Market participants had to wade through a heavy flow of earnings announcements this morning. None of the reports inspired an immediate change in sentiment, though, leaving stocks to trade in mixed fashion for much of the session. Still, the major indices were able to put together a broad-based advance and finish with strong gains.
Merck (MRK 30.24, +1.81) and Schering-Plough (SGP 18.91, +1.44) each announced this morning better-than-expected earnings results, driving pharmaceutical stocks 2.8% higher. Archer Daniels
Investors also got their share of disappointments. UPS (UPS 45.00, +2.58), Dow Chemical (DOW 11.35, +0.30), Aflac (AFL 22.63, -0.40), SanDisk (SNDK 8.66, -2.62),
With many big banks and financial institutions having already reported quarterly results, PNC's announcement gave investors a reminder that the financial sector remains strained. As such, investors await further clarity regarding government-led initiatives to help restore the financial system and, in turn, the broader economy. Some expect the government will create a "bad bank" to purchase distressed assets from banks to help protect against further losses. That would require the government to set a price for distressed assets, which could risk rewarding banks at taxpayers' expense, or drive further capital raises to offset write-downs if prices are too low.
The government may also be considering guarantees or loss sharing agreements, which would limit the toll of write-downs on banks' balance sheets. That could require banks to sell a stake to the government, which could further dilute shareholders. If the government takes a preferred stake, banks may be forced to issue special dividends that also drain their capital.
Investors remain mindful that any such plan will have its share of consequences. So it is doubtful that any plan will immediately drive the financial system to recovery. Still, investors anxiously await further detail, which is expected to be announced early next week.
In the meantime, Treasury released details announcing it invested approximately $1.15 billion in 42 banks as part of the Capital Purchase Program. The plan is aimed at helping banks meet lending needs and keeping credit flowing. Citigroup (C 3.46, -0.19) announced its own plans to increase lending. The financial supermarket will use roughly $36.5 billion of the TARP funds it has received for new loans.
Investors also continue to await another fiscal stimulus plan. Reports surfaced mid-afternoon indicating Republican Senators are crafting proposals to add to the package. One such feature is a temporary reduction in the corporate tax rate.
Automakers continue to struggle. Ford (F 1.96, +0.08) announced January sales declined approximately 40% year-over-year, while General Motors (GM 2.85, -0.04) reported a near 51% year-over-year drop in January sales.
Nine of the 10 S&P 500 sectors were able to register a gain as stocks closed a bit off their session highs. Financials (-2.5%) were the only sector to post a loss. The broader market's advance was bolstered by a late lift in trading volume. Trading volume had been light for much of the session, reflecting investors' apathy amid a lack of market-moving headlines. Nearly 1.4 billion shares traded hands on the NYSE this session, but that is still below the 50-day moving average.
Economic data was light this session. The National Association of Realtors reported that pending home sales increased 6.3% in December, exceeding the consensus estimate, which called for a flat reading. The hike in pending sales reflects the helpful impact of lower mortgage rates and prices. Tomorrow's economic calendar features the January Challenger Jobs Report and the January ADP Employment report. The January ISM Service Index is also due tomorrow morning.
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