On Wednesday July 29, 2009, 1:43 pm EDT

The bulk of the much-anticipated second-quarter earnings season has passed with Wall Street standing on substantially stronger ground.

So now what?

With stocks up 11 percent since Alcoa (NYSE:AA – News) kicked off earnings three weeks ago, investors now will be turning their gaze elsewhere to see whether the rally is for real, or if it was just a momentum-driven push that soon will fade.

“When you’re in a scenario in the markets when you don’t have that many macroeconomic data points and you’re beginning to slow down in earnings season, the market tends to obsess about different issues,” says Quincy Krosby, general market strategist at Prudential Financial. “Investors will very often just pull back until they can absorb more guidance, particularly when a market is in an overbought scenario.”

The market’s movements, then, will depend largely on five factors that loom ahead:

1. The Economy

Economic data points-such as unemployment, housing starts, gross domestic product and other statistics-have taken a back seat in investors’ minds as companies have reported quarterly earnings.

That’s likely to change as Wall Street looks for concrete signs that a recovery is at hand.

“We always say that markets climb a wall of worry, and with that said on every front there’s something to be worried about,” Krosby says. “The tug-of-war has existed from the very beginning that the recovery was going to be muted against those who say you’re going to be surprised that this is going to be a stronger recovery.”

GDP numbers due out at the end of this week will help provide a signpost of whether the economy will go positive by year’s end.

At the same time, unemployment, considered by many to the biggest fly in the ointment of recovery, may be discounted as a sign of recovery. Talk of a “jobless recovery” has only accelerated in recent weeks.

“The only thing that you’re hearing the bears scream about is that without jobs there can’t be a real recovery,” says Jordan Kimmel, market strategist at National Securities in New York. “Each recovery for the last several decades, the jobs have been more and more of a lagging indicator.”

Yet stocks fell Tuesday, precisely on worries that the economy was still sluggish and consumers were not regaining confidence.

2. The Energy Trade

Since the rally began off the March lows, movements in stocks and oil have been closely correlated.

One of the main reasons is that investors have been watching for signs of consumer demand growth. Current demand for oil is relatively anemic, but investors are looking at other signs to gauge the prospects for demand returning in the future.

“In the past few years, there was a $20 to $25 per barrel ‘risk premium’ added to oil prices. That premium has been replaced by a ‘hope premium’ as markets believe an improving economy will spur significant demand increase,” Marcia Donadio, an analyst at Ernst & Young, said in a study released Monday. “Major players in the energy industry are preparing for the upturn.”

Ernst & Young said hopes for a recovery are playing out across the energy spectrum, not just in gas and oil prices.

“While recovery will be slow and gradual, there is a great deal more optimism in the markets going into the third quarter, and that is reflected in oil and gas industry activity,” Donadio said.

3. More Earnings: Energy, Regional Banks

While many of the big financial companies and major Dow components have already reported earnings, there still are a handful out there.

Energy companies will be looked at particularly for their outlooks, while regional banks will be watched closely for deterioration in their commercial lending portfolios. Most report results this week or next.

In a broad review of third-quarter banking earnings, Keefe, Bruyette and Woods found “weak profitability” for small-cap banks to be among the biggest trends, and said commercial credit quality was slipping at an appreciable pace.

“The Goldman Sachses (NYSE:GS – News) of the world did just fine, and investors have flocked to those situations,” David Twibell, president of wealth management at Colorado Capital Bank in Denver, said in a recent interview. “By and large the real banking world out there, the regional banking world, is not doing well.”

In energy, ConocoPhillips (NYSE:COP – News) reports Wednesday, while earnings for ExxonMobil (NYSE:XOM – News) are due Thursday, and Chevron (NYSE:CVX – News) comes out Friday.

4. Progress in Healthcare

Investors remain concerned over the drastic revamping of the healthcare industry, as proposed by President Obama and making its way through Congress now.

Fitch ratings last week said it was downgrading more insurers that it covers, based primarily on concerns it has over how the companies will fare in competing with the government for the healthcare dollar.

