Evening Market Update

Stocks Shrug Off Bad Apple News and Citi Concerns

After a choppy start to the trading session, stocks managed to break out to the upside and kick-off the holiday-shortened week in the green. Traders were cautious at the opening bell following word that Apple’s CEO and co-founder Steve Jobs will be taking another leave of absence, and on reports from Citigroup that 4Q earnings fell short of analysts’ expectations. However, sentiment recovered, and Dow member IBM beat the Street’s EPS and revenue target after the closing bell rang. In other equity news, Delta Airlines reported lower-than-expected 4Q earnings, while Comerica announced an agreement to acquire Sterling Bancshares for $1.03 billion. Domestic economic news was highlighted by an expansion in manufacturing in the New York region, as well as a report from the NAHB Housing Market Index that showed homebuilder sentiment remains depressed. Treasuries finished the day lower.

The Dow Jones Industrial Average advanced 51 points (0.4%) to 11,838, the S&P 500 Index rose 2 points (0.1%) to 1,295, and the Nasdaq Composite gained 11 points (0.4%) to 2,766. In moderate volume, 1.1 billion shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. Crude oil fell $0.31 to $91.23 per barrel, wholesale gasoline lost $0.01 to $2.48 per gallon, while the Bloomberg gold spot price advanced $4.50 to $1,367.15 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—fell 0.5% to 79.00.

Shares of Apple(AAPL $341) finished lower after CEO and co-founder Steve Jobs informed employees in a Monday e-mail that he will be taking another unexpected leave of absence from the company in order to focus on his health. The leave is the third time that Jobs has had to take time away from his role at the company as a result of health issues, and no timeframe of his return was given. Jobs will maintain his seat at the helm of the tech firm, but day-to-day operations will be handled by COO Tim Cook in his stead. AAPL is also set to release its fiscal 1Q results after the close today, where analysts are forecasting EPS of $5.34 on sales of $24.4 billion.

Dow member IBM (IBM $151) also reported diluted earnings of $4.18 per share after the close, which beat the Street’s estimate of $4.08 per share. The information technology company posted revenue of $29.0 billion, compared to the $28.26 billion expected. The company also provided healthy guidance for 2011. Shares of IBM were higher.

Citigroup (C $5) swung to a profit, reporting 4Q earnings of $0.03 per share, but short of the $0.07 forecasted by analysts, as the third-largest US bank posted $1.1 billion in charges related to a tightening in its credit spreads. Revenues more than doubled to $18.37 billion, but the figure was also below analysts’ expectations, which called for revenues of $20.4 billion. Revenues from its fixed income division fell from $1.68 billion to $1.48 billion, while stock-trading revenue rose from $31 million to $596 million. The profit marks the first such since CEO Vikram Pandit took the helm in 2007, after navigating the bank through massive losses and a taxpayer-funded $45 billion bailout during the 2008 financial crisis. Shares traded over 6% lower.

Shares of Delta Airlines(DAL $12) finished lower after it posted a 4Q profit of $0.19 per share ex-items, short of the $0.24 analysts polled by Bloomberg were expecting the airline to report. Revenues for the quarter increased 14% to $7.79 billion. The carrier’s results were hampered by a 13% rise in fuel expenses, as well as expenses related to its 2008 purchase of Northwest Airlines. Looking ahead, DAL said it sees a 1-3% increase in operating margin for the current quarter, but it did not provide a per share forecast, whereas analysts are anticipating a 1Q loss of $0.06 per share.

In M&A news, Comerica Inc. (CMA $39) agreed to acquire Sterling Bancshares Inc. (SBIB $9) in an all-stock deal valued at $1.03 billion. SBIB shareholders will receive 0.2365 shares of CMA for each share of SBIB owned, which values SBIB at approximately $10 per share. CMA said the acquisition fits its strategy of geographic diversification into stronger areas of the country, including Texas and the Midwest. Shares of CMA were lower, while SBIB shares traded higher.

Manufacturing remains in expansion mode, housing still suffering

The Empire Manufacturing Index, a measure of manufacturing in the New York region, rose in January to a level of 11.92, compared to the estimates of economists, which expected an increase to 12.50, from the previous month’s revised level of 9.89. The index remained in expansionary territory by posting a reading above zero, the demarcation point between contraction and expansion. The report is the first major piece of data looking at manufacturing conditions in January, while on Thursday, the Philly Fed Manufacturing Index will be released, expected to decrease from 20.8 in December to 20.4 in the current month, providing further insight into the health of the sector.

In other economic news, the NAHB Housing Market Index, a gauge of homebuilder sentiment, remained at a level of 16 for the month of January, below the 17 expected by economists polled by Bloomberg. Any reading below a level of 50 indicates more respondents feel conditions are poor.

Treasuries finished mostly lower on the manufacturing and housing data, with the yield on the two-year note flat at 0.58%, the yield on the 10-year note 4 bps higher at 3.36%, while the 30-year bond yield gained 3 bps to 4.56%.

While the US economic calendar started the holiday-shortened week on the light side, traders will get several other readings, particularly on the health of the housing market, starting with tomorrow’s housing starts, which remain subdued, and are expected to fall 0.9% m/m in December to an annual rate of 550,000 units, while building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, are forecasted to gain 2.0% m/m to 555,000 units.

Additionally, Thursday brings the December reading on existing home sales, which reflect closings from contracts entered one to two months earlier and are forecasted to rise 4.1% m/m to an annual rate of 4.87 million units after gaining a lower than expected 5.6% in November.

The only other release on tomorrow’s US economic calendar is MBA Mortgage Applications.

Euro finance officials discuss specifics of bailout fund

Euro-area debt concerns were eased somewhat after finance officials met in Brussels yesterday to discuss ways the near $1 trillion bailout could become more flexible in providing aid to struggling nations. While not completely ruling out the notion of expanding the size of the rescue fund, the idea was shelved for now. After the gathering, European Union Economic and Monetary Affairs Commissioner Rehn said, “We shall improve our current existing financial backstops so that the so-called market forces cannot have even the slightest doubt about our capacity to act even in the most stressed scenarios.” The pledge outshined some mixed economic news in the region, as consumer prices in the UK rose to an eight-month high and above economist expectations on an increase in food and fuel prices, while retail prices in the nation also increased compared to the prior month but matched expectations. Elsewhere, the German Zew survey of economic conditions moved modestly higher from 82.6 in December to 82.8 in January, but it was short of the 83.7 expected by economists.

Asia/Pacific economic news was highlighted by a plethora of reports out of Japan, as both industrial production and capacity utilization rose, department store sales deteriorated, and machine tool orders increased.

Back in the Americas, the Bank of Canada voted to keep its benchmark interest rate unchanged at 1.0%, where it has stood since September of 2010. Policy makers also boosted their economic growth estimates for 2011 and 2012, while also stating that future interest-rate hikes would be “carefully considered,” due to the threat posed by a strong currency and the Euro-fiscal crisis on Canada’s recovery.

The lone release on tomorrow’s international economic calendar will be Australian consumer confidence. Additionally, the Brazilian Central Bank will meet to discuss monetary policy and is expected to increase its benchmark interest rate.