Market Dispatches8/24/2007 6:45 PM ET

Dow up 143, ends best week since April

The blue-chip index jumps as crude oil climbs back over $71. Techs also show gains, though a New Jersey teenager unlocks the iPhone from AT&T. New-home sales unexpectedly perk up. Gap edges closer to a comeback. Countrywide falls 4.6%.

Stocks finished their best week since the early part of the year thanks to a sharp rally powered by gains in energy and technology stocks and a big increase in factory orders.

New-home sales also showed a gain in July from June, raising hopes that the economy can weather the financial turmoil that has shaken Wall Street.

At the close, the Dow Jones industrials had risen about 143 points, or 1.1%, to 13,379. The Standard & Poor's 500 Index was up nearly 17 points, 1.2%, to 1,479, and the Nasdaq Composite Index was up 35 points, or 1.4%, to 2,577.

In a week of relatively quiet trading, the Dow and the S&P 500 finished up 2.3%. The Nasdaq gained 2.9%. The Dow's gain was its best weekly gain since the week of April 16. The gains for the S&P 500 and Nasdaq were their best since the week of March 19.

That's a nice improvement from a week ago, when five days of tumultuous trading knocked the Dow down 1.2%, the S&P slipped 0.5% and the Nasdaq fell 1.6%. This week's gains were the fourth for the market in the last 10.

In less than seven sessions, the three indexes have regained nearly 60% of their losses between July 19 and the lows in intraday trading on Aug. 16.

But volume was light: Trading on the New York Stock Exchange barely topped 1.1 billion shares. Partly that was due to many market professionals' taking the week off. And market skeptics suggested that the rally occurred because those who needed to trade securities were the only real participants on the day.

As stocks have risen and attracted some investor cash, short-term interest rates have started to move back to levels last seen in the early part of August. The 13-week Treasury bill was yielding 4.08% on Friday, up from 3.71% on Thursday. It had been down to 2.95% on Monday. The move higher appears to reflect a market belief that, for now, the credit crunch that roiled financial markets around the world since early August, has eased.

But the market remains wary. Financial stocks, the weakest S&P 500 sector all year, was the weakest sector on Friday as well.

Mortgage lender Countrywide Financial (CFC, news, msgs) was down 4.6% to $21. Countrywide's decision to tap its bank credit lines on Aug. 16 because it couldn't sell short-term commercial paper to investors caused a panic in the stock market. Wednesday, Bank of America (BAC, news, msgs) agreed to invest $2 billion in Countrywide.


Trading volume next week -- the week before Labor Day -- is likely to be at least as light as this week.

There are some big economic reports due, however, including on existing-home sales (due Monday), gross domestic product (due Thursday) and personal income (due Friday).

17-year-old breaks iPhone lock

A 17-year-old hacker has broken the lock that ties Apple's (AAPL, news, msgs) iPhone to AT&T's (T, news, msgs) wireless network, freeing the cell phone for use on the networks of other carriers, including those overseas.

George Hotz of Glen Rock, N.J., confirmed Friday that he had unlocked an iPhone and was using it on T-Mobile's network, the only major U.S. carrier apart from AT&T that is compatible with the iPhone's cellular technology. In a video posted to his blog, he holds an iPhone that displays "T-Mobile" as the carrier.

He's now offering the phone for sale on eBay.

While the possibility of switching from AT&T to T-Mobile may not be a major development for U.S. consumers, it opens up the iPhone for use on the networks of overseas carriers.

"That's the big thing," Hotz told The Associated Press. He'll be a freshman this fall at the Rochester Institute of Technology.

Apple shares weren't affected. The stock finished 3.2% higher to $135.30. AT&T was up 0.7% to $40.36.

The markets for the week
Close for weekWk. ago close% chg.YTD. chg.
Dow Jones industrials13,378.8713,079.082.29%7.35%
S&P 500 1,479.371,445.942.31%4.31%
Nasdaq Composite2,576.692,505.032.86%6.68%
Russell 2000798.93786.031.64%1.43%
Crude oil per barrel$71.09$71.47-0.53%16.45%
10-yr. Treasury yield4.63%4.67%-0.86%-1.63%
Gold per troy ounce$677.50$681.60-0.60%6.19%

A big rally in crude helps energy shares

Crude jumped 1.8% to $71.09 a barrel in New York Friday and sent energy stocks higher.

Analysts said the jump in the price of crude was due to traders' confidence that the U.S. economy was stronger than thought. "Even if there is an economic slowdown, it will take months or years before it's reflected in reduced demand," Michael Fitzpatrick, vice president for energy risk management at MF Global, told Bloomberg News.

In addition, traders pushed gasoline prices higher because of a fire at Chevron's (CVX, news, msgs) big refinery in Pascagoula, Miss. The refinery is currently operating at about 50% of capacity. Wholesale gasoline was up 3% to $1.9801 a gallon.

