Market Summary ~ Dow up 201; Fed to keep low rates
The central bank will keep interest rates low to help the economy. Financial stocks soar on reports of an administration plan to buy bad assets from banks. Boeing cuts 10,000 jobs after a fourth-quarter loss. Starbucks will lay off 6,700 and close more stores.
By Charley Blaine and Elizabeth Strott
Stocks put in their best performance in a week on hopes of a government plan to take bad assets from banks and the Federal Reserve's promise to keep rates "exceptionally low" for an extended period of time.
The Fed announced today it would leave its key rates unchanged because the economy is so weak. At the same time, it promised to buy more mortgage securities and assets from banks and other financial companies. It may even buy long-term Treasury securities to ensure that rates remain low.
At the close, the Dow Jones industrials were up 201 points, or 2.5%, to 8,375. The Standard & Poor's 500 Index was up 28 points, or 3.4%, to 874, and the Nasdaq Composite Index added 53 points, or 3.6%, to 1,558.
The market's gains were the third in a row for the Dow and the fourth in a row for the S&P 500 and the Nasdaq -- the first four-day rally for the S&P 500 since November.
After the close, Starbucks (SBUX, news, msgs) reported weaker-than-expected earnings and said it would close 300 more stores and lay off about 6,700 workers.
Today's rally was concentrated in financial stocks. The financial sector of the S&P 500 rose more than 10%, its biggest one-day gain since Dec. 16.
But the rest of the market also participated overall, especially consumer discretionary stocks like home builders. Lennar (LEN, news, msgs) jumped 14.2% to $8.86, and KB Home (KBH, news, msgs)was up 13.4% to $12.42.
In addition, a powerful rally among big tech stocks continued. Research In Motion (RIMM, news, msgs) jumped 5.1% to $56.63. Dell (DELL, news, msgs) rose 8% to $10.88.
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On Dec. 16, the Fed cut its target rate for its federal funds rate -- the rate banks charge each other for overnight loans -- to between 0% and 0.25%. The Fed also cut its discount rate -- what it charges banks and other financial institutions for short-term loans -- to 0.5%.
The central bank said today that rates will remain at "exceptionally low levels of the federal funds rate for some time."
Its efforts are warranted because the economy is continuing to weaken. "Industrial production, housing starts and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly," the statement said.
It has bought mortgage-backed securities, debt of Fannie Mae and Freddie Mac, the big suppliers of mortgage capital, and it will start what it called the "Term Asset-Backed Securities Loan Facility" to facilitate the extension of credit to households and small businesses.
* Top Stocks blog: Is the 'bad bank' truly a miracle cure?
The Fed's decision came on top of reports on CNBC and Bloomberg that the Obama administration is developing a so-called "bad bank" plan to help stabilize the finances of banks and other financial institutions.
Federal Deposit Insurance Corp. Chairwoman Sheila Bair is pushing to manage the plan, Bloomberg News reported. A plan could be announced as early as next week.
The reports sent financials jumping today. JPMorgan Chase (JPM, news, msgs) was up 10.4% to $27.66; Citigroup (C, news, msgs) added 18.6% to $4.21; Bank of America (BAC, news, msgs) rose 13.7% to $7.39; and Morgan Stanley (MS, news, msgs) was up 17.8% to $23.
The Fed's decision was part of a broader effort by the central bank and both the Bush administration and the Obama administration to relieve stress on the nation's credit markets and find ways to fight the unfolding recession.
The House was expected to pass an $850 billion stimulus package today.
* Top Stocks blog: More layoffs, a big House vote, insurance blues
Energy prices -- New York close Wed. Tues. Chg. Month chg. YTD chg.
Crude oil (NYMEX) (per barrel) $42.16 $41.58 $0.58 -5.47% -5.47%
Heating oil (per gallon) $1.4215 $1.3745 $0.0470 1.12% 1.12%
Natural gas (per million BTU) $4.4760 $4.5030 -$0.0270 -20.38% -20.38%
Unleaded gasoline (per gallon) $1.1835 $1.1085 $0.0750 17.39% 17.39%
Starbucks to close 300 stores, cut nearly 6,700 jobs
Starbucks shares were moving lower in after-hours trading after the company reported that second-quarter earnings missed Wall Street estimates by 2 cents a share and were down nearly 50% from a year ago.
The poor results will result in the company shutting 300 under-performing coffee shops and cutting 6,000 jobs. Of the store closures, 200 will be in the United States. The closures are on top of 600 closures already announced. In addition, the company will cut 700 support jobs, including 350 in Seattle.
Starbucks said it earned 15 cents a share before non-recurring charges on revenue of $2.6 billion, down from 28 cents a share a year ago on revenue of $2.8 billion. Wall Street had expected earnings of 17 cents a share on revenue of $2.42 billion.
The shares were off 3.8% after hours to $9.28. The shares had closed at $9.65, up 5.5%, in regular Nasdaq trading.
The shares have lost more than 75% of their value since peaking in May 2006.
Starbucks results have been declining in recent years because the company grew too fast. In addition, rivals such as McDonald's (MCD, news, msgs) have been drawing customers away with lower prices.
Wells Fargo shares jump on bank plan
Wells Fargo (WFC, news, msgs) shares soared 30.9% to $21.19 today despite reporting a net loss of $2.55 billion, or 79 cents per share, down from a profit of $1.36 billion, or 41 cents per share, a year ago.