But some analysts believe that the final bill to come out of Congress will be far less radical than the original plan, and will present opportunities across the healthcare spectrum.

“For investors in healthcare stocks, the longer Washington’s logjam continues, the less threatening the final version of legislation is likely to be,” John L. Sullivan, an analyst with Leerink Swan, said in a research note.

He added that “a discounted valuation offers healthcare investors an opportunity” and said the pickings will be especially ripe in biotech and managed care.

5. Buying Opportunity?

A general sentiment that the strong earnings run is leading to a natural pullback has some market pros sensing an opportunity.

“When it comes to the psychology part everybody is so afraid of seeing a ghost right now,” National Securities’ Kimmel says. “They’re seeing things that don’t exist.”

In such a climate, Kimmel says smart investors will be selective. He recommends bulking up on small caps and international companies, which he says are traditional market leaders out of a bear cycle.

Technology as well remains popular among those who think the market could recoil against a pullback sentiment.

Richard Sparks, senior analyst at Schaeffer’s Investment Reserach in Cincinnati, recommends mid-cap technology companies such as Juniper (NasdaqGS:JNPR – News) and Synaptics (NasdaqGS:SYNA – News), and counsels against buying into the talk of a natural selloff.

“I’d hesitate to be part of that big crowd that is always going to be worried about a pullback or think we definitely have to correct here,” Sparks says. “I don’t think it’s time to lighten up. Ride the trend as far as it goes.”

By Michael Liedtke and Jessica Mintz, AP Technology Writers
On Wednesday July 29, 2009, 5:54 pm EDT

SAN FRANCISCO (AP) — Microsoft finally persuaded Yahoo to surrender control of the Internet’s second most popular search engine and join it in a daunting battle — taking on the overwhelming dominance of Google in the online advertising market.

A 10-year deal announced Wednesday gives Microsoft its best shot yet to show its new search technology, Bing, is as good as or better than Google’s. Microsoft also hopes to use Yahoo to divert sales from Google, which generates more than $20 billion a year from ads.

Gaining access to Yahoo’s audience would instantly more than triple Bing’s U.S. market share to 28 percent. That’s still a far cry from the remarkable 65 percent of U.S. searches handled by Google, according to the research firm comScore Inc.

By joining forces, Microsoft and Yahoo are betting they will be able to focus on their respective strengths. By turning over responsibility for search technology to Microsoft, Yahoo can concentrate on sales of billboard-style advertising on the Web — and figuring out how to keep luring traffic to its Web sites, which already attract more than 570 million people worldwide every month.

While the agreement shapes up as a potential boon for Microsoft, it was greeted in the stock market as a letdown for Yahoo. Just 14 months ago, Microsoft dangled $9 billion in front of Yahoo in an attempt to forge a search advertising partnership, only to be rebuffed. Yahoo had also turned down Microsoft’s $47.5 billion bid to buy the entire company.

Yahoo has been struggling so badly since then that Microsoft isn’t paying any money in advance. Instead, it will give Yahoo 88 percent of the search ad sales made on its Web site, above the usual commission of 70 to 80 percent.

By spending less on its own search technology, Yahoo expects to boost its annual operating profit by about $500 million — but not until 2012, when the two companies expect to have all the pieces of a complex technological puzzle in place.

“I think a lot of people are kind of looking at the numbers and seeing a lot of question marks where they expected to see exclamation points,” said Scott Kessler, a Standard & Poor’s equity analyst.

Yahoo Inc. shares plunged $2.08, or 12 percent, to $15.14 as investors expressed disappointment over the absence of an immediate windfall. Microsoft Corp. shares gained 33 cents to $23.80 while Google Inc. shares shed $3.61 to $436.24.

It took Carol Bartz, Yahoo’s chief executive, just six months to strike a deal with Microsoft — something that neither of her predecessors, Terry Semel and Yahoo co-founder Jerry Yang, seemed interested in doing.

“This move makes up for a lot of the stupid mistakes made by the preceding administration,” said technology analyst Rob Enderle, who thinks Yahoo will be able to devote more energy to developing services to compete with online hangouts like Facebook.

