Biotech Values

[DewDiligence]

Market’s Winning Streak Keeps Rolling

[If this keeps up much longer, it will be harder for pundits to dismiss it as merely a sucker rally within a bear market. For what it’s worth, the small private foundation I advise increased its equity allocation last week and this week by selling some fixed-income securities and adding to positions in such stocks as AGN ABT BHP CAT COP CVX D DE EMR GILD HES HQH/HQL IDIX MDT MON MRK PFE RIO SYK TEVA TOT UNP VRTX VZ WFMI and ZMH. They also sold or scaled back on CVS DUK IBM MHS and UHT.]

http://online.wsj.com/article/SB123685627464206601.html

›MARCH 12, 2009, 5:54 P.M. ET
By PETER A. MCKAY

Stocks registered a third straight gain on Thursday as investors responded to a round of mostly upbeat developments at large companies, mixed economic data, and the potential for new official steps to boost the U.S. economy.

The Dow Jones Industrial Average climbed 239.66 points, or 3.5%, to 7170.06, its highest close in two weeks. The Dow has climbed 9.5% in three days and is up 8.2% for the week -- on track for its best weekly climb since the week ended November 28, 2008, when it rose 782.62 points, or 9.73%.

While few traders and analysts are saying outright that the bear run has reached an end, participants have grown more optimistic that any new lows won't be much worse than the ones that have already been reached.

"We're getting back to a more normal world in which companies that do well in terms of their profits are getting rewarded," said Stephen Coleman, chief investment officer at the portfolio-managed firm Daedalus Capital, in St. Louis.

General Electric jumped 13% after Standard & Poor's cut the conglomerate's credit rating. [When was the last time a large-cap stock rose sharply on a day when its credit rating was cut?] Pfizer rose 9.6% after news on a promising drug for pancreatic tumors [#msg-36225969]; rival Merck also jumped 9.6%. [Perhaps investors are coming to appreciate that the SGP merger is a very positive move for MRK.] General Motors rose 17% after the automaker said it can make it through March without $2 billion in emergency loans it had sought.

Bank of America jumped 19% after its CEO said he doesn't think the bank will need more government funds. Kenneth Lewis said in a speech in Boston that he expects the company will earn "close to $50 billion in pre-tax, pre-provision earnings" in 2009. He said some banks may yet need public support, but Bank of America isn't likely to be one of them. Mr. Lewis's comments echoed those made recently by counterparts at Citigroup and J.P. Morgan Chase, who touted those banks' recent profitability in the wake of the credit bubble's traumatic ending.

"It's hard to argue against the banks at this point, when their cost of capital is basically zero," [see #msg-36196670] thanks to aggressive steps taken by the Federal Reserve, Treasury Department, and Congress beginning late last year to prop up Wall Street, said Mr. Coleman. "They're basically making money every day."

J.P. Morgan Chase shares rose 13% and Citigroup gained 8.4%. Wells Fargo surged 17%.

Despite bank executives' optimism, some remain skeptical on the sector.

"The fact they may be operating on a profitable basis for two months is a reassuring fact to be aware of but -- and the but is in capital letters -- we won't know until the end of the quarter what writeoffs will be involved," said Bob Johnson, equities analyst at Satuit Capital Management. "The fat lady hasn't sung yet in terms of the banking industry."

The Nasdaq Composite Index gained 54.45 points, or 4%, to end at 1426.10. It has climbed 157.46 points or 12.41% in the past three sessions. The S&P 500-stock index leapt 29.38 points, or 4.1%, to 750.74. It's up 74.21 points, or 11% the past three days.

Doreen M. Mogavero, president and chief executive of the floor brokerage Mogavero, Lee & Co. said the mood among the professional traders on the NYSE floor seems to be improving along with that of the general public. She said the floor crowd seems more optimistic about the government's policy moves to stem the economic and financial crisis -- matters that had been of great concern on the days when the market hit 12-year lows recently.

"Now, I'm hearing more people saying things like, 'Well, it's going to take some time. Let's give them a chance and see what happens,'" she said.

Stock markets also drew strength from hopes for a change in mark-to-market accounting rules. [See Buffett’s take on this in #msg-36196670.] The chairman of the Financial Accounting Standards Board pledged at a Congressional hearing to offer more guidance on the rule in three weeks. Treasury Secretary Timothy Geithner said suspending mark-to-market rules could lead to an erosion of the market's ability to assess risks at banks.

Many traders remained on guard. Floor trader Ted Weisberg, of Seaport Securities in New York, welcomed Thursday's gains but said his trading strategy will remain fairly conservative for now, with all his bets unwound at the end of each trading day at the New York Stock Exchange.

"Right now, I have no conviction," that the market is due for a sustained run higher, he said. "We have ripe conditions for a technical bounce. But to read any market strength as something other than that is a real stretch."

Strategist Steve Charest, of Divine Capital Markets in New York, estimates that the S&P could reach a bear-market low around 600. But his firm unwound many of its bearish bets on the index on Monday, taking profits in case of a short-term rally.

"We've seen some good news in the financial sector the last few days, but the problems aren't close to being resolved, which is the core of the market's problems," Mr. Charest said. "Those credit assets the banks have are radioactive, and they have a half-life that we haven't reached yet."

Ken Safian, president of Safian Investment Research in White Plains, N.Y., was among the relatively few investors talking openly on Thursday about a possible long-term market rally. He said he's particularly encouraged by recent merger and acquisition deals involving cash-rich technology and health-care companies. A series of combinations involving six bellwether pharmaceutical companies valued around $156 billion have been announced in recent days. [These six are PFE WYE Roche DNA MRK and SGP.]

If that trend continues, it could provide a boost to the market as investors look to snatch up the companies they view as the next likely takeover candidates. The merged firms could also be well-positioned to expand aggressively, hire workers, and stabilize the broader economy, Mr. Safian said.

"It's good that we're beginning to see some real differentiation in the market among some of these industries that aren't so highly leveraged," he said. "We're building a real base here, I think."

Economic reports out Thursday painted a mixed picture of the consumer. Retail-sales data were better than expected, dipping just 0.1% last month after a revised 1.8% jump in January. But new U.S. claims for unemployment benefits rebounded last week and total claims hit a record high. The four-week moving average of claims rose for a seventh straight week, by 6,750 to 650,000. That's the highest since October 1982.

"The steady increase suggests that the rate of decline of payrolls is likely to accelerate further, putting yet more downward pressure on aggregate incomes," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a note to clients. "It's impossible for people to deleverage when incomes are falling, without reducing their spending significantly; the recent gains in core retail sales cannot last."

Oil producers and mineral extractors led European indexes lower. Asia markets also stumbled as global economic concerns lingered.

The dollar strengthened against the euro and the yen. Nymex crude for April delivery rose $4.70, or 11.10%, to settle at $47.03 a barrel.‹