Evening Update

Markets Overcome Hurdles to End in the Green

Despite starting the session in negative territory following a warning from an International Monetary Fund official, comments from Germany’s Merkel which threw water on any immediate aid to Greece, and passage of legislation to transform the healthcare industry over the weekend, stocks gained strength and finished in the green near the highs of the day. Even the health care sector participated in the advance, notwithstanding the vote out of Washington. In equity news, Tiffany & Co reported earnings below analyst’s estimates while Williams-Sonoma beat Street forecasts, Google shifted search traffic from China to its Hong Kong site, Kimberly-Clark revealed a new cost-cutting initiative, and software company Novell rejected a takeover offer. Elsewhere, PepsiCo reaffirmed guidance, while Schlumberger warned and Credit Suisse restricted travel of its bankers due to an investigation. Treasuries were mixed.

The Dow Jones Industrial Average rose 44 points (0.4%) to close at 10,786, the S&P 500 Index gained 6 points (0.5%) to 1166, and the Nasdaq Composite was 21 points (0.9%) higher at 2,395. In moderate volume, 955 million shares were traded on the NYSE and 2.3 billion shares were traded on the Nasdaq. Crude oil was $0.63 higher at $81.60 per barrel, wholesale gasoline was flat at $2.26 per gallon, and the Bloomberg gold spot price lost $6.25 to $1,100.75 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 0.2% to 80.62.

Shares of Tiffany & Co (TIF $47) were lower after the company reported 4Q EPS of $1.10, lower than the analyst estimate of $1.13. Revenues of $981.4 million were higher than the Street forecast of $971 million, as gross margin fell to 58.7% from 59.4% due to increased sales of wholesale diamonds, which have lower margins. The company is forecasting 1Q EPS of $2.45-2.50 on revenue growth of 11%, higher than the consensus forecast of $2.43 on revenue growth of 8% to $2.93 billion. The CEO said that the results reflected growth in most countries, product categories and price points, and despite the global economic challenges, credited the strong earnings and cash flow growth to “decisive measures” taken to control spending and growing international awareness of the Tiffany brand.

Williams-Sonoma (WSM $27) announced 4Q EPS ex-items of $0.86 on revenue of $1.09 billion, higher than the analyst estimates of $0.74 and $1.07 billion, and the raised guidance the company gave in January of $0.69-0.74 EPS and $1.06-1.08 billion in revenue. Gross margin rose to 41.4% from 33.7%, helped by reduced markdowns, as inventory fell 19% while revenue grew 8% year-over-year, and earnings also benefitted from other measures taken to reduce expenses. The company said that while results were better than expected given the continuing fragility of the economy, “in 2010 we will continue to garner the benefits of the strategic and tactical initiatives” that drove success in the fourth quarter. Shares were nicely higher.

The Wall Street Journal reported that Google (GOOG $560) shut down its censored search engine in China and is re-directing users to the uncensored platforms in Hong Kong. However, a company spokesperson said that GOOG is not exiting China entirely, keeping some uncensored services, such as Google Maps, running. Google’s business in China has been subject to much discussion since January, when the company said it would stop censoring search results after it was the target of a cyber attack it believed originated in China. A news blog posting by the company said GOOG feels the step is a "sensible decision," but said it is "well aware that it could at any time block access to our services." GOOG was lower.

Kimberly-Clark Corp (KMB $63) was higher after the company said they will cut as much as $500 million in costs through 2013, despite growing marketing faster than sales through 2015. The reduced expenses are slated to come from leaner manufacturing and supply chain practices and the creation of a global procurement organization, and are in addition to the $400-450 million three-year initiative set to conclude this year.

Software company Novell Inc. (NOVL $6) was higher after rejecting a $1.8 billion unsolicited bid by hedge fund Elliott Associates, saying that it undervalues the company and that it will look for alternatives to enhance shareholder value.

