Posted on 01/06/2003 2:40:30 PM PST by rs79bm
NEW YORK (CBS.MW) - Stocks surged Monday as investors climbed on board high-yielding issues like J.P. Morgan Chase amid expectations that President Bush will eliminate dividend taxes as part of an eagerly anticipated $600 billion economic stimulus plan.
By late afternoon trade, the Nasdaq Composite (NasdaqSC:^IXIC - News) had climbed 40 points, or 2.9 percent, to 1,427. The Dow Jones Industrial Average (CBOT:^DJI - News) rose 193 points, or 2.2 percent, to 8,794. The broader S&P 500 Index (CBOE:^SPX - News) rose 2.5 percent to 931.
Art Hogan, chief market analyst at Jeffries and Co., linked the market optimism to Bush's economic plans and hopes for a resolution of the conflict with Iraq.
"We started on an up note, and I think a lot of that has to do with hope that we're going to put some of the geopolitical issues behind us sooner rather than later and the economy is going to get stimulus on the fiscal side... clearly the hope is that the economy will pick up steam."
Utility stocks, which boast some of the highest dividend yields, were on top of the gaining sectors list.
Companies in the utilities, materials and financials sectors offer the highest dividend yields on average, said Sam Stovall, chief investment strategist at Standard & Poor's. He said large-cap S&P 500 stocks would benefit most from a cut or elimination of taxes on dividends as 70 percent of the companies in the index offer dividends and the index's dividend yield is the highest at 1.8 percent.
In the tech sector, benchmarks for the networking, computer hardware, telecom and semiconductor sectors were up more than 3 percent.
Telecom stocks jumped after the Wall Street Journal reported that the Federal Communications Commission planned to stop requiring local phone companies to rent their networks at cheap rates. The move could reduce competition and price-cutting pressure.
Dow stock SBC Communications (NYSE:SBC - News) surged 8.7 percent to $31.40, while BellSouth (NYSE:BLS - News) climbed 9.4 percent and Verizon (NYSE:VZ - News) gained 8.5 percent.
With the bulls out in full force in the telecom sector, even AT&T (NYSE:T - News) was able to recover despite bad news. Ma Bell was flat at $27.65 after announcing a $1.54 billion charge and 3,500 job cuts.
Most-active Lucent (NYSE:LU - News) was flat at $1.40, while Nortel (NYSE:NT - News) gained 5.6 percent and Qwest (NYSE:Q - News) soared 11.3 percent.
Meanwhile, strategist Thomas McManus, at Banc of America, raised his 12-month targets for the S&P 500 Index (CBOE:^SPX - News) to 1,100 and for the Dow industrials to 10,600, which represent growth of 21 percent and 23 percent, respectively, over Friday's closing prices.
For the Nasdaq, he believes 30 percent growth to 1,800 is possible. McManus is basing his forecast in part on President Bush's mandate to become an "economic savior" before his run for re-election in 2004.
A taxing matter Media reports indicate President Bush will propose eliminating taxes on corporate dividend payments paid to shareholders as part of a $600 billion economic stimulus plan expected out Tuesday. The measure could cost the government $300 billion over 10 years. Read New York Times story and why investors should care about dividends.
A repeal could boost dividend-paying stocks, encourage more companies to pay out earnings or raise their dividends and promote economic growth and productivity. It would also improve corporate governance by motivating companies to pay out their earnings -- leaving less in the coffers to be squandered on ill-conceived acquisitions. Read about which stocks would benefit.
Philip Morris offers one of the highest annual dividend yields for a Dow stock at around 6.7 percent, followed by General Motors' (NYSE:GM - News) 5.2 percent and J.P. Morgan Chase's 5.1 percent.
Shares of J.P. Morgan Chase (NYSE:JPM - News) jumped 6.6 percent. Walt Disney (NYSE:DIS - News) , Citigroup (NYSE:C - News) and Honeywell (NYSE:HON - News) were up over 3 percent.
House Democrats were set to release details of their plan Monday afternoon.
"I look for the market to respond favorably to the news about the Bush tax cut plan. It is exactly the right thing to do, and I am pleasantly surprised," said Michael Holland, president of Holland & Co., a money management firm.
Bush's plan is aimed at reinvigorating the economy, which has been showing pockets of weakness. On Monday, the Institute for Supply Management said the service economy grew for an 11th straight month in December. And U.S. businesses said they planned to cut fewer jobs for a second straight month, according to Chicago outplacement firm Challenger Gray & Christmas. Read Economic Report and Challenger report.
Tax cuts would boost the economy if carried out quickly and correctly, but eliminating the dividend tax for shareholders wouldn't provide an immediate kick, said economist Irwin Kellner.
In other key exchanges, the Nasdaq-100 (NasdaqSC:^NDX - News) rose 2.4 percent to 1.056, while the Russell 2000 (CBOE:^RUT - News) of small-cap stocks jumped 1.5 percent to 396.
