Charley Blaine

Market Dispatches11/2/2008 10:15 PM ET

Dow up 144; stocks end October with hopeful rally

US markets appear headed toward a strong open after the Dow and S&P 500 end a rotten October with their best weeks since 1974. JPMorgan Chase may adjust terms on $110 billion in mortgages. Google and Yahoo may call their ad alliance off.

By Charley Blaine

October ended for stocks just the way it started: crazily.

But there was good news in the finish: The market ended the month on a high that may continue into November.

In fact, Asian markets opened higher in Monday trading.

Futures trading suggests that the Dow Jones industrials may open Monday with a gain of as much as 100 points, or about 1.1%. The Standard & Poor's 500 Index may add 8 points to start, a gain of 0.9%, and the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, may move up some 18 points or 1.6%.

The decent open appears to be momentum from Friday's strong finish that saw the Dow and S&P 500 enjoy their first two-day rally since the end of September. The Nasdaq Composite Index had its fourth consecutive day of gains.

The Dow closed up 144 points on Friday, or 1.6%, to 9,325. The S&P 500 was up 15 points, or 1.5%, to 969, and the Nasdaq ended 22 points higher, a 1.3% gain, to 1,721.

"It's nice to see more of a treat than a trick on the last day of October," James Dunigan, managing executive of investments at PNC Wealth Management in Philadelphia, told Bloomberg News.

There was much more to like about the way October ended.

  • The Dow and the S&P 500 had their biggest one-week percentage gains since October 1974. The Nasdaq's 10.9% gain for the week was its best since the week of April 9, 2001.

  • Yes, the losses for the month were awful: 14.1% for the Dow, its worst since August 1998; 16.9% for the S&P 500, its worst since October 1987; and 17.7% for the Nasdaq, its fourth-worst monthly loss ever and its worst since February 2001. But all three indexes have made substantial gains from the intraday lows on Oct. 10: 18% for the Dow, 15.3% for the S&P 500 and 11.6% for the Nasdaq.

  • The Oct. 10 intraday lows -- 7,882.51 for the Dow, 840.54 for the S&P 500 and 1,542.45 for the Nasdaq -- now appear to be a bottom that should hold for some time.

To be sure, financial markets face huge challenges in the weeks and months ahead. The credit markets are still difficult.

There will be a new administration in Washington in January.

The U.S. banking system needs to be overhauled with enough transparency in financial reporting and regulation to ensure that the meltdown that has crushed stocks and destroyed the retirement planning of millions doesn't happen again.

The recession, confirmed by several reports this week, will cause pain to the economy until at least late 2009.

And, as Dunigan noted, the housing market hasn't stabilized yet. "The sooner we can get to a place where housing has bottomed and put some fence around the mortgage problem, the sooner we'll be heading in the right direction."

Just so we have the record right, here's the damage: The Dow is still down 34.2% from its record high on Oct. 9, 2007; the S&P 500 is down 38.1%. The Nasdaq, whose peak came a year ago on Halloween, is down 39.81%.

The markets for the week
Close for weekWk. ago close% chg.YTD. chg.
Dow Jones industrials9,325.018,378.9511.29%-29.70%
S&P 500 968.75876.7710.49%-34.03%
Nasdaq Composite1,720.951,552.0310.88%-35.11%
Russell 2000537.52471.1214.09%-29.83%
Crude oil per barrel$67.81$64.155.71%-29.35%
10-yr. Treasury yield3.97%3.70%0.27%-1.61%
Gold per troy ounce$718.20$730.30-1.66%-14.30%

Stocks rise in a stubborn rally

Friday's rally was hard-earned. Markets opened lower and rallied in fits and spurts right up until the close. The Dow nearly lost all of a 250-point gain between 3 and 3:50 p.m. ET. Then, last minute buying kicked in.

The rally was spurred by the prospect of more interest rate cuts after the Federal Reserve's decision Wednesday to cut its key federal funds rate to 1%. The Bank of England and the European Central Bank are expected to cut their base rates on Thursday.

In addition, JPMorgan Chase (JPM, news, msgs) cheered investors when it said it would make changes in $110 billion in mortgages to help borrowers and will halt foreclosures temporarily while it alters the loans. The banking giant's shares were up 9.7% Friday to $41.25.

Financial stocks were the market leaders. The Select Sector-SPDR-Financial (XLF, news, msgs) exchange-traded fund, which tracks the financial sector of the S&P 500, was up 4.9% to $15.53, tops among the ETFs that track the 10 sectors of the S&P 500.

At the same time, transportation stocks enjoyed a big rally because of the prospect of lower fuel prices.

