For the week, the blue chip index gained 4.88%; the S&P 500 Index rallied 5.98% and the NASDAQ surged 7.60%.
At the start of the week, stocks surged, with the Dow jumping over 300 points and posting its best 5-day point gain since December 2008. The risk on trade was back in vogue ahead of a new earnings-reporting season and after French President Nicholas Sarkozy and German Chancellor Angela Merkel said that by the end of the month they would have plan to stabilize European financial system.
On Tuesday, trading was more subdued, with the major benchmark indices ending narrowly mixed after fluctuating in a tight trading range, as participants turned cautious ahead of the start of earnings season, amid drama in the euro zone with Slovakia’s Parliament struggling to pass the expansion of the European bailout fund.
Momentum returned mid week, with stocks gaining on news that political leaders in Slovakia had reached an accord to approve the expansion of the EU rescue fund by the end of the week and after the European Commission provided a road map of plans to recapitalize banks and halt the sovereign debt crisis. Participants shrugged off a disappointing earnings report from Alcoa (NYSE:AA), the first Dow component to report its quarterly results and unofficially kick off a brand new earnings season.
On Thursday, a volatile session resulted in benchmark indices closing mixed, as the market cut earlier looses boosted by technology shares. Selling pressure took the market down more than 1% at session lows following the release of weak Chinese trade data, a lackluster weekly jobless claims report and as JPMorgan (NYSE:JPM), the U.S. second largest lender, disappointed investors with its quarterly results.
At the end of the week, stocks were able to rally into the close, with the S&P 500 overcoming resistance after an stellar earnings report from Google (NASDAQ:GOOG), continuing reports of strong demand for Apple’s (NASDAQ:AAPL) iPhone 4S, and better than expected retail sales data helped participants gather enough momentum o push stocks to its highest level in 10 weeks.
All of the key S&P 500 sectors closed with sizeable gains for the week, with energy, materials, and technology posting the biggest gains. Equities along with commodities saw sharp gains, as the risk appetite returned, with the euro making sharp gains against the Dollar.
The energy space benefited from a rally in crude oil prices, which posted their second consecutive weekly gain, as prices close near $87 per barrel as they moved 5% higher for the week. Other components in the energy complex like gasoline and heating oil also moved to the upside, while natural gas jumped 6% o=fro the week after bullish inventory data and a forecast for colder weather in the U.S.
Valero Energy (NYSE:VLO), the independent crude oil refiner, was among the best performers in the sector for the week, with shares surging 19.4% to $23.62. The stock benefited from the price action in the energy complex and after Barclays Capital upgraded it to Overweight from Equal Weight. The firm raised its target price to $35 from $31, citing its recent underperformance and limited downside risk.
Ancillary plays for materials saw also increased interest, despite some concern over the pace of Chinese economic growth. Alpha Natural Resources (NYSE:ANR), the steam and metallurgical coal producer, jumped close to 18% to $21.65, closing below its calculated resistance at $22.04.
The increased appetite for risk and the weakness in the greenback as the euro made a comeback amid hopes of a EU debt crisis resolution boosted the performance in the space, despite some concern mid week following disappointing Chinese trade data that showed exports slowing amid a challenging global economic outlook.
Alcoa (NYSE:AA), the aluminum producer, was the main focus after it kicked off the earnings season with a quarterly results that missed earnings expectations on revenues that were above estimates. The company said it earned $0.15 per share, $0.08 worse than consensus, on revenues that jumped 21.4% to $6.42 billion versus consensus of $6.24 billion. Alcoa also reaffirmed its 2011 global aluminum demand guidance of 12% growth. For the week, Alcoa was able to manage to gain 5.7%, and close at $10.26. Following the earnings miss mid week, the stock tumbled 2.4% and closed at $10.05 after trading as low as $9.73.
United States Steel (NYSE:X), the integrated steel producer with operations in North America and Europe, rallied 12.3% to $24.64, ending shy of its calculated resistance at $24.74. US Steel received an additional boost during the week on the back of takeover speculation.
The technology sector provided support to the S&P 500 through out the week, even on mixed days. The space benefited from strong performances from both Apple and Google.
Apple (NASDAQ:AAPL), the maker of iPads and iPhones, was a source of strength through out week, with the stock jumping 14% to close at $422, just shy of its all-time high of $422.86. The stock rebounded from last week loss following constant reports signaling strong demand for its iPhone 4S ahead of its quarterly results scheduled for October 18th, in which analysts on average expect a profit of $7.20 on revenues of $29.24 billion.
The tech giant reported that it received 1 million pre orders for its newest handset in the first 24 hours that it was available, smashing all previous records of other Apple devices. The headlines of extraordinary demand for the newest iPhone kept the momentum in the stock, with all of the three U.S. carriers saying that they sold out of the iPhone 4S for pre-orders a day ahead of its official launch in seven countries around the world.
Brokerage houses were also active during the week. Morgan Stanley reiterated its Overweight rating and target price of $470 despite keeping its earnings estimates for the prior and current quarters below consensus. Ticonderoga speculated about a possible iPad at a lower price or iPad mini that could be available in early 2012 as Apple looks to fend off competition from Amazon’s Fire Kindle. Meanwhile, Bernstein raised its target price on AAPL to $575 from $510, as it reiterated its Outperform rating.
