Tags: Commodities, Gold/Precious Metals, Oil

U.S. Stocks Soar Tuesday, Gold and Oil Prices Jump, but Trading Abroad is a Mixed Bag

By , Money Morning •

From Staff Reports

Stock prices soared yesterday (Tuesday), aided by some strong earnings reports and a growing belief that U.S. Federal Reserve policymakers will cut short-term interest rates at their Sept. 18 meeting.

Oil prices hit a fresh record yesterday. West Texas Intermediate crude (October) gained 76 cents a barrel to close at $78.25 a barrel. In New York trading earlier in the day, it hit an all-time high of $78.37. The decline in price was due to an announcement by the Organization of Petroleum Exporting Countries (OPEC) that it would raise production by half a million barrels per day in November.

And gold prices – which eclipsed the $700 market last week – continued their vertical journey yesterday. Yesterday, November gold futures jumped $8.90 an ounce to reach $721.10. Spot gold prices surged to $712.47, an increase of $9.37 an ounce. Interestingly, commodities analysts said some of the increase in the price of gold was due to climbing demand for jewelry ahead of some major holidays in such developing markets as China.

In stock-trading yesterday, the bellwether 30-stock Dow Jones Industrial Average rocketed 180.54 points, or 1.38%, to close at 13,308.39. The Standard & Poor’s 500 Index rose 1.36%, or 19.79 points, to close at 1,471.49. The tech-heavy Nasdaq Composite Index rose 1.5%, or 38.36 points, to close at 2,597.47.

Although Fed Chairman Ben S. Bernanke spoke in Germany yesterday, but made no concrete comments about interest rates. According to S&P’s MarketScope, a market-research firm, the consensus estimate of analysts is for the Fed to cut short-term interest rates by a quarter point. Even so, a number of analysts are hoping for – if not downright predicting – a half-point cut in the benchmark Federal Funds rate. S&P MarketScope reported that Mark Englund, of Action Economics, wrote in a research report that, in his view, comments by central bankers suggest that rates will be cut by half a point, noting that Fed commentaries "almost uniformly suggest that the Fed is less prone to entertain a more aggressive policy trajectory than some market participants assume.”

Investors will be scouring economic reports between now and Sept. 18 for hints of what the Federal Reserve is going to do, by looking to see if the credit crunch is hurting the U.S. economy. Tuesday were also watching economic data for signs of how much the ongoing credit crunch is hurting the U.S. economy. For instance, a U.S. Manpower survey of hiring expectations for the fourth quarter released yesterday seems to say that American employers are planning few changes in hiring from the third to the fourth quarter of this year. That means there will be little job growth – a bit bothersome after a surprisingly dismal jobs report for August caused stock prices to plummet on Friday.

Yesterday’s Manpower employment survey showed strength in the services sector, public administration and mining, while finance and construction were weak. Regionally, the Northeast was weak, while the Western area of the country was the strongest.

According to Reuters Estimates, the credit crunch so far isn’t crimping U.S. corporate earnings. Profits of U.S. corporations in the S&P 500 jumped a bigger-than-expected 8.7% in the second quarter, with particular strength in health care (up13%) and high technology (up 14%). Wall Street is only predicting earnings growth of 3.7% in the third quarter, but that’s what analysts were predicting earlier. Since it’s not a reduction, and since the second quarter earnings came in well above expectations, this isn’t necessarily viewed as a trouble spot.

Besides, analysts are predicting a rebound in the fourth quarter, when they project corporate profit growth of 12.1%, according to S&P. And companies continue to surprise Wall Street with better-than-anticipated profits. Yesterday, Dow components General Motors Corp. (GM) and McDonalds Corp. (MCD) provided some market-rally fuel. McDonald's said yesterday that its same-store sales were up 7.4% in August in the U.S. market, and 8.1% worldwide. The fast-food chain’s shares were up more than 3% yesterday. Shares were up more than 3%, leading both the Dow and S&P 500 indexes. GM shares surged 4.6% after the carmaker’s European-market chief, Carl-Peter Forster told his audience at the Frankfurt Auto Show that there’s a “good chance” the No. 1 U.S. car could sell 300,000 vehicles in Russia in 2008 – a total that’s a full 20% higher than the estimate for 2007.

Countrywide Financial Corp. (CFC) shares fell 1.9%. The New York Post reports that the embattled mortgage company, dealing with the credit crunch and the decline in the housing market, is assembling another multi-billion-dollar bailout.

Disk-drive maker Western Digital Corp. (WDC) saw its shares jump nearly 4.5% after the Lake Forest, Calif.-based company boosted its first-quarter revenue target to a range of $1.6 billion to $1.65 billion, an increase of $150 million over existing expectations, and its earnings expectations by almost 40%, according to Forbes.com and several other published reports. Over the past few years, the disk drive market has been swamped with super-cheap drives. But with computer sales rising, prices for higher-quality drives are “sticking.” So Western Digital raised its earnings per share guidance for its fiscal first quarter to 61-65 cents per share – well above the 43-47-cent range that analysts polled by Thomson Financial had been forecasting. Western Digital says it is experiencing the highly beneficial one-two punch of rising demand and higher selling prices. Two other sector players – Seagate Technology (STX) and Nidec Corp. of Japan (NJ) – also benefited.

Seagate is the leading U.S. maker of disk drives, and is also known for having introduced some innovative portable data-storage devices aimed at the consumer market. Japan’s Nidec is the world’s biggest maker of motors for hard-disk drives.

Analyst Mark Miller of Brean Murray on Monday reiterated his “buy” rating on Seagate’s shares, according to Newratings.com, and set his price target at $34. The target price is set to $34. Seagate’s shares closed yesterday at $25.39, or 33.9% below Miller’s target price.

Overseas trading yesterday was a mixed bag. Great Britain’s FTSE 100 index rose 2.39% to finish trading at 6,280.7. Germany's DAX index moved up 1.12% to close at 7,457.90. And, rounding out the major European indices, France’s CAC 40 index was up 1.72% to trade at 5,478.94. In Asia, China’s highly volatile Shanghai composite index plunged 4.51% to 5,113.97, while Hong Kong’s Hang Seng index dropped 0.2% to close at 23,952.24. But Japan’s Nikkei Index actually climbed 0.71% to close at 15,877.67.

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