Volume hit 900 million on the NYSE and 1 billion on the Nasdaq. Advancers beat decliners by a ratio of 23 to 8 on the Big Board and 19 to 11 on the Nasdaq.
Philip Morris (NYSE:MO - News) was virtually alone in the losers' column, getting smoked by 3.2 percent after Salomon Smith Barney analyst Bonnie Herzog said she believes "there is a good chance" the company will announce a "drastic change" to its current pricing and promotional strategy.
Auto stocks were cruising higher as the North American International Auto Show got underway. Ford (NYSE:F - News) rose 3.2 percent as it announced zero-percent financing and cash-rebate offers on 2003 models and unveiled its latest F-150 pickup. GM stock rose 2.4 percent.
Chips ahoy Chip equipment stocks rose after Deutsche Bank upgraded the sector to "buy," citing evidence that multiple delivery and order pull-ins would lead to quarter-over-quarter growth of 15 to 20 percent versus than current expectations of flat to 10 percent growth.
Among individual issues, DB upgraded Applied Materials (NasdaqNM:AMAT - News) , Novellus Systems (NasdaqNM:NVLS - News) and Lam Research (NasdaqNM:LRCX - News) to "buy" from "hold."
Applied Materials rose 5.6 percent, while Novellus jumped 5.9 percent and Lam Research surged 10 percent.
Chip bellwether Intel (NasdaqNM:INTC - News) rose 3 percent.
Elsewhere in hardware, Gateway (NYSE:GTW - News) tumbled 6.6 percent after chief executive Ted Waitt told the Wall Street Journal that the company would undergo its second re-shuffling and strategy shift in two years.
Apple Computer (NasdaqNM:AAPL - News) rose 3 percent amid speculation that it would unveil a new video IPod at the annual MacWorld conference in San Francisco this week.
Among other high-profile tech stocks, Sun Microsystems (NasdaqNM:SUNW - News) gained 5.1 percent and Microsoft (NasdaqNM:MSFT - News) rose 1.7 percent. AOL Time Warner (NYSE:AOL - News) jumped 3.2 percent.
Geopolitical concerns continued to plague the market, as investors girded themselves for a possible war with Iraq. The U.S. military has put at least 275 Army Reserve units, involving more than 10,000 soldiers, on alert to be ready to move overseas as soon as this week, USA Today reported. Read story from USA Today.
Gold surged to its highest level for almost six years on the war jitters, while the dollar slipped against the major currencies and oil prices hovered near two-year highs.
The Venezuela crisis kept oil prices above $30 a barrel, with the Brent contract for February delivery trading lately at $30.60 on the International Petroleum Exchange, off 17 cents on the session.
The dollar fell 0.9 percent versus the yen to 118.58, while the greenback sank 0.6 percent against the euro to 1.0485.
In Europe, markets fell as a disappointing services purchasing index helped bring the Continent's falling fundamentals into the forefront. The German DAX Xetra 30 fell 1.1 percent and France's CAC 40 slipped 0.8 percent.
In Asia, Japanese stocks kicked off the first trading session of 2003 sharply higher. The Nikkei Average jumped 134.38 points, or 1.6 percent, to 8,713.33. The Nikkei closed out 2002 at 8,578.95 -- down 19 percent for the year and its worst year-end close since 1982.
Investors were also on the lookout for negative pre-announcements as the start of the fourth quarter begins. Chuck Hill of Thomson First Call said fourth-quarter earnings are expected to reflect steady improvement in corporate profits -- an overall plus for the economy.
Banc of America's McManus forecast 9 percent earnings per share growth for the S&P 500 in 2003 and 2004. Read Earnings Watch.
Data watch Economic data kicks off with November factory orders on Tuesday, consumer credit on Wednesday, and wholesale inventories on Thursday.
On Friday, earnings reports will take a back seat to key economic data -- unemployment, hourly earnings and nonfarm payrolls.
The December jobs report is the highlight of the coming week's economic reports. None of the other data will have much impact on the markets or on the Federal Reserve, which is meeting again in four weeks. Read economic preview and check out economic calendar.
A cautious tone prevailed in bonds Monday after stronger-than-expected economic data last week stirred inflation concerns and drove yields up significantly from the nadirs scored in the last weeks of 2002.
Checking prices in early action, a benchmark 10-year Treasury note fell 10/32 at 99 18/32, to yield 4.05 percent up from 4.01 percent. A 30-year bond gave up 6/32 at 106 6/32 to yield 4.96 percent, up from 4.95 percent.
Will people still smile
when economists persuade
more corporations
to eliminate
dividends entirely?
These activists want
the whole business world
to look like Amazon. Cash
goes in and stays in...
On the contrary, I see a completed sequence with waning momentum, the next move is down. Buy on the rumor, sell on the news I would expect.
Well, good because according to the Democrats, I'm one of them! Bring it on W!
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