Markets Sizzle

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Despite a slip at the close of our trading session ending October 31, 2006, the stock market was on a tear, with the Dow reaching several record closes during the period.

December 01, 2006

 

Despite a slip at the close of our trading session ending October 31, 2006, the stock market was on a tear this month, with the Dow reaching several record closes during the period. Consumer confidence fell at the end of our session, but earnings continued strong. At the end of the month, the Fed held steady on interest rates for the third consecutive time. "It really doesn't change the outlook for rates going forward," said Kevin Flanagan, fixed income strategist with Morgan Stanley in Purchase, N.Y. "You don't get a sense of urgency at this point in time that the Fed needs to take that next step and raise rates."

Our GIANTS indices also closed in the black, with the Builders' Index posting a healthy 3.22 percent increase and closing at 1036.14. The Product Manufacturers' Index also closed higher, adding 0.36 percent and ending at 965.43. Housing starts rose in September, with an increase in the construction of new homes and apartments. However, building permits fell in September, and builders are still working on a stock of unsold units.

On the Product Manufacturers' side, shares of Black & Decker (BDK) were up this session despite a drop in third-quarter earnings. Black & Decker reported net earnings of $125.1 million, or $1.74 per share, down from $137.8 million, or $1.70 per share in the same quarter last year. However, results surpassed analysts' expectations: those surveyed by Reuters Estimates were anticipating $1.73 per share. Black & Decker cited softer demand brought on by the cooling housing market.

Despite the downturn, Merrill Lynch analyst Kenneth Zener said that Black & Decker was well-positioned to endure a periodic slowdown. "We think investors continue to underestimate Black & Decker's ability to deliver positive earnings growth," said Zener in a research note. Black & Decker grew by 4.53 points, or 5.71 percent, and ended at 83.88. Black & Decker was the top dollar gainer in the Product Manufacturers' Index this month.

Ratings for both Black & Decker and Stanley Works were cut by investment firm UBS to "neutral" from "buy," but shares of Stanley Works suffered, shedding 2.20 points, or 4.41 percent, closing at 47.65.

Over on the Builders' side, AvalonBay grew by 10.66 points, or 8.85 percent as the rental market fueled AVB's success. AvalonBay's funds from operations — a traditional method of gauging a real-estate investment trust's performance — were up to $83.9 million, or $1.11 per share, from $68 million, or $0.91 per share, in the same quarter a year ago. AvalonBay closed at 131.06.

WCI Communities fell after the company reported that third-quarter earnings will be "significantly below" estimates. UBS analyst Margaret Whelan cut shares to "reduce" from "neutral" and lowered her price target to $12, from $17, citing softness in the luxury Florida market. WCI said it expects new orders to fall 80 percent in the third quarter. Said JMP Securities analyst Alex Barron in a research note: "These low order numbers are driven by a low level of demand for homes in Florida, increasing cancellations, and only one recently launched tower that converted to contract last quarter." WCI lost 1.31 points, or 7.57 percent, and was the top percentage loser on the Builders' Index this month.

* Price 10/31/2006 Price 9/29/2006 Net Change Percent Change
Product Manufacturers' Index 965.43 961.98 3.45 0.36%
Dow Jones Industrial Average 12080.73 11679.07 401.66 3.44%
S&P 500 Index 1377.94 1335.85 42.09 3.15%
NASDAQ Composite 2366.71 2258.43 108.28 4.79%
Gainers/Losers
$ Gainer Black & Decker Corp. * 4.53
$ Loser Stanley Works * -2.20%
% Gainer American Woodwork Corp. * 9.80%
% Loser Stanley Works * -4.41%
* Advancers * 9
* Decliners * 3
Source: Trade Trends


* Price 10/31/2006 Price 9/29/2006 Net Change Percent Change
Builders' Index 1036.14 1003.78 32.36 3.22%
Dow Jones Industrial Average 12080.73 11679.07 401.66 3.44%
S&P 500 Index 1377.94 1335.85 42.09 3.15%
NASDAQ Composite 2366.71 2258.43 108.28 4.79%
Gainers/Losers
$ Gainer NVR * 26.60
$ Loser WCI Communities * -1.32
% Gainer Champion Enterprises * 34.20%
% Loser WCI Communities * -7.57%
* Advancers * 27
* Decliners * 8
Source: Trade Trends



Author Information
Margot Crabtree is president of Trade Trends, a financial services company.


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