December 8, 2010, CNBC Online
Stocks closed mixed as the Dow turned negative in the final minutes of trading Tuesday after a report from Reuters that said Federal authorities were ramping up Wall Street insider trading probes. Stocks had been trading higher after President Obama defended his tax cut compromise with Republicans in the face of strong Democratic opposition.
The Dow Jones Industrial Average fell 3.03 points, or 0.03 percent, to 11,359.16, after gaining 88 points earlier in the session. Stocks closed mixed in the previous session as the Dow slipped and technology stocks gave a boost to the Nasdaq.
General Electric , Chevron and Caterpillar led blue-chips higher, while 3M sank.
The S&P 500, which had reached intraday highs not seen since September 2008, rose 0.63 points, or 0.05 percent, to 1,223.75. The tech-heavy Nasdaq rose 0.14 percent, to 2,598.49. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P 500 sectors, industrials, consumer staples, and telecom rose, while utilities fell.
Federal authorities were ramping up investigations into insider trading, sending out more than a dozen subpoenas on various firms including the seven firms that confirmed the receipt of subpoenas over the last two weeks, according to a report from Reuters.
No immediate details were available as to which companies had received the subpoenas.
Earlier, stocks rose broadly following news that the tax cuts, first enacted when George W. Bush was president, would be extended for two years according to the agreement Obama reached with Republicans. Obama and Congressional Republicans also worked out a plan to cut payroll taxes.
In a press conference Tuesday afternoon, President Obama strongly defended the compromise, saying it was in the best interest of all Americans.
Word of the agreement was encouraging to Wall Street, which was seeking resolution of the tax cut question, as well as how the new Congress would work with Obama. The compromise, which is still opposed by some Democrats in Congress, removes some uncertainty.
While the earlier rally was solid, it was relatively modest as market participants had already expected a compromise on tax cuts given the strong Republican showing during the mid-term election, and pre-election comments made by Obama as well as John Boehner, the Republican leader of the House of Representatives.
"Most everyone felt this deal had to be done, would be done, the only question was will it get done before Jan. 1," said Marc Pado, market strategist at Cantor Fitzgerald. "Removing that uncertainty is a positive for the market."
Now market participants can focus on what’s really important: holiday sales, which will drive corporate earnings in the fourth quarter. Pado’s view was companies were well positioned for continued growth. "That will be catalyst for the longer term mainstay of the bull market run," he said.
The Russell 2000, an index of small and mid-cap stocks, ended up nearly half a percent, far more than the major indexes Tuesday. That’s a sign investors were willing to bet on stocks that are more sensitive to the economic environment than their bigger cap brethren, Pado said.
"That’s telling you investors are chasing risk, they have faith, they really believe that this is going to turn the economy around," he said.
The dollar rose against a basket of currencies, as the euro fell despite expectations Ireland would pass an austerity budget. The price of oil fell to $88.69 a barrel, after rising above $90. Gold slumped to $1,410 an ounce after hitting $1,430 earlier, a record.
Shares of Citigroup climbed more than 3 percent after the U.S. government sold off its last shares in the bank for $4.35 each. The sales means the end of the government’s ownership of the banking giant, resulting in a $12 billion gain for taxpayers.
Meanwhile, Bank of America slipped despite word from CEO Brian Moynihan that there is no reason the bank won’t boost its dividend next year if it passes an upcoming stress test by the Federal Reserve. The bank is targeting a dividend of 30 percent of earnings, Moynihan said at the Goldman Sachs Financial Services Conference.
About half of all financial stocks fell Tuesday, including Wells Fargo , but JPMorgan fell.
Also, a handful of regional banks were lower including KeyCorp and Comerica.
On the tech front, Research In Motion fell after Gleacher downgraded the Blackberry maker to "neutral" from "buy," citing share price appreciation. The brokerage also said RIM faces increased competition next year.
Google climbed after Morgan Stanley added the search-engine giant to its best ideas list. This comes after the company unveiled its web-based bookstore on Monday in a challenge to Amazon.com.
Akamai advanced after Jefferies raised its price target on the tech firm to $60 from $45.
Also Advantest, a Japanese memory chip test maker, confirmed plans to buy out Verigy, a semiconductor testing company for about $730 million. Verigy is listed in the U.S., but is headquartered in Singapore. Oppenheimer raised its rating for Verigy to "outperform," and its price target to $17 a share from $7, anticipating Advantest would bid higher, according to Reuters.
Other chipmakers rose across the board, including Texas Instruments, AMD and Nvidia.
3M shares fell despite the diversified manufacturer’s expectations that its adjusted earnings will grow 10 to 14 percent next year above what it expects to earn in 2010, thanks to growth in India and Latin America.
Talbots sank more than 20 percent after the women’s clothing retailer cut its full-year forecast, and said it would further cut prices.
Boeing was flat after news the airline maker is in the middle of a three-week hold on assembling pieces of its new 787 plan.
Autozone fell after delivering better-than-expected earnings, and a 9.5 percent rise in domestic comparable store sales, better than the 5 percent rise anticipated by analysts.
Toronto Dominion Bank was reportedly in talks to buy Chrysler Financial, sources told Reuters. Chrysler Financial is owned by Cerberus Capital Management, a private equity firm.
Volume on the consolidated tape of the New York Stock Exchange was 7.4 billion shares. On the NYSE floor, 1.6 billion shares changed hands. Declines and advances were about 1 to 1.
Treasurys extended losses after the government auctioned $32 billion of 3-year notes, which had a yield of 0.862 percent and a bid-to-cover ratio of 2.91.
In economic news, the Job Openings and Labor Turnover Survey rose 0.2 percent in October, the Labor Department reported. There were 3.4 million job openings in October 2010, which is 44 percent higher than the recent series low in July 2009, the Labor Department said.
Also, the U.S. manufacturing and services sectors will grow in 2011 the Institute for Supply Management said in a semi-annual forecast released Tuesday. Manufacturing revenue is expected to rise by 5.6 percent, while non-manufacturing revenue is expected to rise by 3.4 percent, ISM said.
October consumer credit data will be released at 3 p.m., with economists calling for a deficit of $2.5 billion.
European shares hit a four-week closing high, boosted by economic recovery hopes after the U.S. extended the Bush-era tax cuts, while miners gained on rising demand expectations.
And Asian stocks ended mostly higher, but Japanese indexes closed lower.