0.4%, at 11,733. The S&P 500 ($INX) was up by 5.7 points, or 0.4%, at 1,275 and the Nasdaq ($COMPX) was ahead by 16.7 points, or 0.6%, to 2,696.

  

A stronger U.S. dollar weighed on commodities and commodities-related companies. Freeport-McMoRan Copper & Gold (FCX) was down 0.4% to $118.26. Aloca (AA), Chevron (CVX) and ExxonMobil (XOM) were among the Dow's biggest laggards.

The dollar strengthened against a basket of six currencies, with the dollar index up by 1.1%.

 

Financials were among the session's best-performing stocks, with Bank of America (BAC), JPMorgan Chase (JPM) and American Express (AXP) topping the Dow.

 

Automated Data Processing (ADP) said companies added 297,000 jobs in December after adding 92,000 in November. Economists had forecast an increase of 100,000 positions, according to Briefing.com.

 

Outplacement company Challenger, Gray & Christmas said downsizing activity fell to its lowest level since 1997 as job cuts of 32,004 in December were down 34% from November and down 29% from the same month a year ago.
 

The Institute for Supply Management said its nonmanufacturing index for December rose to 57.1. Wall Street expected the service-sector gauge to have risen to 55.7 from 55 in November.

 

In company news, Qualcomm (QCOM) agreed to buy mobile chip-maker Atheros Communications (ATHR) for $3.2 billion, or $45 a share, a 22% premium over Atheros' Tuesday closing price. Qualcomm shares were up 2.2% at $52.04, while Atheros stock was climbing 1.1% to $44.47.


Family Dollar Stores' (FDO) shares were falling 8.1% to $45.31 after the discount chain's fiscal-first-quarter profit of 58 cents a share fell short of estimates of 61 cents.

 

Shares of Mosaic (MOS) were up 2.8% to $77.12 after the fertilizer-maker beat second-quarter profit expectations late Tuesday and said market conditions for 2011 were strong.

 

Shares of Autodesk (ADSK) were up 6.6% to $41.08 after Goldman Sachs (GS) upgraded the software company to "buy" from "neutral." 

 

The Energy Information Administration said crude oil inventories in the week ended Dec. 31 fell by 4.2 million barrels. Analysts polled by Platts forecast a drop of 1.25 million barrels. Late Tuesday, the American Petroleum Institute said supplies dropped by 7.51 million barrels.

 

The February crude oil contract was trading $1.10 higher at $90.39 a barrel.

 

The February gold contract was down by $2.70 at $1,376.10 an ounce.

The benchmark 10-year Treasury note weakened by 18/32, lifting the yield to 3.409%.

 

Hong Kong's Hang Seng rose 0.4%, while Japan's Nikkei declined 0.2%. London's FTSE was adding 0.2%, and the DAX in Frankfurt was down by 0.8%.

 

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97Comments
Jan 5, 2011 11:16AM
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I read this morning where the Phrase "This is the people’s House." was uttered by the right hon Comrade John Boehner.  I remember one time in my youth I heard that phrase before. Shortly after all the people started calling themselves a different titles as stated above.

 

There are several examples of the Peoples' countries, such as the Peoples's Republic of China, Democratic People's Republic of Korea. So with this in mind, Please permit me to bid each and every one of you a hearty Good Morning Comrades on the eve of the real communist takeover of America. Comrade Boehner has spoken.

Jan 5, 2011 10:19AM
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I think what Brutus meant to say is:

Budget? We don't need no stinking budget.

Jan 6, 2011 8:53AM
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“I would also disagree that management effectively compels employees to get into debt to stay even.”

It is called economic duress and it is what happens when wages are being suppressed flat even with mild inflation 4% and easy but expensive credit is being offered. Families with mouths to feed and tight budgets find ways, but not always good way to meet their needs.

 

Now, I can understand two or three years of flat wages but fifteen while CEO’s are showering themselves lavishly with obscene packages at a time of historically high productivity gains. Please!!!  

