U.S. stocks set to rally

AFX News Limited

January 8, 2004

NEW YORK (AFX) - U.S stock futures were heading for a higher open, with Nokia expected to fuel gains in the telecom sector after it raised its fourth quarter earnings outlook. Stock futures also received a boost after the U.S Labor Department said there were fewer Americans collecting unemployment benefit than at any time in the past 27 months despite an unexpected jump in claims in the most recent week.

"There is a lot of positive buzz in the telecom sector with Verizon's spending plans, Nortel being upgraded across the board and Nokia raising its earnings outlook," said Art Hogan, chief market strategist at Jefferies & Co. "It's going to be difficult to stem that enthusiasm with the mild profit taking we've seen and today's slightly disappointing jobless claims number." Retailers will also be heavily in focus as investors digest a raft of December same-store sales figures. Dow Industrial futures were up 51 points at 10,565, Nasdaq 100 futures were 11 at 1,528 while the S&P 500 futures were up 3 points at 1,129.. UBS raised its 12-month target for the S&P 500 Index to 1,200 from 1,150 due to greater confidence in an economic expansion, and to reflect a higher 2004 earnings estimate. On Wednesday, The Dow industrials closed down 10 points at 10, 529, off a session low of 10,466. The Nasdaq Composite ended the session up 20 points or 1 percent at 2,078, its best closing level since August 2001 while the S&P 500 was up 3 points at 1,126. This morning, UBS raised its 12-month target for the S&P 500 Index to 1,200 from 1,150 due to greater confidence in an economic expansion, and to reflect a higher 2004 earnings estimate. The U.S Labor Department reported that fewer Americans are collecting state unemployment benefits than at any time in the past 27 months. Meanwhile, the four-week average of initial claims for state unemployment benefits fell by 5,500 to 350,250 in the week ending Jan. 3. It's the lowest number since Feb. 3, 2001. However, claims in the most recent week increased by 14,000 to 353,000. Ian Sheperdson, chief U.S economist at High Frequency Economics said the unexpectedly big drop in claims last week and the rebound this week reflected the big erratic swings traditionally seen during the holiday period. "The key point here is that the trend in claims is continuing to decline, " said Sheperdson. The euro was back above $1.27 vs. the U.S. dollar, last at $1.2704, as European Central Bank President Jean-Claude Trichet said the ECB did not like excessive volatility in the currency markets and said the euro rise is likely to have some dampening impact on European exports. But he added that the expansion of the world economy should lift exports overall, and that the euro's rise helps to dampen inflationary risks. In the telecom sector, shares of Finnish mobile phone maker Nokia surged 9 perc ent after the company said sales and profit for the fourth quarter exceeded its guidance. Nokia Networks sales "were significantly higher than estimated and reached approximately 1.7 billion euros," it said. Nokia said it now sees fourth quarter 2003 pro forma EPS 28 euro cents to 29 euro cents, against its guidance of 21-23 cents and reported EPS at 24-25 cents vs. former 20-22 outlook. Retailers in focus Same-store sales growth was evident across a swathe of retailers and Tiffany & Co. (: , , ), the luxury retailer, raised its fourth quarter earnings estimate after stronger-than-expected sales during the holiday. Yet Wal-Mart said fiscal fourth-quarter earnings were expected to be at the "low end" of prior forecasts of 63 to 65 cents a share. Analysts surveyed by Reuters Research were expecting earnings of 64 cents a share, on average. Same-store sales for the month of December rose 4.3 percent, amid 3.9 percent growth in Wal-Mart division sales and 6.1 percent growth at Sam's Club. The euro was in a significant second-day retreat against the dollar, last down 0.5 percent at $1.2575 as the markets take a cautious stance ahead of the European Central Bank press conference after the bankers meeting on interest rates. Bankers may address the euro-dollar. The ECB and the Bank of England at meetings today left their key rates unchanged. Focus stocks In the Dow, P&G shares were not active in London, but marked higher. P&G rose 1.6 percent late Wednesday to $99.65 after it said that the early flu season will help drive second-quarter earnings per share 2 to 4 cents above the Wall Street consensus estimate of $1.26 a share. Merrill Lynch raised its rating on Dow industrials stock Honeywell to buy from neutral, setting at $41 price target. "While the stock has rebounded from its lows, we think that the favorable prospects for demand recovery in several of HON's end markets coupled with strong cash flow and improving balance sheet and pension status should further bolster the share price," the broker said. Broker calls Banc of America cut Intermune to neutral from buy on price. "In addition, we do not foresee any near-term catalysts to drive shares higher." Sun Micro was up 4.4 percent at $5.21 on a broker upgrade, Banc of America, overnight, dealers said. J.P. Morgan Securities started covering McData at underweight. "With continued revenue pressures likely, it is clear that McData should seek to reduce its operating expenses to prevent further profit pressure," the broker said. Unfortunately, in order to prevent long-term share losses, McData must remain competitive by continuing to fund its technology and marketing investments. This will leave little room for profits without a significant improvement in the current competitive landscape." Merrill also lifted its rating on Altera to buy from neutral, noting the stock is no longer at a premium to rival Xilinx. Credit Suisse First Boston lifted its estimates for earnings from Yahoo on its expectations for strength in online advertising, sponsored search, and premium services. It now sees fourth quarter revenue estimate at $501.5 million from an earlier projection at $496.1 million; earnings per share at 11 cents from 10 cents. It also lifted 2004 estimates and its 12-month price target at $57 from $50. This story was supplied by CBSMarketWatch. 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