But pump prices appear to be stable. AAA said the national average price of gasoline was $2.768 a gallon Friday, down from $2.78 a gallon on Thursday and down nearly 18 cents from a month ago.

The Amex Oil Index ($XOI.X) rose 2.3% to 1,352. The Philadelphia Oil Service Sector Index ($OSX.X) climbed 2.4% to 268.

ExxonMobil (XOM, news, msgs) was the second-best performer among the 30 Dow stocks, up 2.3% to $85.69. The gain was worth nearly 16 points of the Dow's gain. Chevron closed 2% higher to $87.22. ConocoPhillips (COP, news, msgs) rose 1.7% to $80.74. Valero Energy (VLO, news, msgs), the largest independent refiner, jumped 2.8% to $68.14.

Alcoa (AA, news, msgs) was the Dow leader with a 2.6% gain to $36.69 as metals and materials stocks rallied. Honeywell International (HON, news, msgs) was the sole Dow loser, down 7 cents to $55.80.

Technology shares also rallied nicely. Cisco Systems (CSCO, news, msgs) moved 1.5% higher to $30.73. Microsoft (MSFT, news, msgs) was up 1.8% to $28.81. (Microsoft is the publisher of MSN Money.) IBM Corp.'s (IBM, news, msgs) 1.6% gain to $113.24 was good for 14.6 points of the Dow's gain.

The Philadelphia Semiconductor Index ($SOX.X) was up 0.6% almost to 496.

A total of 427 S&P 500 stocks were higher on the day. Department store chain Dillards (DDS, news, msgs) was the S&P leader with an 8.2% gain to $26.40.

Energy prices -- New York close
 Fri.Thur.Chg.Month chg.YTD chg.
Crude oil (NYMEX) (per barrel)$71.09$69.83$1.26

-9.10%

16.45%
Heating oil (per gallon)$1.9972$1.9610$0.0362-4.90%24.99%
Natural gas (per million BTU)$5.5230$5.6220-$0.0990-10.79%-12.32%
Unleaded gasoline (per gallon)$1.9814$1.9232$0.0582-7.45%23.68%

A bit of welcome news from housing

The Commerce Department reported Friday that new-home sales rose 2.8% in July, after falling 4% in June. The increase lifted sales to a seasonally adjusted annual rate of 870,000 units.

A second report showed that orders to factories for big-ticket goods jumped 5.9% in July, the most in 10 months.

Both reports were better than analysts' forecasts of falling home sales and just a 1% gain in factory orders.

West and South pump up prices

In the housing report, the improvement in sales reflected gains in the West and the South, where sales went up by 22.4% and 0.6%, respectively. However, sales tumbled 24.3% in the Northeast and were down 0.9% in the Midwest.

Even with the overall increase in home sales for July, sales are down 10.2% from a year ago and down 37% from July 2005, underscoring the depth of the housing slump.

The gains in July over June were welcome, in part because of the Commerce Department raised its estimate of June new-home sales slightly to an 845,000 annual rate.

Stock Charts (Year)

Lennar
Graphical chart for LEN
Centex
Graphical chart for CTX
Pulte Homes
Graphical chart for PHM
The Census Bureau, which compiles the data, revises monthly sales in each of the subsequent two months. That process shows how difficult this year has been. The original April estimate was 981,000 units. After two additional revisions, the Census Bureau now says April sales ran at an annual rate of 907,000 units, a 7.5% decline from the original report.

The median price of a new home, meanwhile, was $239,500 in July, up from $238,100 in July a year ago. The median price means half sell for more and half sell for less. The average home price, however, dropped to $300,800 in July, down from $311,300 for the same month last year.

The housing market's troubles have been bad news for home builders. Toll Bros. (TOL, news, msgs), the nation's largest builder of luxury homes, said Wednesday that third-quarter profit plunged nearly 85% as the housing downturn and credit worries triggered cancellations and hefty write-downs.

Earlier in the week, Moody's placed the credit ratings of three home builders -- Centex (CTX, news, msgs), Lennar (LEN, news, msgs) and Pulte Homes (PHM, news, msgs) -- under review for possible credit-rating downgrades. Lower ratings typically mean a company will have to borrow at higher interest rates.

The three stocks did little on Friday. Lennar was down 0.3% to $29.90, Pulte was down 0.3% to $17.53. Centex was up 0.4% to $31.99. The Philadelphia Housing Sector Index ($HGX.X) closed up 0.8% to 173.55.

Today's reports offered a touch of relief amid recent turbulence on Wall Street, which has darkened investors' feelings about the nation's financial prospects.

Fears that the worsening housing slump and credit crunch could hurt the economy have gripped Wall Street investors in recent weeks, causing stocks to swing wildly.

"The downside risks to growth have increased appreciably," Federal Reserve Chairman Ben Bernanke and the members of the Federal Open Market Committee concluded on Aug. 17 when they cut the Fed's discount rate from 6.25% to 5.75% in a narrowly tailored move aimed at propping up sagging financial markets.