Shortly after her arrival, Bartz made it clear she was willing to farm out Yahoo’s search engine for “boatloads of money” as long as she as thought the company would still get adequate information about its users’ interests. Bartz predicted the deal will enrich the company over the long run.

“This agreement comes with boatloads of value for Yahoo, our users, and the industry,” Bartz said.

Yahoo will have limited access to the data on users’ searches, which yield insights that can be used to pick out ads more likely to pique a person’s interest. The value of that information is why Microsoft wants to process more search requests.

Microsoft CEO Steve Ballmer could barely contain his excitement as he gushed about finally getting Yahoo on his side — something he has been trying to do for at least three years.

“I am very enthusiastic,” Ballmer said in an interview. “This is what I have basically been saying for the past 18 months: The world will be better served for consumers, advertisers and publishers, and there will be more competition for Google, if we can somehow figure out how to get Microsoft and Yahoo together in search.”

Antitrust regulators plan to review the agreement to make sure it doesn’t lessen competition or compromise the privacy of people who use the search engines.

Google tried to stop Yahoo from falling into Microsoft’s camp. Last year it formed its own proposed search advertising deal with Yahoo, only to be forced to retreat after U.S. antitrust officials threatened to sue.

Microsoft helped spearhead the campaign against a Google-Yahoo partnership. Now many people, including Ballmer, expect Google to try to turn the tables on Microsoft by opposing its Yahoo deal.

“There has traditionally been a lot of competition online, and our experience is that competition brings about great things for users,” Google spokesman Adam Kovacevich said. “We’re interested to learn more about the deal.”

Advertisers will probably support Microsoft because a stronger player in the search market should protect them from potential abuses by Google, said Kevin Lee, CEO of online marketing specialist Didit Inc.

“If there’s only one choice in search, that’s just an uncomfortable position to be in,” Lee said.

Like Yahoo, Microsoft has invested billions in search technology during the past decade. Yet it remained a distant third in market share while its online losses piled up. Microsoft is counting on Bing, unveiled last month, to turn things around.

Bing has been getting mostly positive reviews and picking up slightly more traffic with the help of a $100 million marketing campaign. Analysts believe the successful debut pushed Microsoft to reopen negotiations so it could expose its search engine improvements to a wider audience.

While Microsoft and Yahoo await government approval of their partnership, there is no doubt Google will try to increase its lead by upgrading its own search engine, said Danny Sullivan, editor of the online newsletter SearchEngineLand.

Already, Google is going after Microsoft’s bread-and-butter business of software for personal computers. It’s working on a free operating system for inexpensive PCs, a move that could threaten Microsoft’s Windows.

“Google is very paranoid about Microsoft,” Sullivan said. “They are always trying to figure out what kind of `evil’ thing Microsoft is going to do next.”

Jessica Mintz reported from Seattle. AP Business Writer Christopher S. Rugaber contributed to this report from Washington.

By Tim Paradis, AP Business Writer
On Wednesday July 29, 2009, 5:57 pm EDT

NEW YORK (AP) — The stock market is holding up, just not pressing ahead as the economic signs look a little less promising.

Stocks had their fourth straight day of minimal moves Wednesday as commodity prices slid and orders for big-ticket manufactured goods fell, injecting more uncertainty into the market.

Investors are uneasy but aren’t giving up on stocks. The Dow Jones industrials lost only 26 points on Wednesday and major indexes are still up about 11 percent since mid-July. Analysts say the market’s buoyancy after such a big gain is a welcome sign of stability, but also that more good news is needed for stocks to resume their climb.

For now, though, investors are finding more reasons for concern. The price of oil and other commodities fell for a third day after stocks tumbled in China on fears that growth in that country would slow. That could hurt demand for a range of commodities.

The Commerce Department said orders to U.S. factories for manufactured goods — those expected to last at least three years — fell an unexpectedly steep 2.5 percent in June. The slide reflected troubles in the auto industry and a drop in demand for commercial aircraft. It was the largest drop in five months, and was worse than the 0.6 percent analysts expected.