Apple was able to close at the highs of the session as several analysts expected that the company could sell up to 4 million iPhone 4S by the end of the weekend. Susquehanna reiterated its Positive rating and target price of $535, saying that it expects Apple’s iPhone shipments to top 27 million units in the current quarter. The ISI Group also initiated its coverage with a Buy rating and a target price of $500 per share, while Goldman Sachs added to the bullishness naming Apple (NASDAQ:AAPL) its Top Pick in the space.
Apple was able to also score significant victories in its global patent war against Samsung, which provided an additional backdrop for the outperformance. An Australian court issued a temporary ban on the sale of the Samsung Galaxy 10.1 tablets in that country. And today Samsung lost its bid in a Dutch court to ban the sales of the iPhone and the iPad in the Netherlands. A much more important battle starts next week, when a Californian court begins hearing Apple's bid to ban sales of Galaxy products in the United States.
Google (NASDAQ:GOOG) also boosted the space after blowing past Wall Street earnings estimates. The Internet giant jumped close to 15% to $591.68 after it said its profit for the quarter was $0.95 per share higher than consensus on net revenues that jumped 37% year over year to $7.51 billion, beating consensus of $7.21 billion. JPMorgan raised its target price on Google to $705 from $685, citing mobile search as one of the biggest factors for Google's sharp acceleration in paid clicks growth. Meanwhile, Bank of America Merrill maintained its Buy rating but lowered its target price to $720 from $740. Shares of Google rallied 5.85% to $591.68after trading as high as $599.60.
IBM (NYSE:IBM), the IT solutions and consulting services provider, gained 4.5% to $190.53, closing at a new all-time high for the stock. Macquarie initiated coverage on the stock with Outperform and a target price of $210, while the ISI Group initiated coverage with a Hold. IBM gained ahead of its earnings report scheduled for next Monday after the close, with analysts on average expecting a profit of $3.21 per share on revenues of $26.27 billion. Last week, Morgan Stanley named IBM as a long Research Tactical Idea.
Also in the space, Sprint Nextel (NYSE:S), the third largest U.S. wireless carrier saw high volatility but was able to rebound sharply for the week, with shares surging 15.8% to close at $2.79. At end of the week, with the iPhone 4S and iPhone 4 launch in the Sprint network, the company said that it had its best ever day of sales in retail, web and telesales for a device family in Sprint’s history.
Shares of Sprint were under heavy pressure earlier in the week after several downgrades. Kaufman Brothers downgraded to a Hold from Buy, saying it believes that with incremental spending for the Apple’s iPhone 4S subsidies, more rapid deployment of Network Vision, and LTE, the pressures on Sprint's cash balance could be severe. But the stock was able to rebound sharply after FBR Capital added it to its Top Picks Lists, saying that concerns over financial strains resulting from negative margin trends from Apple’s iPhone 4S and the funding gap, are in their view overstated. Sprint added to gains as BRIG Research said the company would be able to raise the capital it needs, but could be costly.
Moody’s downgraded Sprint Nextel to B1 from Ba3, which weighed on the stock at end of the week.
The stellar report from Google also helped lift stocks in the consumer discretionary space, which also received a boost from the better than expected retail sales data in September.
Amazon.com (NASDAQ:AMZN), the largest online retailer, jumped 9.8% for the week, closing at a new all-time high of $246.71.The stock surged after the better than expected retail sales number and as Bank of America Merrill said that it continues with a positive stance toward the stock as Google’s report bode well for the ecommerce space.
Meanwhile, financials saw volatility through out the week on credit ratings agency actions, lackluster results from JPMorgan, the first financial firm to release its earnings report, and headlines flowing from Europe.
JPMorgan (NYSE:JPM), the U.S. second largest lender, gained 3.9% in the week to close at $31.89. The lender posted better than expected results on both the bottom and top line but the quality of the earnings was called into question, as the company reported about a 33% profit decline excluding a $1.9 billion accounting benefit as earnings from investment banking and trading slumped. Cautious comments in the conference call also weighed on the stock. UBS cut its target price to $44 from $49, while trimming its fiscal 2012 EPS estimates.
Bank of America (NYSE:BAC), the largest U.S. lender, gained 4.9% to $6.19 rebounding from last week loss, in which the stock posted a new multiyear low of $5.13. Bank of America reacted to the JPMorgan results ahead of its own results scheduled for October 18th.
The stock was able to gain, climbing from oversold levels, despite Guggenheim downgrading it to a Neutral from Buy, while cutting its target price to $6.50 from $10; and UBS adding it to its least preferred list. On average analysts expect a profit of $0.19 per share on revenues of $25.84 billion. Last quarter, Bank of America lost $0.90 per share.
And Citigroup (NYSE:C), the third largest U.S. lender, surged 15.3% to $28.40 for the week also ahead of its quarterly results scheduled for next week on Monday. The stock received an additional boost after UBS added the stock to its Most Preferred list. Earlier in the week, Oppenheimer lowered its target price to $43 from $45. For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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