The stock market had a mixed start on Wednesday as futures indicated a modestly higher open for the indices. Equities however, experienced some selling pressure initially. Nevertheless, the pressure was only limited in scope as Wall Street turned higher following a strong performance in the financial complex, and a drop in oil prices as a result of massive build in crude inventory of 2.95 mln barrels.
The decline in crude prices positively impacted oil-sensitive groups: airlines, transports and automakers while the energy and utility sector started to pullback. Meanwhile, as always is the case with gaining equities, bond prices fell sharply as investors retreated from the safety of government debt. The yield on the benchmark 10-year Treasury note jumped to 3.934 from Tuesday’s 3.844.
The Dow, Nasdaq and S&P 500 remained near their highs at mid-session showing firm gains, as the major average INDU printed as many as 160 points. Also underpinning the bullish tone were comments made by the Fed Chair Ben Bernanke.
In his testimony before the House Financial Services Committee, Mr Bernanke said – GSE’s are adequately capitalized and in no danger of failing. Bernanke also commented on inflation by saying, it is a top priority of the Fed to run a policy that is going to bring inflation to an acceptable level ; a level that is consistent with price stability, he added.
The major indices continued trading near session highs, as the market approached its final hour to only close with major gains across the board. The popular average Dow Jones Industrial added almost 277 points to-tape marking the largest one-day percent gain since six weeks ago.
In other news
– Intel (INTC) an indicator of the overall health of the technology industry, reported 2Q earnings of $0.28 per share, topping estimates by $0.03. The co’s second quarter net income came in at $1.3 billion while revenues posted $8.7 billion.
– Wells Fargo & Co. (WFC) shares jumped over 25% as the co. beat by $0.03 in the second quarter and raised its dividend 10%. A strong quarter by WFC helped the financial sector to surge more than 6% marking the sector’s biggest one day gain since early April. Wells Fargo strong results underlines the fact that it’s possible to operate profitably in a troubled market.
– Charles Schwab (SCHW) reported second quarter earnings. The discount broker reported net income of $295 million, up from $292 million a year earlier, beating the Street by $0.01. The San Francisco-based broker saw a 32% return on equity while total assets increased 1% to $1.4 trillion.
On the economic front, the Labor Department reported that Consumer Price Index rose 1.1 percent month-over-month in June. This is the largest one-month increase since 1982. Economists had expected a gain of 0.8 percent. Core CPI, excluding food and energy, rose 0.3%, also higher than the consensus estimate of 0.2%. Total CPI is up 5.0% on y/y basis.
The threat of inflation for the economy, as we have stressed in previous articles, is quite real. Using core CPI, as an excuse to justify the uptrend inflation tendencies, is simply unrealistic and downright risky. The fact that we have only one-way Price volatility, that on the upside, makes the inflation situation an issue requiring immediate attention.
– In merger and acquisition news, Cleveland-Cliffs (CLF), North America’s largest iron-ore pellet producer agreed to buy coal producer Alpha Natural Resources (ANR). The price of $10 billion in stock and cash represents a 35% premium to Tuesday’s closing price. Under the terms of the agreement, for each share of Alpha common stock, Alpha stockholders would receive 0.95 Cleveland-Cliffs common shares and $22.23 in cash.
– Gold lost $15.40 to close the session at $963.30