Lackluster demand at a government debt auction for the second straight day fanned worries that rising interest rates could hobble a recovery. That boded poorly for a big auction of 7-year Treasury notes on Thursday.

Traders are facing an intense seven-day run of economic reports that will help shape views about how quickly the United States can pull out of the longest recession since World War II. On Thursday, weekly unemployment figures are due and a reading of gross domestic product for the April-June quarter comes on Friday. Next week, reports are expected on manufacturing, housing, employment and the service industry.

Manny Weintraub, president of Integre Advisors in New York, said some good numbers could bring out more buyers because investors are betting on what the economy will look like in the coming months, not what it looks like now.

“As long as things are getting better the market can go up,” Weintraub said.

The Dow fell 26.00, or 0.3 percent, to 9,070.72. The Dow also fell Tuesday after a weak reading on consumer confidence. The two-day drop was the first for the Dow in more than a month. The average is on pace to record its best July in 20 years.

The broader Standard & Poor’s 500 index fell 4.47, or 0.5 percent, to 975.15, while the Nasdaq composite index slid 7.75, or 0.4 percent, to 1,967.76.

Energy and materials stocks fell after China’s benchmark Shanghai Composite Index dropped 5 percent on worries that authorities might try to keep the country’s economy from growing too quickly. A slowdown in China’s economy would erode demand for a range of resources.

Investors were also unnerved after U.S. crude inventories rose more than expected last week. The rise prompted worries that weakness in the economy was curbing demand for energy.

Occidental Petroleum Corp. fell $2.21, or 3.1 percent, to $69.48, while Schlumberger Ltd. fell $2.11, or 3.9 percent, to $52.49.

Light, sweet crude slid $3.88 to settle at $63.35 a barrel on the New York Mercantile Exchange.

Bond prices were mixed after a disappointing auction of five-year notes. That raised fears that Washington will have to offer investors higher returns on debt, which can drive up borrowing costs on consumer loans like mortgages. The yield on the benchmark 10-year Treasury, which moves opposite its price, fell to 3.67 percent from 3.69 percent late Tuesday.

Investors took some comfort from a Federal Reserve report that found the economy is seeing early signs of stabilizing in some parts of the country. That comes as traders have been cautious following the surge in stocks that began July 13 when corporate earnings reports started coming in stronger than expected.

In corporate news, Microsoft Corp. and Yahoo Inc. announced a 10-year deal that gives Microsoft access to the Internet’s second-largest search engine audience. Microsoft rose 33 cents to $23.80, while Yahoo fell $2.08, or 12.1 percent, to $15.14.

Three stocks fell for every two that rose on the New York Stock Exchange, where consolidated volume came to 5.4 billion shares compared with 5.6 billion Tuesday.

The Russell 2000 index of smaller companies fell 3.57, or 0.7 percent, to 548.38.

The dollar was mixed against other major currencies, while gold prices fell.

Overseas, Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index rose 1.9 percent, and France’s CAC-40 advanced 1 percent. Japan’s Nikkei stock average rose 0.3 percent.

By Tim Paradis and Stephen Bernard, AP Business Writers
On Wednesday July 15, 2009, 2:27 pm EDT

NEW YORK (AP) — Investors are betting on the economy again.

Strong earnings and an upbeat forecast from Intel Corp. pulled investors into the stock market Wednesday as hopes grew that the economy could be starting to recover. The chip maker’s results signal that computer sales are picking up faster than had been expected.

That welcome sign for the economy was enough to draw out buyers after a month of little direction in the stock market. Major stock indicators jumped more than 2.5 percent, including the Dow Jones industrial average, which rose 200 points. Intel lifted the technology-heavy Nasdaq composite index 3 percent.

Investors also latched onto a report showing that industrial companies cut production far less in June than they had in previous months. The Federal Reserve said output at the nation’s factories, mines and utilities slipped 0.4 percent last month after sliding 1.2 percent in May.

