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Market Update: DJIA Bolts to 145-Point Gain

Despite today's mixed economic reports, strong earnings buoy stocks

by 8/17/2010 12:00:34 PM
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Despite a mixed bag of economic news today, the Dow Jones Industrial Average (DJIA -- 10,427.46) has tacked on triple-digit gains. But first, today's news: The U.S. Treasury housing finance panel is meeting today to discuss housing finance and what kinds of mortgages would be eligible for government supports. At stake is the future of Fannie Mae and Freddie Mac -- the former mortgage hot-shots that were taken over by the government in 2008. Treasury Secretary Timothy Geithner advocated for continued government support for the housing sector, warning that "without such [government] support, the risk is that future recessions could be more severe because the financial system would not have the capital to support mortgage lending on an adequate scale."

Elsewhere, the Commerce Department reported that housing starts increased 1.7% to a seasonally adjusted annual rate of 546,000, beating the 0.2% increase expected by economists. However, the increase was driven by groundbreakings of multi-unit homes, while single-family housing starts plunged 4.2% and July building permits fell 3.1%. Meanwhile, U.S. producer prices rose for the first time in four months in July as the price of raw materials increased, while the index of producer prices for finished goods rose a seasonally adjusted 0.2%. Finally, the Federal Reserve said that industrial production in July rose 1.0%, while capacity utilization increased to 74.8%.

Yet despite the day's mixed news, U.S. stocks have trekked higher today, driven by upbeat earnings from blue-chip bigwigs The Home Depot, Inc. (HD) and Wal-Mart Stores, Inc. (WMT). At last check, the Dow Jones Industrial Average had tacked on 145 points, or 1.41%. The Dow is now battling its 20-week moving average, a key trendline which has served as both support and resistance in the past.

DJIA intraday chart

Following suit, the S&P 500 Index (SPX -- 1,096.55) had pulled ahead 17.2 points at last check, while the Nasdaq Composite (COMP -- 2,217.83) had added 36 points.

Among equities in focus, Potash Corporation of Saskatchewan Inc. (POT) announced that its board unanimously rejected an unsolicited takeover bid from BHP Billiton Ltd. (BHP). BHP offered $130 per share in cash for POT; POT's board declared the offer "grossly inadequate." POT has soared over 25% on the heels of the news.

Meanwhile, American Apparel Inc. (APP) warned of liquidity concerns, with the company delaying its quarterly report due to the resignation of its accounting firm. For the second quarter, APP is anticipating staggering losses in its same-store sales.

On the options front, Market Vectors Agribusiness (MOO) has been hit with a wave of call volume today, as merger-and-acquisition mania sweeps the fertilizer sector.

Elsewhere, put players have been pummeling MannKind Corporation (MNKD) lately, as the biotech announced on Monday that it would lend up to 8 million shares to Bank of America (BAC).


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