Stock Market Update - Mon Apr 09 16:20:01 EDT 2007

[BRIEFING.COM] Stocks kicked off a new week with a customary sense of caution heading into earnings season and some uncertainty as to what a strong jobs report means for the economy and interest rate outlook.

With investors unable to trade on monthly employment data Friday, a market preoccupied with concerns about a significant slowdown in economic growth initially found some comfort after March payrolls rose a stronger than expected 180,000. An upward revision to February's figure and the unemployment rate unexpectedly falling to 4.4% provided further evidence that the economy remains in good shape, notwithstanding the downturn in the housing and manufacturing sectors, and that consumer spending should continue to grow at close to the recent trend of 3% real growth.

Be that as it may, a tight labor market accompanied by rising wage costs leaves a Fed still fixated on the "high level of resource utilization" with little reason to cut interest rates anytime soon. Such a reminder plays into why our Market View is only Modestly Bullish and contributed to the market's lack of direction throughout much of the trading day.

Given such sizable gains a week earlier, with the Dow, S&P 500 and Nasdaq up 1.8% on average over the previous four days of trading, it also wasn't a surprise to see some profit-taking activity, especially heading into the start of earnings season.

Per usual, Dow component Alcoa (AA 34.86 +0.27) will officially kick things off when it reports Q1 results after the bell tomorrow. General Electric (GE 34.77 -0.25), which reports on Friday, is the only other major company to report this week with the flood of reports beginning a week from today.

Expectations are for operating earnings for the S&P 500 in aggregate to increase only 3% to 4% over the same quarter of 2006, which suggests 14 consecutive quarters of double-digit profit growth for the S&P 500 will come to an end.

Among the six sectors posting gains, Materials paced the way higher; but since it carries the smallest weighting on the S&P 500, the sector's 1.3% advance did not provide much of a boost to the broader market. Diversified Chemicals was one of today's best performing S&P industry groups amid reports that Dow Chemical (DOW 46.62 +2.15) is being eyed by a consortium of private investors prepared to make a $50 billion offer. That would mark the largest LBO ever.

Unfortunately for the bulls, the only other sector turning in a respectable performance was Utilities, which ranks ninth in terms of influence on the S&P 500 and climbed in part due to its defensive characteristics.

The Industrials sector was also in focus after Berkshire Hathaway disclosed that it took a 10.9% stake in Burlington Northern Santa Fe (BNI 88.10 +5.38). The news earmarked Railroads as the day's best performer and lit a fire under transportation stocks that also benefited from oil's biggest decline in three months.

Crude for May delivery plunged 4.3% to $61.51/bbl as traders continued to unwind the Iranian risk premium that lifted oil to six-month highs two weeks ago.

The absence of notable leadership in Financials and Technology, however, eventually stalled follow-through momentum. Regional Banks were among the day's worst performers amid further evidence of troubles in the secondary mortgage market. American Home Mortgage Investment Corp (AHM 21.61 -4.23) tumbled 16% after cutting its Q1 and full-year earnings guidance on Friday.

With growth prospects within Technology coming into question, it too succumbed to some modest consolidation. Advanced Micro Devices (AMD 13.35 +0.49) lowered its Q1 revenue guidance, which provided a boost to Intel (INTC 20.10 +0.52).  AMD shares still closed higher, though, as shareholders applauded plans to reduce 2007 capital expenditures by about $500 mln. Intel's 2.7% advance was the biggest reason behind the Dow's ability to eke out enough of a gain to extend its winning streak to seven days.

NYSE Adv/Dec 1606/1671...Nasdaq Adv/Dec 1347/1710