Evening Market Update

Bulls Take Control to Start the Week

In the hopes of rebounding from last week’s declines, the bulls pushed stocks well into the green in the first trading session of the week to finish near the highs of the day. Sentiment found support from a $10 billion increase in Dow member Intel’s stock repurchase program and the declaration of a previously-announced increase in its quarterly dividend, as well as some M&A news, with Rock-Tenn reaching an agreement to acquire Smurfit-Stone Container for about $3.5 billion. In other equity news, shares of Dow member McDonald’s saw a slight gain after it released 4Q results that were inline with forecasts, despite reporting disappointing December same-store sales numbers and concerns over food inflation, and RadioShack said that it expects 4Q EPS to come in well short of expectations and that its Chairman and CEO will resign. Treasuries finished mostly flat as the economic calendar was void of any releases today ahead a deluge of data that will come as the week progresses.

The Dow Jones Industrial Average jumped 109 points (0.9%) to 11,981, the S&P 500 Index rose 8 points (0.6%) to 1,291, and the Nasdaq Composite gained 28 points (1.0%) to 2,718. In moderate volume, 962 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. Crude oil fell $1.24 to $87.87 per barrel, wholesale gasoline lost $0.04 to $2.44 per gallon, while the Bloomberg gold spot price declined $7.00 to $1,335.68 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—fell 0.2% to 78.01. 

Dow member McDonald’s Corp. (MCD $75) reported 4Q EPS of $1.16, matching the consensus estimate of analysts surveyed by Reuters, with revenues growing 4% year-over-year (y/y) to $6.2 billion, also inline with what the Street had forecasted. The world’s largest fast-food chain said global same-store sales—sales at stores open at least thirteen months—increased 5.0% y/y, with US sales rising 4.4%, Europe gaining 3.4%, and Asia/Pacific, Middle East and Africa advancing 5.5%. However, the company’s December same-store sales came in a bit disappointing for the US and Europe, due to bad weather in these regions, while the company noted that commodity costs will rise 2011, exacerbating some concerns about margins going forward. The company noted that price increases are an option to offset the rise in commodities but no decisions have been made, per Dow Jones Newswires. MCD overcame early losses and finished modestly higher.

Fellow Dow component Intel Corp. (INTC $21) was nicely higher after the company said its board authorized the repurchase of an additional $10 billion in stock. The chipmaker said today’s announcement signals confidence in its fundamental business strategies both today and looking forward, allowing it to return more cash to its shareholders. As well, INTC declared a previously-announced quarterly dividend increase of 15% to $0.1812 per share.

RadioShack Corp. (RSH $16) was sharply lower after the company reported that it expects 4Q EPS to be in a range of $0.50-0.54, compared to the $0.66 that analysts were anticipating, with revenue growth seen at 4% y/y to $1.4 billion, inline with the Street’s expectations. RSH also announced that its Chairman and CEO Julian Day plans to retire effective at the company’s annual shareholder meeting scheduled for the week of May 16. RSH named Jim Gooch, its current CFO, as the company’s President, effective immediately, and CEO upon Day’s retirement. The company also announced that it will separate its Chairman and CEO roles, with Daniel Feehan becoming its non-executive Chairman of the Board when Day retires.

In M&A news, paperboard and consumer packaging firm  Rock-Tenn Co. (RKT $57) and fellow packaging producer Smurfit-Stone Container Corp. (SSCC $35) announced that the Board of Directors of both companies have approved a definitive agreement under which Rock-Tenn Co. will acquire Smurfit-Stone Container Corp—which recently emerged from bankruptcy protection— for $35 per share in cash and stock. The aggregate equity value of the transaction is about $3.5 billion, and RKT will assume $1.8 billion in SSCC debt and pension liabilities. Both companies finished higher, with SSCC up over 27%.

Economic docket dormant today, but full slate of data begins tomorrow

Treasuries are mostly higher in afternoon action as there are no major US  economic releases scheduled for today. The yield on the two-year note was flat at 0.61%, the yield on the 10-year note was down 4 bps to 3.38%, and the 30-year bond fell 2 bps to. 4.54%.

Tomorrow, the economic calendar will kick into gear, with the release of the S&P/Case-Shiller Home Price Index, forecasted to show a 1.6% decline y/y in November—the report lags the sales data by a month—and fall 0.9% month-over-month (m/m). The October S&P/Case-Shiller report revealed the first y/y decline in prices since January, and the m/m rate falling for the fourth-straight month, fostering concerns about a double-dip in the housing sector. However, the more timely reports on home sales has been relatively more encouraging, with last week’s existing home sales posting a significant upside surprise, while Wednesday’s new home sales are expected to rise 3.5% m/m and Thursday’s pending home sales are forecasted to increase 1.0%.
Tomorrow’s US economic calendar will also include Consumer Confidence, forecast to rise to a level of 54.2 in January from a reading of 52.5 in December, and the Richmond Fed Manufacturing Index, expected to fall slightly from 25 in December to 22 in January. As well, the two-day Federal Open Market Committee (FOMC) meeting will begin tomorrow.

Europe overcomes disappointing economic, political news, and Russian tragedy

Some disappointing manufacturing data across the pond showed measures of PMI Manufacturing in France, Germany, and the euro-zone all came in below what economists were expecting for January, fostering some concerns that economic recovery in the region may be losing momentum. However, the complimentary PMI Services data in the European regions all exceeded expectations to aid sentiment, helping stocks in the region finish to the upside. Meanwhile, political turmoil in Ireland was in focus after Prime Minister Cowen’s government took a blow from the withdrawal of Ireland’s Green Party from the coalition over the weekend, but the withdrawing party said they will support the nation’s 2011 budget. In other international news, a suicide bomber detonated a device in Russia’s largest airport, killing at least 31 people and injuring more than 130.

Economic news out the Asia/Pacific region of the world was light, with Australia reporting that producer prices rose at a much smaller rate than what economists had expected, cooling rate-hike expectations, while stronger-than-anticipated industrial production data and improving unemployment figures out of Taiwan prompted some concerns about possible rate hikes in that nation.

Reports set for release on tomorrow’s international economic calendar include: a read on consumer confidence in Germany, consumer spending in France, Hong Kong’s trade balance and CPI figures from Canada and Australia. In central bank action overseas, the Bank of Japan will conclude its monetary policy meeting where it is expected to keep rates steady, while India’s central bank is expected to increase its benchmark repo rate by 25 bps to 6.50% following the conclusion of its meeting.