 

I like to draw a supply and demand curve, make vertical dashes downward from the equilibrium to a point, than draw more dashes back to the labor supply curve. I point out that the dashes above the point is the CEO’s second beach house and the dashes back to the supply curve is their retirements and kid’s braces. The distance back to the equilibrium is how much harder they will be working to meet production quotas arbitrarily set by management to be achieved with fewer people. I’m sure you realize I’m describing a classic labor shortage scenario at a given wage only the shortage was manufactured through wage suppression and inflation. You know the management motto of the last decade, “We have to do more with less.”

 

Not all companies, but all the ones I had to do business with.  

 

I like where you are heading with capital gains. Flattening the tax code to encourage investment by discouraging speculation is an idea that’s time has come. Just eliminate short term capital gains preferences all together and tax it at the normal rate. Tax it as the gambling income that it is and increase the long term capital gains benefits for real investments like IPO’s. A lot of the market volatility will quiet down real quick and corporate officers will have no incentive to pay themselves in stock if they don’t have the long term health of the company guaranteed.

Jan 6, 2011 4:44AM
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Continued since there's now a 4K charactor cap apparently...

 

 

But if the workers don't increase their consumption and wages hold there won't be a problem.  If their real wage fell and the labor market won't pay a higher real wage, it means it's time to invest in some additional skills.  That's another point of allocative efficiency that mild boom/busts carry.  People can get skills, but if they can't keep up during a bust, it means their skills are mismatched with what they're doing.  As an aside, that is an area I feel like unions have done a major disservice to their members.  The UAW should have been offering training for everyone to be able to transition out of the automotive sector the moment it became apparent that automation was going to displace a large number of workers.  Trade unions, at least around me, are good about that.

 

I agree with you.. the speculation adds no value (neither do any secondary market actions, short term speculation or long run holdings for that matter) and speculators just take a potentially mild boom/bust and make it severe.  It's problematic, but I also don't know a good way to stop it.  I suppose we could say that ultra-short term positions get taxed at a much higher rate than normal income and that you can't take a capital loss on positions held for less than a month.

Jan 6, 2011 4:43AM
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Disillusioned:  My management style, and what was taught for my MBA (2006), is that people go to work to do a good job.  Management's job isn't to be supported by the front line workers, it's to support the front line workers and make sure they have everything they need to accomplish their jobs.  I've been very vocal that I want people to challenge me, and that my main job is to make sure they have the training, coaching, and support to do their job.  Through the 80s there was certainly a greater mentality that labor and management were to be adversaries and that doesn't lead anywhere useful.  My school and prior mentality was/is that it's a partnership.

 

Now workers are running scared because there's high unemployment.  Go back 4 years and people were a little more bold about demanding increases if they felt their production was worth it.  It's the same kind of ebb and flow the businesses get.  They can pass price increases along to customers easily while things are flush, but it's much harder to do so when things are tight.  Some of that wage stagnation you refer to, and one of the high points of inflation I've referred to, is that wages for jobs don't necessarily always increase.  In fact, lower skill or highly rewarding jobs should be seeing real wages decrease as more people line up to do them.  That's an unfortunate reality of labor markets.  The part I point out that inflation helps is that real wages can fall without the nominal wage decrease.  Nominal wage decreases carry a lot of psychological costs and severe problems meeting debt obligations while real wage decreases minimize that.

 

I'm confused what you're referring to by the interest rate system.  Banks offer an interest rate because they need people's savings in order to lend to borrowers.  That's what a bank originally was, a vehicle to indirectly invest in a well diversified loan portfolio, that is now insured and therefore quite a bit more stable.  We don't have to worry about banks being insolvent and taking our money with them, although there are some recent examples of paniced people withdrawing large sums of money from a few well known banks.  So I'm not sure where you're talking about the cost being external.  The proceeds from loans fund my savings account because a portion of my savings is going to fund the loan.  If someone doesn't want to be a part of that system, they can always keep cash in a mattress.  Or they can save with a bank that maintains tighter lending standards.  It's getting easier to shop since so many credit unions have opened their doors to anyone.

 

I would also disagree that management effectively compels employees to get into debt to stay even.  Wage increases always lag behind production.  Even the most benevolent employer will hold back wage increases or hiring because those actions can't be reversed easily.  Unfortunately upper management does keep a substantial portion of the new production value for themselves (again, they should be taxed accordingly to allow the necessary safety net and make sure workers have discretionary income via reduced taxation) or invest it in the business.  I'll be the first to say that the income gap is a serious problem, and that we're going to run into problems where people in the pin factory can't afford the pins they're making, and I was really hoping that the non-binding stockholder vote on executive compensation would curb that.  Wasn't expecting it to, but I was hopeful.