The Dow Jones Transportation Average ($DJT) closed up 4.3% at 3,886. The Amex Airline Index ($XAL.X) finished up 6.6% to 24.42. American Airlines parent AMR (AMR, news, msgs) closed up 11% to $10.21.

The rally for transports withstood a recovery in oil prices late in the day that gave energy stocks a boost. Crude closed up 2.8% to $67.81 after falling to as low as $63.12 early in the day. Crude followed natural gas, which jumped 5.5% to $6.783 per million British thermal units. Forecasts call for colder weather in the Midwest and Northeast next week.

Coal producer Massey Energy (MEE, news, msgs) was up 13.1% to $23.09. Oil and gas producer Apache (APA, news, msgs) was up 4.3% to $82.33.

The market rally came even as the government said consumers tightened their belts in September and lifted savings to cope with falling home prices and uncertainty about their jobs. Personal consumption in September fell 0.3% from a year ago. The Commerce Department data followed by one day the latest Gross Domestic Product report showing that spending by Americans declined in the third quarter for the first time in 17 years.

When Friday ended, 21 of the 30 Dow stocks were higher, led by JPMorgan Chase's big gain, along with 372 S&P 500 stocks and 42 Nasdaq-100 ($NDX.X) stocks. The index, which tracks the largest Nasdaq stocks, was up slightly at 1,334.78.

The Nasdaq and Nasdaq-100 were held back by weakness in big tech stocks such as Apple (AAPL, news, msgs), down 3.1% to $107.59, Microsoft (MSFT, news, msgs), down 1.3% to $22.33, and Qualcomm (QCOM, news, msgs), down 3.7% to $38.26. (Microsoft is the publisher of MSN Money.) Sun Microsystems (JAVA, news, msgs) was also a drag on tech stocks, down 13% to $4.60 after a weak earnings report on Thursday.

For the year, the Dow is down 29.7%, with the S&P 500 down 34% and the Nasdaq off 35.1%.

Energy prices -- New York close
 Fri.Thur.Chg.Month chg.YTD chg.
Crude oil (NYMEX) (per barrel)$67.81$65.96$1.85-32.62%-29.35%
Heating oil (per gallon)$2.0063$1.9841$0.0222-29.91%-24.27%
Natural gas (per million BTU)$6.7830$6.4310$0.3520-8.81%-9.35%
Unleaded gasoline (per gallon)$1.4413$1.4670-$0.0257-41.99%-42.14%

Google-Yahoo deal trouble?

A proposed Web-advertising partnership between Google (GOOG, news, msgs) and Yahoo (YHOO, news, msgs) is reportedly in jeopardy.

Both companies say they continue to try to allay concerns at the Justice Department about the deal's impact on competition -- but without progress in the talks, the companies could abandon the partnership, The Wall Street Journal reported.

The proposed partnership would allow Yahoo to show search ads sold by Google and take a cut of the revenue. Critics have complained it would give Google too much clout in online advertising.

A withdrawal would be a blow to Yahoo, as it represents a way for the company to generate hundreds of millions of dollars in revenue.

Yahoo shares closed down 0.9% to $12.82; Google shares were basically unchanged at $359.36.

Auto shares fall on mixed news

Shares in General Motors (GM, news, msgs) fell Friday on a Reuters report that the Bush administration won't provide direct funding for the proposed merger with Chrysler.

An administration official told the wire service that the feds would instead focus on accelerating $25 billion in low-interest loans for factory retooling -- a step the industry's allies say does not go far enough to reverse a deepening industry crisis.

GM shares were down 4.6% to $5.79.

On the brighter side, Ford Motor (F, news, msgs) announced yesterday that it would call back 1,000 workers to increase production of its new 2009 Ford F-150 truck. Ford is betting that the new truck will be popular. Still, Ford shares fell 4% to $2.19.

Finding the support floor in October

The month ending Friday has been one of the worst in the history of U.S. stock exchanges. The six weeks ending on Oct. 10 was the worst six-week period that the Dow has seen since the 1930s.

Yet that rather frightening statistic is important, because the Oct. 10 low has been tested by the Dow and the S&P -- and has held -- four times since then, on four separate days. Some analysts think this shows that the market has established a "support floor": a point low enough to generate sales and upward movement. If so, investors can be more confident.

More rate cuts ahead?

Prospects for additional interest-rate cuts also buoyed Wall Street Friday, after a Fed president said yesterday that the central bank's benchmark lending rate could potentially "go a little lower" than the current 1%.

"For the fourth quarter, it appears likely that the economy is contracting significantly," Janet Yellen, president of the Federal Reserve Bank of San Francisco, said Thursday at a University of California symposium in Berkeley, Calif.