Traders found more goods news when the Federal Reserve, which now expects the economy will slide at a slower pace this year than it had earlier predicted.

The central bank now expects the economy to shrink 1 to 1.5 percent, not at severe as the 1.3 to 2 percent drop it predicted in May.

The Intel report and economic data are giving traders the fresh information they have been craving. The stock market began ripping higher in March but lost its momentum last month as investors worried the economy wasn’t showing enough strength to justify the 40 percent surge in the Standard & Poor’s 500 index.

“What we’re seeing is some confirmation that stabilization is in fact upon us,” said Matthew Kaufler, portfolio manager at Federated Clover Investment Advisors in Rochester, N.Y.

Even a slow recovery was good news for investors who have been worried in the past month that the strong rally in the spring was based on too optimistic a view of the economy.

In midafternoon trading, the Dow rose for the third straight day, jumping 210.93, or 2.5 percent, to 8,570.42. The S&P 500 index rose 22.64, or 2.5 percent, to 928.48, while the Nasdaq gained 54.22, or 3 percent, to 1,853.95.

Nine stocks rose for every one that fell on the New York Stock Exchange, where volume came to 677 million shares, compared with 566 million traded at the same point Tuesday.

Stocks also surged overseas after Intel’s strong results came out. Britain’s FTSE 100 jumped 2.6 percent, Germany’s DAX index rose 3.1 percent, and France’s CAC-40 gained 2.9 percent. Hong Kong’s Hang Seng index gained 2.1 percent.

A report showing higher than expected consumer price inflation in June did little to affect stock prices but it did send bond prices lower for a third straight day.

The Labor Department’s Consumer Price Index rose 0.7 percent last month as gasoline prices surged. It was the fastest increase in 11 months and slightly worse than economists’ projections of 0.6 percent. The bond market is highly sensitive to signs of inflation, which erodes the value of a bond’s fixed returns over time.

The renewed surge in stock prices also robbed Treasurys of some of their safe-haven appeal as investors became more willing to take on risk. Bonds also fell on Tuesday after a report showing sharper-than-expected wholesale price inflation in June.

The 10-year Treasury note, a widely used benchmark for mortgages and other loans, fell 24/32 point, pushing its yield up to 3.59 percent from 3.47 percent late Tuesday.

Intel’s upbeat report followed strong earnings earlier Tuesday from Goldman Sachs Group Inc. Goldman kicked off earnings in the banking industry by easily topping analysts’ earnings predictions. The Wall Street banking giant said it earned $2.72 billion, after paying preferred dividends, only two quarters after posting a steep loss during the peak of the credit crisis.

Investors will now set their sights on three other major banks — JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. — reporting second-quarter results later in the week to see if the broader sector is actually recovering from the malaise that beset the sector late last year.

JPMorgan Chase, Bank of America and Citigroup all have strong retail banking operations, unlike Goldman, that could pose problems as loan defaults continue to rise. Moderation in loan defaults could be a sign the economy is strengthening as customers are better able to repay loans.

Robert B. MacIntosh, chief economist at Eaton Vance Management in Boston, said that investors had been bracing for weak earnings so it doesn’t take much to beat expectations. He said excitement over earnings could mask troubles such as with unemployment.

“Real growth is when you stat to create some jobs,” he said. “People are going to be disappointed in the weakness and the length of the recovery.”

Intel rose $1.17, or 7 percent, to $18 but not all stocks were charging higher.

Abbott Laboratories, a drug and medical-device company Abbott Laboratories said its profit fell 3 percent, though earnings met expectations. The stock fell $1.63, or 3.5 percent, to $44.86.

Commodities stocks gained as the dollar weakened and commodity prices rose.

The dollar fell, and gold prices rose. Light, sweet crude rose $2.08 to $61.60 per barrel on the New York Mercantile Exchange.

In other trading, the Russell 2000 index of smaller companies rose 16.56, or 3.3 percent, to 513.07.

By Ieva M. Augstums, AP Business Writer
On Wednesday July 8, 2009, 9:24 am EDT

The stock market headed toward a modestly higher start Wednesday as investors wait for aluminum maker Alcoa Inc. to give some guidance about the economy.