Jan 6, 2011 3:09AM
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someone, I like your perspective!

It is breahtaking sometimes, (sometimes maddening).

It's a virtual meeting place of alternative realities. 

Thank you sir, I’m glad you find my feats of mental masturbation stimulating.   

 

Most people today live in a world of propaganda induced coma. Even the institutions of higher learning indoctrinate us with their own brand of how we should think. They combine to teach sheeple to think in the confines of their nice little boxes. Each box becomes its own alternative reality. Even yours.

 

Free thinking is a virtue that I cherish and encourage. Think outside the box. Who knows, your thoughts may change the world.

 

One thing is for certain, if you stay in the comfort of your box, nothing will change.   

Jan 6, 2011 1:55AM
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VolckerFan,  “If banks, investors, or anyone with cash on hand is looking for someone to lend money to, what mechanism can or should be in place to curb it except higher interest rates to discourage the borrower?”

 

The interest rate mechanism is flawed and distributes the cost on to everyone.  How about the lender taking the initiative and just saying no? What ever happened to prudent lending practices? The schools used to preach income ratios for housing affordability and other borrowing. The banks used to live by them until usury was legalized by the industry lobbyist and banksters pushed the mob out of the lending business.

 

I agree, moderation and sustainability go hand in hand. The problem is we stopped teaching the virtues of sustainability in business schools. For decades now we have been producing MBA’s of less then stellar caliper. One of the many reasons for the demise of the middle class is what I euphemistically call the MBA mentality for short term gain. They come in to a company slashing and burning which produce short term gains with long term repercussions. They make millions and a name for themselves, than move on to destroy the next company. They transformed the grocery business by stripping working assets like commercial real estate holdings and thus paved the way for Wallmart’s ruinous competition.  

 

In their wake new management struggles to get back to a sustainable level by externalizing costs on to the employees. Wage stagnation in the face of extreme productivity gains in the last decade and half is but one example. It is not a matter of can they suppress wages. Obviously, they have learned how to collude and do it quite well. The question a sustainability minded CEO should be asking is should they be suppressing wages in the face of inflation stressing their own infrastructure. It is bad enough that they didn’t reward the productivity gains, why force your work force into borrowing to stay even and that is exactly what they have been doing; externalizing the cost of labor back on to the workers.

 

Back to booms and busts, a normal business cycle has ups and downs by nature which will produce the results you seem to cherish. A boom bust cycle is a warning sign of a major instability in the system. Boom bust is a marker to take action by the industry in its own self interests. I know we have been conditioned to accept boom busts as normal by the gamblers on Wall Street who love them, but speculators produce no economic gains and should get no positive consideration what so ever. Speculating is a zero sum game.

 

As a society, we used to reward the virtue of conservative work ethics. Hard work and productivity should be rewarded. Workers worked eight hour shifts and went to class at night to improve their productivity for the rewards. The MBA mentality has replaced the carrot with the stick. Now workers do those things just to keep their job? How sustainable do you think that will be? People who hate unions will hate where the MBA mentality has us heading. People who hate social programs for externalized workers already do. Talk about an unsustainable growth industry.      

Jan 5, 2011 9:08PM
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Bizown:  It means you were talking about the yield falling on weaker dollars, which actually would have made it a hedge against your long commodities positions.  If that were the case, you would have taken a bath on being short treasuries.  Shorting treasuries would be entrenching a position against inflation and not hedging.
Jan 5, 2011 8:44PM
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You make it sounds like you were accidentally entrenched because you thought that what happened would have the exact opposite impact than it did.

VF - I don't know what the above means exactly. Anyway, what happened is precisely what I thought would happen, which is why I got into those positions a short while(3 -4 mos.) ago and have done exceptionally well. Excepting gold and silver which I have owned for over two decades and built upon through the years. And I have long pointed out on this blog that an actual recovery here in the US could turn "fear of inflation" into real inflation in a very big hurry. But I'm sure Ben has a plan for that.  
Jan 5, 2011 8:20PM
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Being short treasuries and long on commodities wouldn't be hedging.. it's actually entrenching your position on betting on inflationary expectations.

