Despite a decline in oil prices following an agreement among major world oil producers that didn't yield a hopeful production cut, as well as some lackluster economic news, U.S. equities began the holiday-shortened week with solid gains. Meanwhile, Treasuries were lower, as was gold, while the U.S. dollar was higher.
The Dow Jones Industrial Average (DJIA) jumped 222 points (1.4%) to 16,196, the S&P 500 Index advanced 31 points (1.7%) to 1,896, and the Nasdaq Composite rallied 98 points (2.3%) to 4,436. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.40 to $29.04 per barrel and wholesale gasoline decreased $0.07 to $0.97 per gallon, while the Bloomberg gold spot price fell $8.11 to $1,201.19 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—shot 1.0% higher to 96.89.
Residential and business security company, ADT Corp. (N:ADT $40), announced an agreement to be acquired by funds affiliated with private equity firm Apollo Global Management LLC (N:APO $14) for $42.00 per share in cash, in a transaction valued at about $6.9 billion. As part of the deal, ADT will have a 40-day "go-shop" period, during which it may actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals. ADT surged nearly 50% and APO traded higher.
Hormel Foods Corp. (N:HRL $44) reported fiscal 1Q earnings-per-share (EPS) of $0.43, above the $0.37 FactSet estimate, with revenues declining 4.3% year-over-year (y/y) to $2.3 billion, below the forecasted $2.4 billion. The company said its earnings were led by refrigerated foods, grocery products, and specialty foods, along with the positive momentum at Jennie-O Turkey Store. As such, HRL raised its 2016 EPS outlook. Shares were nicely higher.
Groupon Inc. (O:GRPN $4) rallied over 40% on the disclosure from Alibaba Group Holding Ltd. (N:BABA $66) that it has acquired a 5.6% in the online deal and e-commerce site, making it GRPN's fourth-largest shareholder.
Homebuilder sentiment dips, NY manufacturing activity continues to contract
The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month declined to 58—the lowest level since May 2015—from January's upwardly revised 61 figure from the originally-reported 60 level, where the Bloomberg estimate had called for it to remain. Builder confidence remained above 50, which separates good and poor conditions, for the twentieth-straight month. The NAHB noted, "Though builders report the dip in confidence this month is partly attributable to the high cost and lack of availability of lots and labor, they are still positive about the housing market," while adding that they expressed optimism that sales will pick up in the coming months.
Much of the rest of the economy continues to look fairly healthy, notably the all-important labor market and the more heavily-weighted services sector that remains in growth territory. Also, rising house prices indicate and help to facilitate confidence among consumers.
The Empire Manufacturing Index showed the contraction in output from the New York region (a reading below zero) for February remained. The index improved to -16.6 from the unrevised -19.4 in January, with forecasts calling for an improvement to -10.5.
Treasuries finished lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 0.72%, the yield on the 10-year note rose 3 bps to 1.79%, and the 30-year bond rate advanced 4 bps to 2.65%.
Although shortened by Monday's holiday, today's data kicks off this week's U.S. economic calendar, which will begin to really heat up tomorrow with the release of housing starts and building permits, with economists expecting a 2.0% month-over-month (m/m) increase in starts for January to an annual rate of 1.2 million units, while permits are anticipated to show a decline of 0.3% m/m to a 1.2 million unit rate. Also on tap is the Fed's industrial production and capacity utilization report, with production forecasted to rise 0.5% m/m during January and utilization to inch higher to a level of 76.7%, as well as the Producer Price Index (PPI), with January's headline rate expected to match December's 0.2% decline, and excluding food and energy, January's core rate is anticipated to duplicated the prior month's 0.1% increase. However, tomorrow's afternoon release of the January monetary policy meeting minutes from the Federal Open Market Committee (FOMC) will likely headline the docket amid the backdrop of heightened Fed rate hike uncertainty. The Fed is in a tight spot. Having just raised interest rates in December and expressed optimism about the outlook for the economy and inflation, it can hardly reverse course just because of volatile stock markets. With the employment picture improving, the big questions for the Fed revolve around weak inflation prospects and tightening financial conditions.
Europe mostly lower after two-day jump, Asia adds to yesterday's rally
European equities traded mostly to the downside, with early gains being relinquished as oil and gas issues came well off of the best levels of the day. Traders appeared to be disappointed somewhat that a meeting between some of the world's largest oil producers, including Saudi Arabia and Russia, only delivered an agreement on an output freeze at January levels if other exporters joined the pact. Some were hoping for a production cut following the meeting. European stocks came off a two-day rally that has ensued amid increased expectations of continued monetary policy support from the European Central Bank (ECB), with President Draghi reiterating late-yesterday that further stimulus may be in the offing. Financials saw some pressure on continued concerns about bad loans, as well as some analyst downgrades in the sector, while basic materials led to the downside. In economic news, German investor confidence for February fell to the lowest level since October 2014, while U.K. consumer price inflation fell more than expected for January. The euro declined versus the U.S. dollar and bond yields in the region traded mostly higher.
Stocks in Asia finished mostly higher, extending yesterday's rally that came as mainland Chinese stocks returned to action following a week-long holiday, while markets in Hong Kong also took part in the advance. Commodity-related stocks moved higher today, led by oil and gas issues on speculation of an output deal among some of the world's largest oil producers, while some upbeat January Chinese lending data buoyed sentiment. China's new yuan loans easily topped forecasts and the nation's aggregate financing—a gauge of total credit issued—also came in well above expectations. The reports followed a disappointing trade balance report released over the weekend.
Japanese equities ticked higher, after yesterday's sharp rally that came as the yen gave back some of its recent jump on a rush to safe-haven assets amid heightened market volatility. Australian securities also advanced, getting a boost from oil and gas and basic materials stocks, along with South Korean listings after the Bank of Korea left its monetary policy unchanged, but India's bourse fell after posting the largest rally in a year yesterday.
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