By Steve Goldstein, MarketWatch
Jan 10, 2006
U.S. stock market futures pointed to a consolidation Tuesday after the Dow
industrials reached 11,000 in the last session for the first time in more than
four years, with Alcoa's weaker than forecast earnings also depressing
sentiment.
Profit taking also was seen in European and Asian markets, with Tokyo's
Nikkei 225, Frankfurt's DAX 30 and London's FTSE 100 all lower.
On Monday, the Dow industrials rose 52.6 points to 11,011, led by General
Motors after a broker upgrade. The Nasdaq Composite tacked on 13 points at
2,318 and the S&P 500 rose 4.7 points at 1,290.
"Consolidation now is probably a good thing," said Hilary Cook, director
of investment strategy for Barclays Private Clients in London.
"We would prefer that markets rise steadily rather than be too volatile,"
she added.
Besides profit taking, market sentiment may be affected by results from
Alcoa Inc., the world's biggest aluminum producer, which shed $1.32, or
4.3%, to $29.25 in Instinet pre-open trading.
The Dow component posted a sharply lower fourth-quarter profit, blaming
the weaker results on a long list of production outages, strikes and
restructuring costs.
Elsewhere, the data schedule is fairly light, with weekly chain store
sales and wholesale inventory data due for release.
The dollar was mixed against major rivals, with the yen up 0.1% after a
report in the Washington Post stating that Chinese officials are
determined to diversify their dollar holding, and the euro down 0.1% as
well.
The report, sourcing an unnamed Chinese economist, was contradicted by
comments from China suggesting that it was only future reserves that may
be diversified.
China did say it may use some of its foreign reserves holdings to buy oil.
Front-month crude recently rose 55 cents at $64.05 a barrel.
Of other companies in focus, Dow member The Home Depot edged up 5 cents to
$40.87 after announcing an agreement to buy Hughes Supply, a distributor
of construction, repair and maintenance products, for $3.47 billion, or
$46.50 a share and the assumption of $285 million in debt.
Hughes' stock shot up $6.95, or 18%, to $45.50 in Instinet.
The addition of Orlando, Fla.-based Hughes Supply more than doubles the
size of The Home Depot Supply with projected 2006 combined sales
approaching $12 billion. The deal is expected to lift Home Depot's
earnings in the first year.
Elsewhere, Credit Suisse First Boston downgraded the multi-industry sector
to market weight from overweight following strong share price gains since
early 2003.
As part of the sector call, CSFB downgraded Dow member United Technologies
and American Standard Companies to neutral from outperform, saying there's
higher upside in other outperform-rated names.
Meanwhile, Cooper Industries was upgraded to outperform from neutral. Among
the other companies CSFB likes is United Tech's larger Dow
industrials peer, General Electric.
"We believe service and diversification will drive top-line growth across
the portfolio and investors will again recognize the company's capacity to
sustain mid-teens operating profit growth and very solid organic growth
well north of its peers and two to three times GDP," CSFB said.
Among other Dow members, General Motors slipped 21 cents, or 0.9%, to
$22.20 in Instinet. The automaker is planning a new vehicle-pricing
strategy, in which it attempts to wean customers off rebates by lowering
car and truck prices, according to a report in the Detroit News.
Applied Materials edged up 4 cents to $19.56 after Morgan Stanley upgraded
the stock, and raised its price target to $23 from $17.50. The move was
part of a larger upgrade of the semiconductor capital equipment sector to
attractive from in line, due to valuation relative to the broad stock
market, less volatility in orders and earnings and likely upside in chip
making capacity.
Analyst Timm Schulze-Melander also upgraded FormFactor to equal weight
from underweight, and raised the price target to $28 from $21, but
downgraded both Novellus Systems and Photronics to underweight from equal
weight due to concerns over profitability.
Dynegy tacked on 6.6% to $5.35 in Instinet after J.P. Morgan upgraded the
energy generator to overweight from neutral, citing valuation.
Tumbleweed Communications plunged 15% to $2.60 after warning late Monday
that fourth-quarter results would fall short of expectations. In addition,
the company's chairman and chief executive, Craig Brennan, resigned
effective immediately.
Elsewhere, International Flavors & Fragrances Inc. said that it will
eliminate around 300 manufacturing, selling, research and administration
jobs, principally in its European and North American operations.
This MarketWatch news update is provided to you courtesy of Thomson
Financial.
This is Thomson Financial's Market Commentary, which is issued three times
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SOURCE Thomson Financial Corporate Group
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