Evening Market Update

Rally Rolls On as Earnings Season Prepares for Kickoff

In In light trading, US stocks posted another solid day in the green, sparked by a weekend pledge from Germany and France to deliver a plan to fight the eurozone debt crisis. The bond markets were closed in observance of the Columbus Day holiday and there were no major releases on the domestic economic front. Meanwhile, gold and crude oil prices moved higher, while the US dollar moved sharply lower. In equity news, Superior Energy Services Inc announced that it has agreed to acquire Complete Production Services Inc for about $2.7 billion, while Netflix Inc announced that it will drop its plan to have its DVD and streaming businesses on separate websites, and Scotts Miracle-Gro Co reduced its full-year earnings outlook. The Street will now turn its attention to the Q3 earnings season, which unofficially kicks off after the close tomorrow. 

The Dow Jones Industrial Average jumped 330 points (3.0%) to 11,433, the S&P 500 Index rose 39 points (3.4%) to 1,195, and the Nasdaq Composite gained 87 points (3.5%) to 2,566. In light volume, 846 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil picked up $2.76 to $85.74 per barrel, wholesale gasoline rose $0.06 to $2.71 per gallon, and the Bloomberg gold spot price advanced $38.20 to $1,676.05 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 1.5% lower at 77.54.

Oilfield services company Superior Energy Services Inc. (SPN $24) announced that it has agreed to acquire Complete Production Services Inc. (CPX $28) for cash and stock, worth about $32.90 per share, or $2.7 billion. Under the terms of the deal, CPX shareholders will receive 0.945 common shares of SPN and cash of $7.00 for each share they own. SPN said the deal will be accretive to its EPS and cash flow in 2012. SPN was down sharply, while CPX traded up over 35%.

Elsewhere, Scotts Miracle-Gro Co. (SMG $45) reduced its full-year earnings guidance as sales at the lawn and garden product maker are expected to decline 2% year-over-year (y/y). SMG said the sales shortfall, which was due to an unexpected y/y decline in consumer purchases in the US during September, coupled with associated gross margin pressure, will likely result in adjusted earnings in a range of $2.70-2.75 per share. Analysts surveyed by Reuters expected the company to post EPS of $2.98. SMG added that while it was counting on another strong fall lawn care season, the weather issues that plagued it throughout fiscal 2011 remained problematic during 4Q. SMG was under pressure.

Meanwhile, Netflix Inc. (NFLX $112) is gaining ground after the company reported that it is dropping its plan to split its movie-streaming and DVD-by-mail businesses into separate websites. NFLX announced in September that its DVD business will operate at Qwikster.com, but now will remain available at netflix.com. The company said, “There is a difference between moving quickly—which Netflix has done very well for years—and moving too fast, which is what we did in this case.”

Bond markets and economic docket quiet for Columbus Day holiday

The US bond markets were closed in observance of Columbus Day and Treasuries ended last week with the yield on the 2-year note at 0.29%, the 10-year note at 2.08%, and the 30-year bond at 3.02%.

Also, the US economic calendar will be void of any major releases today and will be less active this week, with Friday’s advance retail sales being one of the key reports due out, forecasted to rise 0.7% month-over-month (m/m) in September, after a flat performance in August, while sales ex-autos and ex-autos and gas are both expected to increase 0.3%. Same-store sales results for September from the nation’s retailers reported last week were generally better than expected, while the retail sales report includes spending at supermarkets and gas stations. The other major US report this week will be Wednesday’s midday release of the minutes from the September Federal Open Market Committee (FOMC) meeting. The Fed noted “significant” downside risks to the economy at the last meeting, and began “Operation Twist,” wherein it will reduce its holdings of shorter-term securities and buy longer-term securities.

There are no major releases on the US economic calendar tomorrow. Other US releases this week include: the NFIB Small Business Optimism Index, MBA mortgage applications, the trade balance, weekly initial jobless claims, import prices, business inventories and the preliminary University of Michigan Consumer Sentiment Index reading for October.

Europe gains ground on French and German pledge, policy concerns emerge in China

Increased optimism in Europe was fostered by the pledge over the weekend from France and Germany to deliver a plan to help recapitalize liquidity-strapped banks, provide a solution for Greece’s debt crisis, and accelerate economic coordination in the eurozone by the G20 summit of world leaders in early November, per Reuters. Meanwhile, sentiment was supported by Franco-Belgian bank Dexia (DXBGY $1) agreeing to a rescue plan approved by the governments of Belgium, France, and Luxembourg.

Elsewhere, there was a plethora of economic data for traders to digest, with German exports rising much more than economists had forecasted in August, resulting in an unexpected increase in the nation’s trade surplus. Also, French industrial production surprisingly increased in August, while Italian industrial production rose sharply for the month, easily exceeding estimates. Finally, a read on UK employment sentiment deteriorated for September, while eurozone investor confidence fell more than forecasted for October.

In Asia/Pacific economic news, concerns about China’s tight monetary policy hamstrung sentiment as an advisor to the nation’s central bank noted that the country should stick to a prudent monetary policy to fight inflationary threats, which will help the small business environment, per Bloomberg. Also, property-related issues came under some pressure after a media report over the weekend suggested China’s home prices will face gradual pressure due to decelerating sales activity and rising inventories. Meanwhile, markets in Japan were closed for a holiday.

International economic reports tomorrow will include Japan’s trade balance and consumer confidence, UK industrial and manufacturing production, Canadian housing starts, and Brazilian retail sales.