There's No Business Like FOX Business
The bulls on Wall Street returned from their week-long vacation on Tuesday as a near-$40 billion bid to acquire Potash and earnings beats and raised guidance from big-name retailers Wal-Mart and Home Depot lifted the Dow 100 points.
The Dow Jones Industrial Average jumped 103.84 points, or 1.01%, to 10405.85, the Standard & Poor's 500 rose 13.16 points, or 1.22%, to 1092.54 and the Nasdaq Composite picked up 27.57 points, or 1.26%, to 2209.44. The FOX 50 added 7.24 points, or 0.95%, to 790.34.
Wall Street received the catalysts for the triple-digit rally before the markets even opened as Potash (NYSE:POT) disclosed it received and rejected an unsolicited $38.5 billion takeover offer, sparking a rally in the resource sector, and consumer discretionary stocks cheered upgraded outlooks from Wal-Mart (NYSE:WMT), Home Depot (NYSE:HD) and TJX Cos. (NYSE:TJX).
The markets also managed to mostly shrug off the latest disappointing economic report as the government said July housing starts grew by less than forecasted.
“You can definitely say things were getting a little oversold in the near-term,” said Ryan Detrick, equities analyst at Schaeffer’s Investment Research. “That’s got the buyers out.”
Not everyone was sold on the rally, however, especially given continued fears of a double-dip recession. That thinking was supported by a late-day slide from the highs as the Dow had been up as much as 178 points at one point before trimming its gains in the final hours.
“There’s still too many clouds overhanging the economy to feel like the stock market has the potential to get some leg -- because it doesn’t," said Michael James, senior equities trader at Wedbush Morgan Securities. “Buyers who had been on the sideline for the better part of the last week jumped in to take advantage of the prices.”
Almost every Dow stock made headway, led by Home Depot and economically-sensitive Alcoa (NYSE:AA) and Caterpillar (NYSE:CAT). The index's worst performers were Kraft (NYSE:KFT) and JPMorgan Chase (NYSE:JPM).
The Nasdaq Composite outpaced the broader markets, driven higher by big gains from technology stocks like Qualcomm (NASDAQ:QCOM) and Garmin (NASDAQ:GRMN).
Wall Street’s triple-digit rally ends the Dow's five-day slump, which was its longest losing streak since the seven-day slide that ended on July 2. Hurt by fears of a double-dip recession, the benchmark index had lost 3.7% of its value over the past week. The Dow closed just fractionally lower on Monday, while the Nadaq Composite gained 0.4%.
August is so far living up to its reputation for being a historically slow month on Wall Street as volume on Monday was the lowest of the year, narrowly beating out the previous Monday’s low volume.
Wall Street rallied around a slew of earnings beats in the retail sector on Tuesday. Retail king Wal-Mart beat the Street by a penny with EPS of 97 cents. While the company’s revenue of $103.73 billion missed estimates and its same-store sales slid 1.8%, it upped its full-year EPS guidance to $3.95 to $4.05. Analysts had been projecting EPS of $3.99.
Likewise, Home Improvement’s 6.8% rise in second-quarter profits and EPS of 71 cents topped expectations. And while its sales growth of 1.8% to $19.41 billion came up shy, it also raised its full-year EPS outlook to $1.90. Additionally, retailers Saks (NYSE:SKS) and Abercrombie & Fitch (NYSE:ANF) reported quarterly results that exceeded expectations and announced new plans to cut costs, though A&F tumbled on margin concerns.
Outside of the retail space, shares of Potash (NYSE:POT) surged nearly 28% to 52-week highs after the fertilizer company announced it received and rejected a $38.5 billion buyout bid from mining giant BHP Billiton (NYSE:BHP). Potash called BHP’s bid of $130 a share, a 16% premium on its closing price Monday, “grossly inadequate” and adopted a plan aimed at heading off a hostile takeover.
“You’ve got to say that’s a positive because they are saying, ‘We are worth more than you’re willing to pay.’ The market seems to agree with that stance,” said Detrick.
News of the buyout offer sent a wave of buying through the fertilizer group, fueling big rallies for shares of Intrepid Potash (NYSE:IPI) and Mosaic (NYSE:MOS).
The commodities complex also cheered the M&A news. Ending its own five-day slump, crude oil settled up 53 cents a barrel, or 0.70%, to $75.77. Copper jumped 1.85% a pound to $3.3375. Gold saw less buying, rising $2.10 a troy ounce, or 0.17%, to $1,226.60.
The news wasn’t all positive, however, as the latest economic indicators pointed to slower growth.
The Commerce Department said July housing starts rose 1.7% in July to a seasonally-adjusted 546,000 units, missing forecasts from analysts for a bigger increase to 555,000 units. The government also lowered its estimate for June housing starts and said building permits slid 3.1% to a rate of 565,000 units -- a new 14-month low.
Separately, Wall Street's deflation fears were likely eased by the Labor Department's producer price index, which rose by an in-line 0.2% last month and increased by a slightly hotter-than-expected 0.3% when food and energy costs are removed. Also, the Federal Reserve said industrial output rose 1% in July, doubling the 0.5% economists had forecasted.
Saks (NYSE:SKS) beat the Street with a non-GAAP loss of 13 cents a share, compared with estimates for a loss of 17 cents. Sales climbed by 5.1% to $593.1 million, narrowly topping estimates from analysts for $585 million. The luxury retailer forecasted second-half and full-year same-store sales growth in the mid-single digits and also detailed plans to shutter a pair of its Saks Fifth Avenue stores in California and Texas.
Abercrombie & Fitch (NYSE:ANF) saw its stock tumble nearly 7% even after the teen apparel retailer beat the Street with a non-GAAP profit of 22 cents a share. Analysts had been projecting EPS of 16 cents. It's possible shareholders were spooked by the company's gross margins sliding from 66.6% to 65.1%. Also, A&F announced plans to shut down 60 domestic stores and scaled back plans for international expansion.
Eli Lilly (NYSE:LLY) slumped 2.3% after saying it is halting the development of its experimental Alzhemier’s drug semagacestat due to side effects. Also, the Food and Drug Administration raised safety concerns about its blockbuster antidepressant drug Cymbalta.
TJX Cos. (NYSE:TJX) posted an in-line non-GAAP second-quarter profit of 73 cents a share and a 6.8% rise in revenue to $5.07 billion. The parent of T.J. Maxx and Marshalls also upped its full-year non-GAAP EPS guidance.
The U.K.'s FTSE 100 climbed 1.41% to 5350.55, France's CAC 40 rose 1.82% to 3663.13 and Germany's DAX jumped 1.57% to 6206.40.
In Asia, Tokyo's Nikkei 225 sank 0.38% to 9161.68, Hong Kong's Hang Seng rose 0.12% to 21137.40 and China's Shanghai Composite gained 0.38% to 2671.89.