Shares of Credit Suisse Group (CS $51) were lower after restricting banker travel to Germany, following an investigation by the country into 1,100 customers and staff on suspicion of hiding money from German tax authorities.

At an energy conference in New Orleans, Schlumberger (SLB $64) CEO Andrew Gould warned that meeting analysts’ 2010 projections would be difficult, saying he thinks, “Street consensus estimates for the full year remain a little on the high side and would require a very strong second half year to achieve.” He added that despite improving conditions in the industry, the oil service firm has not seen the recovery show up in profits. Shares are lower.

PepsiCo (PEP $66) reaffirmed 2010 core constant currency EPS growth of 11-13%, prior to a two-day investor meeting, saying it also expects growth for 2011 and 2012 to also be in the low double-digit percentile range. PEP finished lower.

Health care stocks were generally higher despite the US House passing the Senate’s legislation to overhaul health care yesterday and initially approved in December, and President Obama is expected to sign the bill in the next few days. The House also passed a companion bill that will head to the Senate as part of a process called reconciliation that requires a simple majority vote.

Economic calendar quiet today, but heavy for the week

Treasuries finished the day mixed. The yield on the 2-year note rose 1 bp to 0.97%, the yield on the 10-year note lost 4 bps to 3.66%, while the 30-year bond yield fell 1 bp to 4.57%.

The lone economic release scheduled in the US today was the Chicago Fed National Activity Index, which fell to -0.64 in February from 0.02 in January. Three of the four broad categories in the index deteriorated, led by weakness in consumption and housing, while the sales, orders, and inventories category improved. Treasuries are mixed.

IMF official warns of upcoming challenges

John Lipsky, first deputy managing director of the IMF, said that advanced economies will face “acute” challenges to reduce public debt, and that unwinding existing stimulus measures won’t come close to bringing deficits back to prudent levels, as stimulus measures only account for about one-tenth of the projected debt increase. While Lipsky said that for most advanced economies, maintaining fiscal stimulus in 2010 is appropriate, fiscal consolidation should begin in 2011 if the recovery continues at the projected pace, but some actions should be undertaken now by all countries that need adjustment. He said that maintaining post-crisis debt levels could cut potential growth in advanced economies by as much as half a percentage point annually, compared to pre-crisis performance.

German Chancellor Angela Merkel dampened speculation about the prospects for aid to Greece. Merkel told investors they shouldn’t expect this week’s European Union (EU) summit to agree on an aid package and that EU leaders should not create “illusions” for markets by increasing expectations for Greek aid. Merkel said that, “Greece isn’t insolvent and therefore the question about assistance isn’t the one we need to be talking about now,” and said that no decision for aid has been made regarding an EU or IMF solution, saying that she remains open to either option should circumstances arise. Her comments came after Greek Prime Minister George Papandreou and European Commission President Jose Barroso said that the EU should spell out its rescue plan at the March 25-26 summit.

In economic news in Europe, the euro-zone consumer confidence measure remained unchanged at a negative 17.

Sales of previously occupied homes expected to have declined

The economic calendar begins to heat up tomorrow with the release of existing-home sales, expected to have decreased 1.2% month-over-month (m/m) in February to an annual rate of 5.0 million units. Sales of existing homes reflect closings from contracts entered one to two months earlier, while new home sales, expected to show a 1.9% increase in February to an annual rate of 315,000 units when released on Wednesday, are a more timely indicator of conditions in the housing market, as they reflect contract signings. Housing market data has been volatile and has yet to show a resurgence in sales after the initial tax credit was expanded and extended, and a m/m increase in new home sales would be the first since October.

The other release on tomorrow’s US economic calendar is the Richmond Fed Manufacturing Index, expected to improve to 5 in March from 2 in February, wherein a reading above zero denotes expansion.

In international releases, the Bank of Japan will be issuing the minutes from its February meeting, the UK will be announcing consumer and producer price indexes, and Canada will release its leading indicator index.