Evening Market Update

Stocks Move Higher as Euro-area Debt Worries Lessen

US equities finished modestly higher, despite a brief dip into negative territory, as euro-area debt anxieties were soothed somewhat following Portugal’s denial that it will ask for bailout funds from the European Union. Adding to the serene mood, Japan announced that it will buy euro-zone debt in an effort to help in combating the crisis. A plethora of equity news was available for traders to chew on, as Dow member Alcoa reported better-than-expected 4Q earnings to kick off earnings season, fellow Dow member Intel reached a patent agreement with graphics chip maker NVIDIA, and Advanced Micro Devices announced the immediate resignation of its CEO. Elsewhere, homebuilder Lennar posted 4Q results that bested the Street and Verizon Wireless announced its long-awaited version of Apple’s iPhone. Meanwhile, retailers were also in focus as Tiffany & Co provided upbeat guidance after posting strong holiday sales, Sears Holdings offered favorable 4Q and full-year outlooks, but disappointing same-store sales at Talbots forced it to guide lower. Treasuries moved lower on the upbeat sentiment on the Street, offsetting unexpected declines in small business confidence and wholesale inventories.

The Dow Jones Industrial Average rose 34 points (0.3%) to 11,672, the S&P 500 Index was 5 points (0.4%) higher at 1,274, and the Nasdaq Composite gained 9 points (0.3%) to 2,717. In moderate volume, 944 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. Crude oil gained $1.86 to $91.11 per barrel, wholesale gasoline added $0.03 to $2.48 per gallon, while the Bloomberg gold spot price rose $6.10 to $1,381.78 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—fell 0.1% to 80.78.

Dow member  Alcoa Inc. (AA $16) unofficially kicked off 4Q earnings season, reporting $0.21 per share in profits excluding items, two cents above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 4% year-over-year (y/y) to $5.7 billion, roughly inline with the Street’s forecast. The aluminum producer said its earnings were driven by higher pricing, continued strengthening in most end markets and improved productivity, offset somewhat by a weaker US dollar and higher energy and raw material costs. The company added that in 2011, it sees aluminum growing another 12% on top of last year’s 13% improvement and it is “well positioned to outpace the recovery in the markets we serve.” Despite the results, shares were lower.

Fellow Dow member Intel Corp. (INTC $21) and graphics chip maker NVIDIA Corp. (NVDA $20) reached a cross-licensing agreement, in which INTC will pay an aggregate of $1.5 billion in licensing fees to NVDA in five annual installments in exchange for the continued access to NVDA’s full range of patents. Also, both companies agreed to drop all outstanding legal disputes between them. Shares of INTC were higher, while NVDA traded lower. Rival chip maker Advanced Micro Devices Inc. (AMD $8) was down following the announcement, which was exacerbated by a separate report that AMD’s CEO Dirk Meyer resigned effective immediately, and CFO Thomas Seifert has been appointed interim CEO.

Meanwhile high-end retailer Tiffany & Co. (TIF $61) raised its full-year outlook after its worldwide sales in the two-month holiday period ended December 31, 2010 rose 11% y/y and same-store sales—sales at stores open at least a year—rose 8% y/y. Sales in the Asia-Pacific region jumped 23% and Europe posted a 13% gain, while sales in the Americas region increased 9%. “Healthy sales” were seen across most categories, with particular strength in its fine jewelry collections. TIF now expects revenues for the full-year of almost $3.1 billion—a 14% y/y increase—and earnings between $2.83-2.88, versus the previous forecast of revenues to rise 12%, and EPS of $2.72-2.77. Analysts forecasted the company to report revenues of $3.1 billion and EPS of $2.79 for the year. Shares gave up an early advance and finished lower.

However, fellow retailer Talbots Inc. (TLB $6) lowered its 4Q and full-year EPS guidance after the company reported that quarter-to-date same-store sales are down 6% y/y. The company said although it experienced “solid selling trends” from Thanksgiving through Cyber Monday, trends deteriorated in the last two weeks of December into January. TLB was down over 15%. In related news, Sears Holdings Corp. (SHLD $75) was nicely higher after the company issued 4Q and full-year EPS guidance that exceeded analysts’ forecasts, which overshadowed a 5.3% drop in quarter-to-date same-store sales.

Elsewhere, homebuilder Lennar Corp. (LEN $20) gained solid ground after it reported 4Q EPS of $0.17, well above the $0.03 that the Street was anticipating, while although revenues fell 6% y/y to $860 million, they exceeded the $776 million that analysts had forecasted. The company said its focus on construction costs helped support its earnings and despite high unemployment, tight lending standards, and low consumer confidence presenting challenges, it is confident that 2011 will be another profitable year.