 

Kind of like what I said was going to be happening to treasuries in early November (Posted it to Tumbleweed BTW) because of.. you know.. understanding the monetary theories and knowing that Bernanke is smart enough to know that he's not going to impact the money supply so creating inflationary expectations was the only type of demand (to enable monetary policy to work) stimulus politically possible, or just realizing that T-bills were ridiculously low and that as the economy improves people would be looking for higher yields and less safe investments.

 

You make it sounds like you were accidentally entrenched because you thought that what happened would have the exact opposite impact than it did.

Jan 5, 2011 7:39PM
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"Also, expectations of a weaker dollar with less purchasing power would make yields rise by the way"

Oh yes - that is a ride I have enjoyed for the past several months - being short  treasuries, and hedged very long with commodities. It's been an absolute gravy train. I guess not understanding all the competing money theories has kept me focused on where the "actual" money is going.
Jan 5, 2011 7:28PM
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Bizown:  Some are attrempting a strategic devaluation with an intention of increasing their exports.  This impact is historically reasonably minor.  Like I mentioned before, it's been done without serious collateral damage more than not.  As to relates to commodities, if the dollar loses value relative, the commodity gains.  When the dollar regains the same relative value, the commodity falls.

Jan 5, 2011 7:20PM
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Bizown:  I had something much longer typed up, but it was a few tangents on tangents.  Suffice to say that yes, if the dollar loses value relative to some other peg the price of commodities measured in dollars increase.  Concept called Money Neutrality.  However, current inflationary expectations (the gap between TIPS and nominal bonds) are currently running about 2.35% for 10 year, which means there's also a risk premium on that yield..  I'd say .25% is a good estimation for the risk premium.  So based on that 2.1% of the value of the dollar is expected to disappear, so commodities would increase by that 2.1% all else equal.  The fact that they are increasing by more tells a tale of fear premiums and expected future shortages.  So no, I don't see QE as being the cause of commodity spikes, unless you count QE being responsible for fear.

 

QE's impact really falls back to what I was telling you before.  If the velocity of money doesn't accept new dollars, they have a null impact.  Again, look at Japan's currency through the 90s.  Loose money out the wazoo and deflating prices.  When there isn't demand to supply monetary policy it's useless.  Dr. Richard Koo wrote a great book on the topic called "The Holy Grail of Macroeconomics."  I enjoyed it and it had a lot of explainatory value for circumstances like we're currently, but coming out of. 

 

Just an aside, I'm taking those inflationary expectations as very positive signs because it means there's an expectation that consumers will accept price increases.

 

Also, expectations of a weaker dollar with less purchasing power would make yields rise by the way.  More currency can depress interest rates by adding liquidity for lending and increase the price of bonds being bought by the central bank.  When it increases the gap between TIPS and nominal bonds it means it's creating inflationary expectations.

Jan 5, 2011 7:05PM
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VolkerFan

Would you even agree that the spendthrift economies are in competition to devalue their currency? I know you wouldn't agree with me that they are actually competing to monetize their debt, because anyone can see the insanity of that, but do you at least agree that they are devaluing their currency?
Jan 5, 2011 6:34PM
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disillusioned:

I don't think anyone will disgree that too much debt is bad.. pretty much by definition of the modifier too much.  The question becomes how much debt is the right amount?  When the "appropriate" amount of debt is reached or exceeded, what then is the proper course of action?  If banks, investors, or anyone with cash on hand is looking for someone to lend money to, what mechanism can or should be in place to curb it except higher interest rates to discourage the borrower?  And if someone is willing to pay interest rates that are way too high, doesn't that suggest that they are going to be exceptionally high risk?


As for the other part of you post, are you sayiong that letting housing depreciate would be good for everyone?  I suppose you could make a case that something could rise from the ashes, but that kind of wealth, or at least perceived wealth, leaving the system would drastically reduce consumption.  Without consumption to buy products, businesses and employees making those products also cease to be.  At the end we would certainly have a simplier, possibly more stable life, but with a severely diminished standard of living.

