Earning reports fuel strong rally at Wall Street

Dow components 3M, Caterpillar, and AT&T please investors with their earnings

US stocks started and ended the day with solid gains on Thursday, 22 July 2010. Strong batch of earning reports and upside guidance from a couple of key companies helped stocks zoom right out of the gate since the morning hours. Mixed economic data added further fuel to the rally.



For the day, that ended on Thursday, 22 July 2010, Dow ended higher by 201.77 points at 10,322.3. Nasdaq ended higher by 58.56 points at 2,245.89. S&P 500 ended higher by 24.08 points at 1,093.67.

All ten economic sectors ended higher led by financials, industrial and consumer discretionary sectors. Twenty-seven of thirty Dow components ended higher led by Boeing. Travelers led the pack of three Dow winners.

Among the major earning reports expected for the day, UPS bested expectations for the bottom line, and also came out with an increased outlook. Dow components 3M and Caterpillar also reported better-than-expected bottom line results. 3M also issued upside guidance, while Caterpillar raised its forecast so that it is in step with what Wall Street has forecast.

Among other blue chips, AT&T posted an upside surprise and raised its outlook, but Travelers came short of the consensus earnings estimate and even cut its forecast.

Among economic data expected for the day, The Labor Department reported on Thursday, 22 July 2010 that the number of people submitting initial applications for state unemployment insurance benefits jumped 37,000 to stand at a higher-than-expected 464,000 for the week ended 17 July 2010. Market had expected first-time claims to come in higher around a level of 450,000.

The average number of workers filing claims over the past four weeks (continuing claims) rose 1,250 to 456,000. The four-week average is considered a better gauge of the state of the labor market than the volatile weekly number.

Also, the National Association of Realtors reported on Thursday, 22 July 2010 that resale of U.S. homes fell 5.1% in June to a seasonally adjusted annual rate of 5.37 million units. That is a better rate than the 5.09 million units that had been widely expected.

Sales fell as a federal subsidy for home buyers expired. Sales that closed in June were eligible for the federal tax credit, and the credit could cover a few more sales through the end of September if the closing was significantly delayed. To qualify, a buyer had to sign a sales contract by the end of April.

The report detailed that sales of single-family homes fell 5.6% in June, while sales of condos dropped 1.5%. Sales fell in three of four regions. Sales fell 9.3% in the West, 7.5% in the Midwest and 6.5% in the South. Sales rose 7.9% in the Northeast.

Fed Chairman Bernanke, made his semiannual monetary policy report to the Senate Banking Committee yesterday. Bernanke spoke of continued uncertainty in the economy and made note of the Fed's preparations to take more policy actions as needed. The comments generally reflected the downgraded economic outlook that was communicated in the FOMC Minutes this week. Stocks registered steep losses after that.

Crude oil prices ended substantially higher on Thursday, 22 July 2010 at Nymex. Strong batch of earning reports at Wall Street fuelled demand for crude in anticipation that energy demand will rise in coming months. On Thursday, crude oil futures for light sweet crude for September delivery closed at $79.3/barrel (higher by $2.74 or 3.6%). This was crude's highest price in nearly one month.

On Thursday, natural gas for September delivery rose 13 cents, or 2.9%, to $4.63 per million British thermal units. That was natural gas' best finish since early July. Energy Information Administration on Thursday reported an increase of 51 billion cubic feet in inventories for the week ended 16 July. That compares to the 70-bcf addition in the same week of 2009 and a five-year average increase of 64 bcf.

Bullion metal prices ended higher on Thursday, 22 July 2010 at Comex. Prices were boosted following a batch of better than expected earning reports. Gold investors were also waiting to hear the results of European banks' stress tests to be released on Friday. On Thursday, gold for August delivery ended at $1,195.6 an ounce, higher by $3.8 (0.3%) on the New York Mercantile Exchange. During intra day trading, prices fell to a low of $1,180.7. Prices have stayed below the $1,200 mark for five consecutive sessions. September Comex silver futures ended higher by 32 cents (1.8%) at $18.12 an ounce.

For every stock on the decline nearly seven were rising on the New York Stock Exchange, where 1.2 billion shares traded hands.

Barring Dr Reddys, all Indian ADRs ended higher on Thursday. Wipro Tech, Tata Motors and Infosys were the main gainers with their ADRs soaring 4.9%, 4.2% and 3.6% respectively. Dr Reddys slipped by 4.4%.

A number of earning reports are expected tomorrow including big names Amazon and Microsoft. No economic data is expected.