By Mark Cotton, MarketWatch
Dec 13, 2005
U.S. stocks ended higher Tuesday after the Federal Reserve raised investor
expectations that its cycle of interest-rate increases may be over sooner
rather than later.
Strong gains for Pfizer, Procter & Gamble and Altria among others helped
the Dow Jones Industrial Average pace the advance.
The Dow Jones Industrial Average briefly tapped a triple-digit gain to
take it to a session-high of 10,871.51 as the market welcomed the change
in the Fed's policy statement. The benchmark index finally closed out the
session, up 55.95 points at 10,823.72.
The Nasdaq Composite Index rose 4.05 points to 2,265 while the S&P 500
Index was up 7 points at 1,267.43.
The Federal Open Market Committee, the central bank's interest-rate
setting body, voted unanimously to raise its key Fed funds rate by a
quarter percentage point to 4.25%.
But it was the major changes to the FOMC's explanatory statement, that
sent stocks higher. The committee removed language that judged interest
rates to be "accommodative," or, in other words, adding to growth.
"The Fed's continued series of never ending rate hikes has been replaced
by "some further measured policy firming is likely," said Michael Sheldon,
chief market strategist at Spencer Clarke LLC.
"Therefore, barring an unforeseen flare-up in inflation over the next
several months, the end of the current tightening cycle appears in sight
and could come as early as the first quarter of 2006."
Sheldon said the Fed has also offered investors another gauge by which to
assess its future interest rate policy. It said it will now be watching
resource utilization, which is the amount of slack in the labor markets
and the manufacturing sector.
Futures markets at the Chicago Board of Trade continue to reflect strong
odds for another quarter-point interest-rate increase when the Federal
Reserve meets in late January. Fed funds futures traders trimmed modestly
their bets for a like-sized move in March, now at 56% vs. 62%.
Dow stocks in focus
Within the Dow industrials, Pfizer Inc shares rallied to a one-month high,
up 6.5% at $22.31 after it announced a 26.3% increase in its quarterly
dividend.
Shares in Procter & Gamble ended at a 10-week high, up 2.8% at $58.51
after the household products giant lifted the lower end of its previous
forecast range for second-quarter sales and earnings.
The company said its revised profit forecast reflects a
lower-than-expected negative earnings impact related to its acquisition of
Gillette. Strength in its household and beauty units boosted sales.
General Motors Corp. fell 3.25% to $22.30 after Standard & Poor's analysts
stirred up bankruptcy fears and downgraded the automaker's debt deeper
into junk a day earlier.
Altria Group Inc. gained 2.1% to $74.03. Goldman Sachs said it expects the
stock to move higher ahead of an anticipated favorable decision in a
consumer fraud case. The decision is due Thursday.
The firm said it expects the Illinois Supreme Court to decertify class
action status in the Price/Miles "Lights" case, which alleges Altria's
Philip Morris USA unit led consumers to believe light cigarettes were less
harmful than regular brands, and dismiss the original $10 billion damages
verdict.
Hewlett-Packard Co. shares fell 90 cents, or 3%, to $29.07, after the
company gave a 2006 revenue forecast that potentially falls shy of
previous Wall Street estimates.
On the broader market for equities, advancers outpaced decliners by 9 to 7
on the New York Stock Exchange, but losers held a slim 15 to 14 advantage
over winners on the Nasdaq.
Volume was 1.78 billion on the Big Board, and 1.9 billion on the Nasdaq.
Mixed retail sales, tight inventories
Ahead of the Fed's rate decision, investors had some data to chew over.
U.S. retail sales increased a modest 0.3% for the third straight month in
November, as a rebound in auto sales offset a big decline in gasoline, the
Commerce Department said. Excluding auto sales, sales fell 0.3%, the
biggest decline in 19 months.
With the upward revision to October's sales, November's total was a bit
higher than economists' expectations of a 0.5% increase.
Also, inventories increased 0.3% in October, while sales grew by 0.8%, the
largest gain since July, the Commerce Department said. As a result, the
inventory-to-sales ratio remained at a record low 1.25, giving companies a
strong incentive to increase production and hiring. Imports are also
likely to increase. Economists had been expecting inventories to rise
0.5%.
Dollar, gold, bonds, oil
On the currency markets, the dollar saw early gains all but fade away
against its major counterparts as the Fed statement hinted interest-rates
will not rise indefinitely. Rising interest rates raise the attractiveness
of dollar-denominated assets.
At last check, the euro was flat against the dollar at $1.1946, off a low
of $1.1903. Against the Japanese yen, the dollar was up 0.05% at 119.95
after being as high as 120.44 earlier in the session.
Gold futures rose 20 cents to $524.30 an ounce in after-hours electronic
trading after the Fed's announcement. In Tuesday's regular session,
February gold closed down $7.40 at $524.10 an ounce, breaking an
eight-session winning streak.
On the bond market, long-term Treasury prices ended modestly higher,
sending yields lower as the Fed's statement hinting at an end to rising
interest rates was offset by its continuing concern over inflation in the
economy. The benchmark 10-year note was up 6/32 at 99 24/32, with its
yield at 4.53%.
Crude-oil futures ended up 7 cents to close at a five-week high of $61.37
a barrel. Earlier, the International Energy Agency raised its forecast for
2006 demand. The agency also said demand in the medium term remained
robust.
Other stocks of note
Lehman Bros. kicked off the fiscal fourth-quarter earnings season for the
brokerage sector. The investment bank posted earnings and revenue ahead of
analyst expectations, but some analysts warned the company would "likely
disappoint some of the bulls" in the market.
Morgan Stanley analysts Chris Meyer and Chetan Karkhanis pointed out that
Lehman beat the Wall Street consensus forecast by a margin of 5%, which is
less than its average beat of 21% since the end of 2002. The stock spent
much of the session trading lower, before staging a turnaround to end up
33 cents at $128.50.
Late Monday, ConocoPhillips confirmed a Wall Street Journal report it is
buying Burlington Resources Inc. for $35.6 billion to create the nation's
largest natural gas producer. The deal will help it move closer to
challenging Chevron Corp. for the No. 2 position among global integrated
oil companies based in the U.S. ConocoPhillips' stock ended down 5% at
$58.20 while Burlington shares rose 4.3% to $86.07.
Best Buy Co Inc. shares tumbled 11.8% to a one-month low of $43.94 after
the consumer electronics retailer's third-quarter earnings came in shy of
Wall Street expectations.
This MarketWatch news update is provided to you courtesy of Thomson
Financial.
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SOURCE Thomson Financial Corporate Group
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