Despite Dismal Reports, Stocks Gain
Tuesday, January 27, 2009
Stocks made modest gains yesterday despite poor earnings and big layoff announcements from corporations weakened by the recession.
The Dow Jones industrial average was up 0.5 percent, or 38.47 points, to 8116.03, while the Standard & Poor's 500-stock index was up 0.6 percent, or 4.62 points, to 836.57. The tech-heavy Nasdaq was up 0.8 percent, or 12.17 points, to 1489.46.
Investors were cheered by Pfizer's announcement yesterday that it would acquire rival Wyeth for $68 billion. The deal is expected to eliminate 8,000 positions, but it signaled a step toward normalcy in the debt-financing market, analysts said.
"It's the fact that anybody can do a deal at all, that five banks were willing to step up and finance this deal is huge," said Christopher Low, chief economist at Memphis-based FTN Financial. "No one has been able to raise that kind of debt in months."
The Pfizer news overshadowed several poor earnings reports. Caterpillar, the maker of mining and construction equipment, said its fourth-quarter profit fell 32 percent and that it would lay off 20,000 workers. Its stock tumbled 8 percent to $32.67 a share. General Motors' stocks fell 3 percent to $3.38 after it announced plans to cut 2,000 jobs at its assembly plants in Ohio and Michigan. Home Depot is eliminating 7,000 positions, or 2 percent of its workforce, but its stock gained about 5 percent to $22.73.
Telecommunications giant Sprint Nextel said it would lay off 8,000 workers and its stock gained about 1 percent to $2.49 a share. "We believe management is making the proper moves to adjust its labor and expenses with a declining subscriber base," James Moorman, wireless telecom services analyst for Standard & Poor's Equity Research, said in a research note.
In economic news, existing-home sales rose 6.5 percent to a seasonally adjusted annual rate of 4.74 million units in December, according to data from the National Association of Realtors. Median existing-home prices fell to $175,400 in December, 15.3 percent lower than in December 2007. Analysts said bargain hunters are taking advantage of falling prices but that the housing market remains weak.
"Going forward, therefore, we should expect to see a further drop in home sales over the next few months, even if mortgage rates continue to fall," Patrick Newport, U.S. economist for IHS Global Insight, said in a statement.
Crude oil prices fell 2 percent to $45.73 a barrel on the New York Mercantile Exchange.