Related Quotes

Symbol	Price	Change
AA	9.41	0.00

{”s” : “aa”,”k” : “c10,l10,p20,t10″,”o” : “”,”j” : “”}

U.S. stock futures rose slightly while markets around the world were little changed. The falling price of oil, which stock investors are interpreting as a sign of economic weakness, has contributed to selling on world exchanges over the past week.

The uptick in futures means Wall Street might extend Tuesday’s sharp drop, but there’s likely to be little conviction in the selling. Investors want to see what Alcoa has to say about the economy in its earnings report, which comes out after the market’s close.

“(Their report) gives an indication if we are moving out of the doldrums and potentially into more recovery, or are we potentially falling backward, again,” said Doug Lockwood, chief investment officer at Cornerstone Wealth Management.

Wall Street analysts expect Alcoa to post a second-quarter loss of 38 cents per share. In the same period a year earlier, Alcoa earned 66 cents per share on revenue of $7.6 billion.

Dow Jones industrial average futures are up 2, or 0.02 percent, at 8,133, while the broader Standard & Poor’s 500 index futures are up 1.20, or 0.1 percent, at 880.50. Nasdaq 100 index futures are up 3.25, or 0.2 percent, at 1,411.25.

Investor confidence has waned after poor U.S. and European jobs data and plunging commodities prices.

Oil prices have declined to near $62 a barrel from $73 last week as investors believed that demand for energy would fall because of the weak economy. A barrel of crude traded at $62.01, down 92 cents, in electronic trading ahead of the opening on the New York Mercantile Exchange.

Overseas Wednesday, Japan’s Nikkei stock average fell 2.4 percent. In afternoon trading, Britain’s FTSE 100 index was little changed and Germany’s DAX was up 0.4 percent while France’s CAC-40 was off 0.6 percent.

World leaders including President Barack Obama will be discussing the global economy as they start a three-day meeting in Italy.

Investors will also be looking to glean what they can from a key report on May consumer credit data, due out at 3 p.m. EDT.

The Federal Reserve report is expected to show that consumer credit fell $9.5 billion from April, according to Wall Street economists surveyed by Thomson Reuters. If they are right, it would mark the latest move by consumers to curb their borrowing, pay down debt and get their household budgets in better shape. That is a concern for investors because it means consumers aren’t spending at the levels needed for an economic recovery.

Meanwhile, bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.44 percent from 3.46 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.18 percent from 0.17 percent late Tuesday.

The dollar mostly rose against other major currencies, while gold prices fell.

On Monday July 6, 2009, 7:45 am ED
By Leah Schnurr | Reuters

NEW YORK (Reuters) – U.S. stock index futures pointed to a lower open on Monday with a slide in oil prices set to weigh on energy shares and as investors remained anxious about the potential strength of the economic recovery.

Oil sank to a five-week low below $64 a barrel, as investors remained cautious over the prospects of a speedy global economic turnaround in the wake of last week’s grim U.S. jobs data. Shares of Exxon Mobil (XOM – News) were down 1.4 percent at $67.54 in premarket trade.

Although the weaker oil prices bode well for recession-weary consumers, strong commodity prices have been viewed as a signal the global economy is stabilizing.

Last week’s much weaker-than-expected jobs data weighed heavily on the market as investors questioned what the economic recovery will look like. Market-watchers were also looking ahead to the start of earnings season, which kicks off with Alcoa (AA – News) this week.

“A little bit of fear factor is back into the marketplace,” said Peter Cardillo, chief market economist at Avalon Partners in New York.

“The unemployment report was not a good report and it does cast some doubt, but I don’t think it reverses the trend (of stabilization).”

Investors will take in the latest data with a look at the services sector as the Institute for Supply Management releases its June non-manufacturing index, at 10:00 a.m. EDT.

S&P 500 futures fell 8.40 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures slid 74 points, and Nasdaq 100 futures lost 10.50 points.