The boom/bust cycle isn't all bad.  Yes it's uncomfortable, and yes it rewards those with the capacity to save disproportionally. (part of the reason I feel like they should be taxed more heavily)  However recessions also have the benefit of clearing poorly performing businesses and making surviving businesses leaner.  The push to reduce costs for survival means that employees discover that they can do more, and that there may be opportunities to reexamine their processes.  Good times make people and companies fat and lazy.

Severe booms and busts need to be mitigated, but booms can help foster industry that needs to get a head of steam before they're viable, and busts will cut the poor performers and people doing things that shouldn't be done with by them or at all.  At the end there is a more efficient distribution of labor.

Really, it all boils down to moderation.  Moderate debt load, moderate boom, moderate bust, moderate consumption.  In John Bogel's book "Enough," it opens with a conversation between Kurt Vonnegut and Joseph Heller at a party thrown by a fund manager.  Vonnegut pointed out that that fund manager made more in a day than Heller did on Catch 22.  Heller responded by saying "But I have something he'll never have.  I have enough."  Something easily lost sight of, but so very important.

Jan 5, 2011 6:18PM
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Iggy,    Entitlements have altered the course of evolution.
Jan 5, 2011 6:04PM
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I have to agree with the repubs

 

If the theory of evolution was valid some of these posters would have become extinct along time ago.

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disillusioned,

The internet is an amazing place. No where else can genius, stupidity, and lunacy peacefully coexist in one

 

I like your perspective!

It is breahtaking sometimes, (sometimes maddening).

It's a virtual meeting place of alternative realities. 

Jan 5, 2011 4:20PM
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someone,

 

I'm not sure which came first, the chicken or the egg (ie, dummies with internet access, or crap on the internet making people dumber).

The internet is an amazing place. No where else can genius, stupidity, and lunacy peacefully coexist in one place.

Jan 5, 2011 3:58PM
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VolckerFan, Credit is like most things in life. Too much of a good thing can kill you. If we eat too much we get fat and suffer the health consequences. The same applies to lending. When the money changers embark in gluttony, the health of the entire system comes into question. A person that is eating too much will over tax the heart which must work outside of design specification until failure. A doctor can demonstrate this with current heart measurement technology: an electrocardiogram (ECG). When too much credit is injected into an economy the same over load process occurs. The economy’s rhythms become irregular (boom bust cycles) and if it continues long enough; death (a revolution or rebirth). The market’s behavior is an economist’s electrocardiogram.

 

Yet most economists, whose income is dependent on a certain mind set, CHOOSE to ignore the general health of the patient. A sick patient visits the doctor more often?  

 

Housing is a necessity to human survival. Mathematics is one tool that can turn a depreciating liability into an appreciating asset for lending purposes. Leverage is a dangerous tool that deserves a much higher level of respect then we currently give it. The housing market shouldn’t be controlled by a hand full of banks. Absolute power corrupts absolutely and markets don’t function well without competition.

 

You can also make an argument that leverage is beneficial when it generates an economic gain to society. You can make an argument leverage serves a useful purpose when it generates a return on investment (an asset) in a business setting, but consumer leverage is an anchor around the consumers neck and too much will drown them. When the tide rises from lending excess they also drowned in mass. Always remember without a consumer there is no economy. The prudent strategy is not to make waves or mess with the moon’s position using leverage.

 

Marketing has made lending the driving force of the economy in perception. It is a delusion of grander. Consumer lending has become a destructive use of mathematics and societal engineering. In moderation it can be useful and in excess catastrophic.

 

It doesn’t serve the banks interests to let the biggest expense in our lives depreciate but it is in all our best interests if they did. No more boom busts. No more catastrophic wealth redistributions. No more 30 year siphoning of societies productivity into a small group of hands in exchange for fait. Labor and business will be able to better compete with developing nations that do not have an over leveraging problem. YET!

 

I’m sorry to burst anyone's bubble, but leverage is not always a good thing. We have been living in an excessive leveraged environment our whole lives. It is hard to get a bench mark under this condition, but the founding fathers knew what economic freedom felt like and they tried to warn us. How soon we forget? Smart sociopaths with an understanding of the power of mathematics are more dangerous to your indentured freedom then standing armies.   

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