Wells Fargo said the loss was mostly due to its merger with Wachovia. Analysts had been looking for profit of 33 cents per share.
The bank said it won't take more Troubled Assets Relief Program funds and will keep its quarterly dividend. Meanwhile, Boeing (BA, news, msgs) said today it lost $56 million, or 8 cents per share, in the fourth quarter -- down from a profit of $1 billion, or $1.36 per share, in the same period a year ago.
The company also said it will cut 10,000 jobs from a work force of about 159,000.
Boeing's results included charges related to its machinists strike, difficulties in its 747 program and a litigation issue. Analysts had been looking for earnings of 76 cents per share.
Boeing, a Dow component, said it will earn between $5.05 and $5.35 per share for 2009, shy of Wall Street's estimate of $5.76 per share.
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The stock was up 0.1% to $43.24.
And AT&T (T, news, msgs), another Dow stock, reported a 23% profit decline in the fourth quarter.
AT&T earned $2.4 billion, or 41 cents per share, down from $3.1 billion, or 51 cents per share, in the same quarter a year ago. Excluding items, the company earned 64 cents per share, a penny shy of estimates.
* Top Stocks blog: Don't just stand there, buy something
The telecommunications company said it added 2.1 million wireless subscribers in the quarter, including 1.9 million Apple (AAPL, news, msgs) iPhone subscribers.
AT&T shares fell 0.1% to $25.91. Apple shares were up 3.8% to $94.20.
Wall Street bonuses take a dive
Wall Street lost untold billions in 2008, but New York bankers nevertheless took home $18.4 billion in bonuses last year.
Still, cash bonuses paid to New York City employees of Wall Street firms fell 44% -- from the $32.9 billion executives took home in 2007 -- according to New York State Comptroller Thomas DiNapoli, who stressed the cuts' painful effect on New York's economy.
"A 44% decline in the bonus pool will ripple through the regional economy and the state and the city will lose major tax revenues," DiNapoli said in a press release. "The securities industry has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets.
It's painfully obvious that 2009 will probably be another difficult year for the industry."
* Talk back: Wall Street workers overpaid?
Employment in the securities industry in New York City fell from 187,800 in October 2007 to 168,600 in December 2008, a loss of 19,200 jobs, or 10.2%, the comptroller's office said.
The average bonus declined by 36.7% to $112,000 last year.
Yahoo shares jump, despite loss
Yahoo (YHOO, news, msgs) had a rough fourth quarter.
The Internet company late Tuesday reported a net loss of $303 million, or 22 cents per share, down from $206 million, or 15 cents per share, in profit in the same quarter a year earlier.
Excluding items, Yahoo earned 17 cents per share, topping Wall Street's estimate by 4 cents.
Shares rose 7.9% to $12.24.
Net revenue at Yahoo slipped 2% to $1.38 billion in the quarter.
Yahoo said it expects income from operations will be between $75 million and $85 million in the current quarter, far short of the consensus estimate $165 million.
"The marketplace is extremely difficult right now, we're still seeing strong growth in the search business, and display (advertising) has slowed down, and I have no idea how advertisers will react over the next two or three quarters," Chief Financial Officer Blake Jorgensen said in an interview with Thomson Reuters.
One analyst was concerned about the outlook.
"This is pretty ugly," Sanford Bernstein analyst Jeffrey Lindsay, told MarketWatch.com. "They're trying to reset expectations as low as possible."
Yahoo CEO: 'Everything's on the table'
Comments from Yahoo Chief Executive Officer Carol Bartz offered a little hope for investors who want Yahoo to be acquired or to sell its search business.
"If there's something to look at, we'll look at it," Bartz said on a conference call with analysts. "Everything's on the table."
But Bartz didn't go quite so far as to talk about any sort of deal. In fact, Bartz tried to reel in any speculation about a sale by saying that she did not join Yahoo with a preconceived notion to do a search deal.
"I'm still learning about the business," Bartz said. "Search is a very valuable part of (the) business."
It's been a year since Microsoft (MSFT, news, msgs) first approached Yahoo and offered $31 per share for the company; Microsoft ended up walking away from a higher $33-per-share bid in May; Yahoo shares have since tumbled. (Microsoft is the publisher of MSN Money.)
Disappointed shareholders blamed then-CEO Jerry Yang -- whom Bartz replaced earlier this month -- for failing to secure the Microsoft deal and for letting an advertising partnership with Google (GOOG, news, msgs) fall apart.
"I think there's a 100% chance they'll have meaningful conversations," Tom Wilde, CEO of video search company EveryZing, told Fortune, referring to Yahoo and Microsoft. "In terms of something meaningful actually happening, I would put that at about 70%."
Microsoft most recently has said it doesn't want to purchase all of Yahoo but would still be interested in its search business.
Target cuts jobs
Target (TGT, news, msgs) late Tuesday joined what's become a long line of companies announcing layoffs.
The discount retailer said that it plans to cut its work force by approximately 9%, which would eliminate about 1,000 jobs.
The current plan includes eliminating 600 jobs and 400 open positions, primarily in the Minneapolis/St. Paul area. Most of the layoffs occurred Tuesday.
The company also said it will close its Little Rock, Ark., distribution center, which employs 500 people, later this year.
Target has struggled to compete with Wal-Mart Stores (WMT, news, msgs), which has managed to weather the economic downturn better than most -- if not all -- other retailers.
Target shares jumped 4.7% to $34.92.
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