"The mortgage meltdown is far from over (and) the economy and financial markets are still reeling from it," she added.

The Commerce Department reported Thursday that consumer spending declined at an annualized rate of 3.1% in the third quarter -– the first decline in Americans' spending since 1991.

Consumer spending accounts for roughly two-thirds of the U.S. economy. But Americans are holding ever tighter to their wallets as the values of their homes fall, their nest eggs shrink and more employers pare payrolls.

The third-quarter GDP report also said Americans' disposable income fell at an annual rate of 8.7%, the largest in records dating back to 1947.

Chevron has a huge quarter; A mixed-bag of corporate reports

Here's more of what investors are following:

  • Chevron (CVX, news, msgs) said Friday that its third-quarter profit more than doubled on the back of record crude prices this summer, though worldwide production fell during the period. The oil giant said it earned $7.89 billion, or $3.85 a share, in the three months ended Sept. 30 -- sharply up from $3.72 billion, or $1.75 per share, at the same time last year. Chevron said earnings from its exploration and production, or upstream, business rose about 80% in the quarter to $6.18 billion, buoyed by crude prices. But global production fell nearly 6% to an average of 2.44 million barrels of oil equivalent a day, hurt in part by late-summer hurricanes that shut down output in the Gulf of Mexico. Shares, down most of the day, recovered with crude oil, closing up 0.6% at $74.60.

  • Burger King (BKC, news, msgs) posted a lower-than-expected quarterly profit on Friday as commodity costs and other expenses hurt margins, but the world's No. 2 hamburger chain stood by its full-year outlook. Excluding costs tied to buying 72 franchise restaurants, Burger King earned 38 cents per share, missing analysts' average expectation of 39 cents per share, according to Reuters Estimates. The eatery chain has been hit by the rising cost of foodstuffs, but its low prices keep consumers coming in, even in a recession. Keeping the restaurants open longer has also helped. Shares fell 1.8% to $19.88 Friday.

  • Power generator American Electric Power (AEP, news, msgs) said Friday that its third-quarter earnings fell 8% from a year ago because of mild summer weather, higher fuel costs and increased maintenance expenses from storms that included Hurricane Ike. AEP, one of the nation's largest power generators, said it made $374 million, or 93 cents per share, for the quarter ended Sept. 30 -- compared with profit of $407 million, or $1.02 per share, a year ago. Shares dropped 1.7% to $32.63.

  • Weyerhaeuser (WY, news, msgs) said its third-quarter profit nearly tripled on gains from the sale of its $6 billion packaging business. But sales of timber and pulp fell 38% and the company warned of continued challenges in the fourth quarter. Shares slipped 1.2% to $38.22.

  • Late Thursday, Electronic Arts (ERTS, news, msgs), the video game maker, reported a loss of 6 cents per share on revenue of $1.27 billion in its second-quarter earnings report. The video game maker best known for its top-selling Madden football franchise and other sports games, said that it lost $310 million, and is cutting its work force by 6%. Shares plunged $4.95, or 17.9%, to $22.78 on Friday.

Andy Rosenbaum and Mark Baumgartner contributed to this report. Elizabeth Strott was off on Friday.

Short hits from the markets -- New York close
 Fri.Thur.Chg.Month chg.YTD chg.
Treasurys
13-week Treasury bill0.435%0.375%0.060-51.67%-86.15%
5-year Treasury note yield2.821%2.792%0.029-5.53%-18.35%
10-year Treasury note yield3.970%3.939%0.0313.74%-1.61%
30-year Treasury bond yield4.369%4.284%0.0851.49%-2.02%
Currencies
U.S. Dollar Index86.34585.2551.0908.80%12.58%
British pound in dollars$1.6054$1.6377-0.0323-9.94%-19.30%
Dollar in British pounds £0.6229£0.61060.012311.03%23.91%
Euro in dollars$1.2757$1.2860-0.0103-9.53%-12.72%
Dollar in euros€ 0.7839€ 0.77760.006310.53%14.57%
Dollar in yen 98.4398.56-0.13-7.17%-12.00%
Canadian dollar in U.S. dollars$0.824$0.833-$0.0085-12.37%-16.98%
U.S. dollar in Canadian dollars$1.215$1.201$0.014114.20%20.54%
Commodities
Gold$718.20$738.50-$20.30-18.46%-14.30%
Copper$1.8290$1.8905-$0.06-36.47%-39.86%
Silver$9.7300$9.7850-$0.05-20.73%-34.79%
Corn$4.0150$4.0950-$0.080.00%-11.86%
Crude oil (NYMEX) (per barrel)$67.81$65.96$1.85-32.62%-29.35%

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