Evening Market Update

Equity Markets Climb Wall of Global Worries

Stocks finished in the green today, proving resilient after paring early losses on the news of a surprising drop in US new home sales to a record low, as well as ongoing concerns toward the Japanese nuclear crisis, euro-area debt worries, and Middle East uncertainty. A solid rise in commodities prices helped fuel the equity rally, leading materials and retail stocks to the upside. Treasuries moved higher on the housing news, but reversed course to finish the session mostly flat, while oil prices moved higher on news of continuing airstrikes in Libya by US and European led forces. In equity news, Adobe Systems, Jabil Circuit and Discover Financial Services all beat the Street’s earnings forecasts, while profits at General Mills were inline with expectations. Elsewhere, shares of Dow member Bank of America fell after reporting that the Federal Reserve has objected to its proposed dividend increase. Finally, in late-day news from across the pond, the government of Portugal voted against a proposal for additional austerity measures, which could lead to the collapse of the current leadership of the debt-ridden nation.

The Dow Jones Industrial Average rose 67 points (0.6%) to 12,086, the S&P 500 Index increased 4 points (0.3%) to 1,298, and the Nasdaq Composite gained 14 points (0.5%) to 2,698. In moderately light volume, 879 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.43 to $105.40 per barrel, wholesale gasoline rose $0.01 to $3.01 per gallon, while the Bloomberg gold spot price increased $11.75 to $1,439.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.2% higher at 75.77.

Adobe Systems Inc. (ADBE $32) reported fiscal 1Q EPS ex-items of $0.58, one penny above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 20% year-over-year (y/y) to $1.0 billion, roughly inline with the Street’s forecast. However, the software company issued 2Q guidance that was below analysts’ forecasts as it warned that Japan is its second largest country from a revenue perspective and March is typically its biggest revenue month of the year. ADBE traded solidly lower.

Jabil Circuit Inc. (JBL $21) posted fiscal 2Q earnings ex-items of $0.54 per share, three cents above the Street’s estimate, with revenues rising 30% y/y to $3.9 billion, matching analysts’ forecasts. The contract electronics manufacturing company issued 3Q guidance that exceeded expectations, saying that its employees and facility in Japan were not directly impacted by the natural disaster, however, it may have an impact on the supply of components to its global manufacturing operations, but the extent of this impact is not known at this time. Shares were sharply higher.

General Mills Inc. (GIS $36) announced fiscal 3Q profits of $0.56 per share, inline with the Street’s forecast, as revenues grew 2% y/y to $3.7 billion, roughly matching analysts’ expectations. The food maker said its plans call for 4Q to show the highest earnings growth of the year, with increasing contributions from pricing actions it has taken to partially offset “significant commodity cost increases.” GIS reaffirmed its full-year 2011 guidance. GIS finished lower.

Dow member Bank of America (BAC $14 ¹) announced that following a second round of stress tests conducted by the US Federal Reserve, the Fed has objected to its proposed increase in its dividend for the second-half of 2011, but the Fed said the company can resubmit a revised comprehensive capital plan. BAC also said it will seek permission for a “modest” dividend increase in the second half of 2011 after submitting a revised plan to the Fed. BAC moved lower.

Discover Financial Services (DFS $23) reported 1Q EPS of $0.84 on revenue of $1.7 billion, which beat analysts’ expectations of $0.60 and $1.6 billion, respectively. The company also raised its quarterly dividend from $0.02 per share to its pre-financial crisis level of $0.06 per share. DFS traded higher.

New home sales fall to a record low, mortgage applications rise

New home sales unexpectedly fell, tumbling 16.9% month-over-month (m/m) in February to a record low annual rate of 250,000 units, below the 290,000 rate forecasted by economists surveyed by Bloomberg, but January’s figure was upwardly revised by 17,000 to a 301,000 annual unit rate. The median home price fell 8.9% y/y and dropped 13.9% m/m to $202,100. Inventory of new homes for sale fell to 186,000 units, representing 8.9 months of supply at the current sales rate, up from 7.4 months in January. February’s surprising drop was paced by a 57.1% tumble in the Northeast.

New home sales are considered a timelier indicator of conditions in the housing market than existing home sales—which fell more than forecasted on Monday—as they are based on signings instead of closings. So the report dampened the outlook for avoiding a double dip in the housing sector and the start to the spring selling season. The sharp drops in prices for new homes illustrates the rising competition from the existing home front amid rising foreclosures and tight credit conditions that have increased the amount of all-cash buyers, which both are putting downward pressure on the values sellers can demand.

In other economic news, MBA Mortgage Application Index increased by 2.7% last week, after the index that can be quite volatile on a week-to-week basis, dipped by 0.7% in the previous week. The increase came as both the Refinance Index and the Purchase Index posted an increase of 2.7%, while the average 30-year mortgage rate increased by 1 basis point (bp) to 4.80%, above the record low of 4.21% on October 8, 2010.

Treasuries gave up early gains from the housing data to finish the mostly the session flat. The yields on the 2-year note and the 30-year bond were flat at 0.65%, and 4.44%, respectively, while the yield on the 10-year note increased 2 bps to 3.35%.

Finally, US Federal Reserve Chairman Ben Bernanke spoke today to the Independent Community Bankers of America’s National Convention, on the topic of, “Community Banking in a Period of Recovery and Change.” The Fed Chief offered no comments on monetary policy, sticking to the topic of community banking and the challenges the group faces.

Portugal votes against more austerity measures

Debt concerns escalated in Europe after Portugal’s Parliament voted against the nation’s austerity plans proposed by Prime Minister Socrates, which could lead to the collapse the current Socialist administration’s leadership. Speculation that Portugal will need to seek a bailout from the euro-zone’s European Financial Stability Facility (EFSF) is gaining ground as the opposition Social Democratic have, along with other opposing parties, pledged to vote against the new austerity measures that are being proposed.

Finally, the European economic calendar, although light, produced some reports worth mentioning, with euro-zone industrial new orders coming in below economists’ forecasts, while the minutes from the Bank of England’s (BoE) recent policy meeting earlier this month revealed that policymakers remain divided 6-3 between holding its policy steady and increasing interest rates.

Back in the Americas, Brazilian consumer prices rose 0.6% in the first half of March, the smallest increase since September of 2010 and slightly higher than the 0.53% expected by economists.

Durable goods on tap for tomorrow

Tomorrow, the US economic calendar will yield the release of durable goods orders for February, expected to increase 1.2% m/m after rising 2.7% in January, while ex-transportation, orders are forecasted to have grown 2.0% m/m, after a 3.6% drop in January. Orders for non-defense capital goods excluding aircraft, considered a good proxy for business spending, are expected to rebound from January’s 6.9% m/m decline and gain 4.3%. Orders for durable goods, are those expected to last at least three years, and can be very volatile on a m/m basis. The other release on the docket for tomorrow is weekly initial jobless claims, forecasted to tick lower to 383,000 from 385,000.

Releases on the international front will include PMI reports from France, Germany and the euro-zone, U.K. retail sales, the Brazilian unemployment rate, and Australia’s Conference Board Leading Index.