The long-awaited question of when Apple’s (AAPL $342) iPhone 4 would come to Verizon Wireless was answered today, as the carrier, jointly owned by Verizon Communications (VZ $35) and Vodafone Group Plc (VOD $27), said its version of the blockbuster smartphone will be available beginning Feb. 10. The announcement ends AT&T’s (T $28) exclusivity in selling the popular mobile device. Data plan pricing was not disclosed, but Verizon Wireless’ COO said details of such will come ahead of the Feb. 3 preorder date. Despite the news, AAPL, VZ and VOD were lower. Shares of T lost ground as well.

Small business optimism and wholesale inventories unexpectedly decline 

The NFIB Small Business Optimism Index deteriorated from 93.2 in November—the highest level since December 2007—to 92.6 in December, compared to the expectation of economists surveyed by Bloomberg, which called for the index to improve to 94.5. The decrease came as the number of firms reporting expectations of a better economy deteriorated, while those expecting to increase inventories and are anticipating higher selling prices also moved lower. However, firms planning to hire over the next three months increased and the outlook for increased capital spending gained ground.

In other economic news, wholesale inventories for November fell unexpectedly, declining 0.2% month-over-month (m/m) compared to the 1.0% increase that economists had expected. Sales rose 1.9%, with petroleum, hardware, and nondurable goods sales leading the way, while durable goods were also higher. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—declined to 1.15 from 1.17.

Treasuries finished lower as equities were higher, showing little reaction to the small business sentiment and inventories data. The yield on the two-year note rose 2 bps to 0.59%, the yield on the 10-year note was 5 bps higher at 3.34%, and the 30-year bond yield gained 3 bps to 4.49%.

Portugal debunks bailout reports

European debt concerns eased a bit today after Portugal’s Prime Minister Socrates said that the nation will not ask for a bailout from the European Union, in response to recent reports that pressure is rising for the nation to ask for aid. Also, Japan announced that it will buy euro-zone debt to help combat the debt crisis, helping ease some of the anxiety. The improved sentiment precedes Portugal’s debt auction of five and ten-year bonds tomorrow, which will be closely watched to gauge demand of the nation’s debt, helping determine if the nation will be able to handle its capital needs in the open market. However, the costs many peripheral euro-zone nations have had to pay to attract demand have grown uncomfortably higher—to rates that are much higher than economic growth, resulting in growing debt burdens.

The economic calendar across the pond was minimal, with separate reports showing UK retail sales were mixed in December, while a read on French business sentiment improved in December.

Economic reports in the Asia/Pacific region of the world were on the light side as well, with Japan’s Leading Index rising more than what economists had expected, while Chinese new yuan loans exceeded expectations, coming in at 480.7 billion yuan in December, compared to the 360.0 billion yuan that was anticipated and versus the 564.0 billion that was seen in November.

In other news in the region, the Wall Street Journal is reporting that one of China’s largest state-owned banks, Bank of China Ltd., has initiated trading in the nation’s currency, the yuan, to US customers through accounts at its US branches. The move is the first by a state-owned bank and may open up further trading in the currency and attract Chinese companies operating offices in the US.

Beige book set for release tomorrow

Tomorrow, the economic calendar will begin to heat up with the release of the Federal Reserve Beige Book, wherein Fed staffers summarize anecdotal economic data from all twelve Federal Reserve districts in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for January 25-26. After Fed members digested the data from the December Beige Book, which showed the economy continued to improve and hiring activity showed some improvement, the minutes from the December FOMC meeting showed increased confidence regarding the economic recovery, but continued concerns about the slow pace of job growth, leading to the Fed’s statement that the rate of the economic recovery “has been insufficient to bring down unemployment.” Also, the Fed maintained that it will continue to carry out its second round of asset purchases, known as quantitative easing of QE2, and tomorrow’s data will be closely scrutinized for signs that the improving economy has accelerated at a rate to prompt the Fed to change its deployment of QE2.

Other items on the US economic docket include: the Import Price index, forecast to rise 1.2% m/m in December following a 1.3% gain in November, as well as MBA Mortgage Applications.

Internationally, Germany will release annual GDP figures, the UK will disclose its trade balance, industrial production numbers will come from the euro-zone and Italy, while Canada will report new home prices. Further east, Japan’s trade balance will be release and India reports industrial production.