January 8, 2010

Mixed News on Housing and Factory Orders

As investors ease back into the markets following the holiday-shortened week, the major indices traded within a narrow range on Tuesday. After mixed news on housing and factory orders, the markets struggled to get back to breakeven, following the previous session’s surge in trading, which saw the Dow jump 1.5%.

On the economic front, the Commerce Department confirmed today that factory orders surged in November, jumping 1.1%. The surprising gain in orders revealed an increase in demand throughout several industries, including heavy machinery, computers, steel and chemicals.

The 1.1% monthly advance came in well ahead of economists’ prediction of a 0.5% increase. Of all the industries, autos and aircraft manufacturers were the only two industries that posted monthly declines.

The National Association of Realtors revealed that sales of previously occupied homes plunged in November, falling 16% month-over-month to a reading of 96, as the winter months proved difficult throughout the housing industry. November’s decline marked the first contraction in pending home sales, following nine straight months of increases.

Economists were looking for pending home sales to slip a more modest 2% in November.

With no major corporate earnings released today, there were a few news reports released that concerned some well-known companies. The first being Google (GOOG), which is poised to enter the mobile cell phone market and compete with market giant Apple (AAPL). Google stated at a company-sponsored event that they were prepared to outline a working model on how mobile phones should be marketed and produced. Although little about the actual make and model of the phone was released, it is apparent that the first issue will be titled “Nexus One.”

Google did state that their Android operating system, which was introduced in late 2007, is designed to interconnect with Web sites and servers via the cell phone. Up until now, Google used to rely on other companies to design phones that would incorporate the Android system. The up-and-coming Nexus One will be solely designed by the company’s own engineers.

By the close of trading, shares of Google were down $2.76, or 0.4%, to close at $624.00 per share. Meanwhile, Apple shares were up 0.2%, or $0.38, to conclude the January 5 session at $214.39 per share.

In an ongoing battle for the bidding rights of British candy maker Cadbury PLC (CBY), the saga was weakened on Tuesday following Switzerland’s Nestle SA taking itself out of the running by offering forerunner Kraft Foods (KFT) a substantial amount of cash to help bolster a hostile takeover of Cadbury. Kraft is currently offering $16.5B in cash for Cadbury.

It appears that Kraft is the only suitable bidder for the candy maker, although rumors have it that there may be expressed interest from American chocolatier The Hershey Co. (HSY), as well as Italy’s Ferrero International SA.

With the day’s trading concluded, shares of Kraft Foods were up nearly 5%, adding $1.34, to end the session at $29.77 per share. The Hershey Co’s stock managed to end the day in positive ground as well, gaining $0.95, or 2.6%, to finish at $37.17 per share.

The Forex markets saw the Dollar advance in value versus the majority of the world’s currencies, as the 16-nation Euro fell against the greenback, buying $1.4368, down from the previous session’s price of $1.4412. The British pound also retreated versus the Dollar, as the Sterling fell from $1.6094 late Monday to $1.5977.

The Dollar did slip in value against the Japanese yen, buying 91.70, down from yesterday’s value of 92.60. In additional trading, the Dollar climbed to 1.0334 Swiss francs from 1.0294, but slipped to 1.0306 Canadian dollars from 1.0422 Canadian dollars.

The price of oil advanced once again on Tuesday, as investor confidence and a softer Dollar helped push the cost of crude higher. By the close of trading, the price for a barrel of light, sweet crude for February delivery increased by $0.26 to settle at $81.77 a barrel. Monday’s trading saw the contract surge $2.15 to settle at $81.51 a barrel.

In additional NYMEX trading, heating oil gained $0.005 to $2.1941 a gallon, while gasoline added $0.0036 to $2.1080 a gallon. Natural gas was lower by $0.247 to $5.637 per 1,000 cubic feet.

With the markets trading mixed throughout the day, investors were more inclined to place their capital in safer securities. Treasuries traded higher by the close, as the benchmark 10-year note was up 16/32 at 96 26/32, while its yield slipped 0.06% to 3.76%.

Meanwhile, the longer maturing 30-year note was higher as well, gaining 20/32 to 96 9/32, as its yield slipped from 4.64% to 4.60%. Lastly, the shorter maturing 2-year note was up marginally, adding 4/32 to 99 31/32, with its yield falling from 1.07% to 1.01%.

By the sound of the closing bell on January 5, the Dow Jones Industrial average retreated by 11.94 points, or 0.1%, to end the day at 10,572.02, while the broader market indicators conclude the session in the green.

The S&P 500 index was up slightly, adding 3.53 point, or 0.3%, to finish at 1,136.52, while the tech-heavy NASDAQ composite index advanced marginally, gaining 0.29 point to 2,308.71.

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BRIAN MULLIN