It was a much more sober assessment than they had offered just 10 days earlier.

Gap is back -- almost

That's what executives at the San Francisco retailer are saying midway through a top-to-bottom restructuring, changing everything from the CEO to colors of its trademark jeans.

After seven straight quarters of earnings erosion, Gap (GPS, news, msgs) late Thursday posted a second-quarter profit that surged 19%. Net earnings for the quarter ended Aug. 4 were $152 million, or 19 cents per share. That was in line with Wall Street's expectations and up from $128 million, or 15 cents per share, in the year-ago period.

Shares rose 6.4% to $18.51 Friday.

The company also reported that online sales soared 26%, and bullish executives increased their profit forecast for the year and expanded a stock-repurchase program. So far this year, the company hasn't resorted to markdowns that evaporated profits last year, the chief financial officer said.

Stock Charts (Year)

Gap
Graphical chart for GPS
AnnTaylor
Graphical chart for ANN
But management acknowledged that the clothier, whose merchandise has flopped for several years, still faces daunting challenges.

Second-quarter revenue declined 1% to $3.69 billion, below Wall Street's expected $3.72 billion, and comparable-store sales -- a key gauge of a merchant's health -- crumbled by 5%.

Bullish guidance boosts AnnTaylor

Elsewhere in retail, AnnTaylor Stores (ANN, news, msgs) said Friday that its second-quarter earnings fell 27%, hurt by lower traffic and higher markdowns to move merchandise, especially at the clothing retailer's lower-priced Loft division.

Profit for the quarter ended Aug. 4 fell to $31.7 million, or 50 cents per share, from $43.2 million, or 59 cents per share, last year.

Revenue rose less than 1% to $614.5 million, from $610 million a year ago.

Analysts polled by Thomson Financial expected a profit of 48 cents per share on revenue of $618.3 million.

The company said it increased markdowns to reduce inventory heading into the fall season at both its Ann Taylor and Loft stores.

But shares were up about 9.4% at $31.59 Friday after the retailer said it expects a "good" second half of the year and affirmed its earnings guidance.

Short hits from the markets -- 4 p.m. ET
 Fri.Thur.Chg.Month chg.YTD chg.
Treasurys
13-week Treasury bill4.080%3.710%0.370-15.18%-16.48%
5-year Treasury note yield4.428%4.356%0.072-3.78%-5.81%
10-year Treasury note yield4.633%4.618%0.015-2.89%-1.63%
30-year Treasury bond yield4.897%4.923%-0.026-0.51%1.64%
Currencies
U.S. Dollar Index80.6181.11-0.50-0.06%-3.38%
British pound in dollars$2.0157$2.00560.0101-0.44%2.86%
Dollar in British pounds £0.4961£0.4986-0.00250.45%-2.78%
Euro in dollars1.36841.35720.01110.18%3.67%
Dollar in euros€ 0.7308€ 0.7368-0.0060-0.18%-3.54%
Dollar in yen ¥116.39¥116.310.08-1.19%-2.21%
Commodities
Gold$677.50$668.40$9.10-0.26%6.19%
Copper$3.3500$3.2765$0.074-8.18%16.68%
Silver$12.0980$11.7980$0.30-9.36%-8.79%
Crude oil (NYMEX) (per barrel)$71.09$69.83$1.26-9.10%16.45%

Burger King's tasty profit

Fast-food giant Burger King (BKC, news, msgs) posted a profit for its fourth quarter Friday morning, fueled by strong sales as it completed its first year as a publicly traded company.

But Wall Street wasn't impressed. The stock was down 3.5% to $24.06.

The world's second-largest hamburger chain earned $36 million, or 26 cents per share, for the three months ended June 30. Analysts had expected 27 cents per share; the eatery lost $10 million, or 8 cents per share, in the year-ago quarter.

Sales rose 11% to $590 million -- above Wall Street's expected $580.4 million -- from $533 million a year ago.

For its fiscal year, net income increased to $148 million, or $1.08 per share, compared with $27 million, or 24 cents per share, in the previous year. Full-year revenue was $2.23 billion, up 9% from $2.05 billion a year ago.

Organic merger moving forward

A federal appeals court on Thursday cleared the way for Whole Foods Market (WFMI, news, msgs) to buy rival organic grocer Wild Oats Markets (OATS, news, msgs).

Wild Oats shares were up 2.2% to $18.46; Whole Foods shares were up about 2.8% at $44.54 on the day.

The three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit denied a request by the Federal Trade Commission to delay the $565 million sale pending the outcome of an appeal. Whole Foods lawyers argued that such a ruling would have killed the deal.

Whole Foods officials have said they would move at the first opportunity to close the deal.

The company's $18.50-a-share tender offer for Wild Oats shares expires Monday. Whole Foods agreed to buy Wild Oats in February.

By Charley Blaine

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