Tech stocks pace early rise after IBM tops forecast
Small-cap stocks pushed higher on the opening, bolstered by an oversold bounce after Tuesday’s jolting losses. Additional upside momentum was tied to solid earnings from tech bellwether IBM. The market will now dissect various earnings numbers today and look for details on the Obama stimulus plan for trading direction. At 9:54 a.m. ET, the Russell 2000 (NYSE:IWM) was up 6.56, or 1.51%, at 440.21.
International Business Machines (NYSE:IBM) topped the forecast when reporting earnings after the close Tuesday, rose some 4% in extended trading and was up about 7% shortly after the open today, providing some bullish leadership for a market that was reeling Tuesday.
Bank stocks have been hammered mercilessly in recent days and paced the declines again during Tuesday’s rout. And even though banks remain in a difficult position and traders are fretting about the risk of nationalizing some major banks, there was a bright spot this morning with Northern Trust Corp. (Nasdaq:NTRS) beating the forecast. NTRS was up some 21% early.
There will be plenty of earnings fodder to chew on today, with Apple Inc., Ebay, Abbott Labs, UAL Corp., and United Technologies on the results docket at some point. Looking at airlines, that group was soft in overseas action. UAL Corp. (Nasdaq:UAUA) reported results ahead of the opening today, with a big loss (but not as bad as the Street had feared), and an erosion on fuel hedges hurting results. UAUA was up almost 3% shortly after the open.
President Obama is slated to meet with his economic leadership team today to begin the difficult task of vetting out the right policy to spark a recovery. His pick to lead the Treasury Department, Timothy Geithner, still faces tough questions from Senate leaders on tax issues before his confirmation. Most believe that Geithner will eventually be confirmed – perhaps as soon as this week. Paul Volcker is expected to introduce Geithner to the Senate confirmation hearing, which will put some weight behind the proceedings. Geithner today said that the financial bailout program needs “reform” and that a stimulus package must be accompanied by aggressive action on housing.
The market was disappointed Tuesday when Obama did not take the opportunity on his inauguration speech to provide details of his stimulus program, so it will be interesting to see if some of those details come out today to help provide a lifeline to the morning rally.
This week’s action is basically devoid of economic indicators, which will put extra attention on various earnings reports, political news and world events. That said, Johnson-Redbook Retail Sales came in down 2.3% for last week, yet another gloomy picture of the spending mentality in play right now. The Architecture Billings Index rose to 36.4 in December, up from 34.7 the previous month. Despite the uptick for the index, it is still near historic lows in line with scare credit. A sub-index of inquiries for new projects fell to a record low. The market won’t see any of the “marquee” economic reports until Thursday, when housing starts and weekly claims are released, but there will be a minor homebuilder’s report later today.
Researchers at Goldman Sachs told investors at a briefing in Frankfurt that the market will struggle with weak corporate profit reports for a few months and that a wave of hedge fund redemptions could pressure stocks in the near term, but that the S&P 500 could rally some 35% from recent lows by year-end.
Crude oil prices were up in European trading and higher in front month action this morning, and the dollar was off a tad versus the euro, which could provide some support to physical markets today. From a money flow standpoint, Treasury prices were taking a hit today, raising yields on bonds and notes, suggesting money moving into equities.
Individual small caps on the move early today include Packaging Corporation of America (NYSE:PKG), which rallied 19%, getting a lift after reporting quarterly results after the close Tuesday. Tier Technologies Inc. (Nasdaq:TIER) was up 14% following news that the firm will buy ePayments Solutions and also will implement a stock repurchase program. Wimm-bill-Dann Foods (NYSE:WBD) was up almost 13% as Russia’s big diary company tries to mount a bounce after several days of heavy losses.
From a charting perspective, this morning’s bounce will help alleviate short-term oversold conditions, but it won’t erase the damage from Tuesday’s collapse unless we see the Russell climb back above 460. The return of hyper volatility and sweeping intraday moves can be seen in two lights: one, the rise in volatility could be a sign that we are nearing a bottom (one that would hold above the previous lows); or two, the ramp up in volatility shows that market risk remains too high for comfort and will hurt investor interest. Looking at today’s action for small caps, the Russell should find resistance along 440, then at 451. If the market starts to falter, support is at 433, then at 424. The BIG test in coming days on the downside would be approaching 416 if the market simply can’t sustain a bounce.