Over the weekend, Vice President Joe Biden said the White House does not favor another stimulus package now, though he said that when it came into office, the current administration had misread how bad the economy was.

A U.S. judge on Sunday approved General Motors Corp’s (Other OTC:GMGMQ.PK – News) bankruptcy sale in a move that will allow the company’s most profitable assets to exit bankruptcy protection under government ownership.

Stocks tumbled on Thursday, driving the S&P 500 down to its third-straight weekly loss, as a slide in June non-farm payrolls revived caution about economic recovery prospects. U.S. markets were closed on Friday for the Independence Day holiday.

(Editing by Theodore d’Afflisio)

By Madlen Read, AP Business Writer
On Wednesday July 1, 2009, 12:13 pm

Major stock indexes rose about 1 percent Wednesday after a report showing stabilization in manufacturing activity in the United States. Investors also appeared pleased about a fourth straight monthly rise in pending home sales in May. European markets had risen earlier following similarly upbeat data on manufacturing in that region.

Some of Wednesday’s bounce may simply be due to stocks appearing cheaper following a big sell-off Tuesday and as investors look to put money to work as the new quarter begins.

Stocks dropped sharply Tuesday on a disappointing drop in consumer confidence but still ended the second quarter with significant gains, giving the S&P 500 index its best quarter in a decade.

“Some of the buying that wasn’t done yesterday is being done today,” said Richard E. Cripps, chief market strategist for Stifel Nicolaus. “I’m a little surprised. There isn’t a lot of convincing volume here to read too much into this.”

Not all the new economic data was upbeat. Construction spending fell in May by more than the market expected, and the private sector lost more jobs in June than anticipated. The most anticipated report of the week will come on Thursday, when the Labor Department releases its June jobs report.

Scott Fullman, director of derivatives investment strategy for WJB Capital Group, said the employment report — along with thin, pre-holiday trading volumes — could make for a volatile market Thursday. U.S. markets are closed Friday in observance of the Independence Day holiday.

Nonetheless, investors remain optimistic that the economy will be in better shape by the end of the year. “The belief is the worst is behind us,” Fullman said.

In midday trading, the Dow Jones industrial average rose 98.33, or 1.2 percent, to 8,545.33. The Standard & Poor’s 500 index rose 8.96, or 1 percent, to 928.28. The Nasdaq composite index rose 22.30, or 1.2 percent, to 1,857.34.

About four stocks fell for every one that fell on the New York Stock Exchange, where volume came to a lower-than-usual 332 million shares. Low volumes can lead to high volatility.

Bond prices were mostly lower on Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.59 percent from 3.54 percent late Tuesday.

In corporate news, Citigroup Inc. sold NikkoCiti Trust and Banking Corp., part of its Japanese business, to Nomura Trust and Banking Co. for $196 million. The New York bank, which has received $45 billion in government aid, has been selling assets and trying to streamline operations in an effort to return to profitability.

In an upbeat earnings report, General Mills Inc. said its fiscal fourth-quarter profit nearly doubled. The maker of Cheerios cereal and Yoplait yogurt also offered earnings guidance for 2010 above analysts’ expectations. Shares rose $1.80, or 3.2 percent, to $57.82.

Analysts say earnings reports coming in the next few weeks will largely determine which way the market heads in the third quarter. Investors are especially eager to hear what companies have to say about business prospects in the second half of the year.

Markets have pulled a stunning recovery since hitting 12-year lows in early March. All the major indexes rose by double-digit percentage points in the second quarter, while the S&P 500 index and the Nasdaq composite index finished higher for the first six months of 2009.

The major indexes have pulled back from multi-month highs in mid-June amid growing doubts about the strength of the economy’s recovery.

But Eric Ross, director of research at Canaccord Adams, said he doesn’t think investors have fully appreciated how much the economy has stabilized.

“They are waiting for another leg down on the market, and I’m not sure we’re going to see it,” Ross said. “There is too much money on the sidelines.”

The Russell 2000 index of smaller companies rose 9.91, or 2 percent, to 518.21.

The dollar fell against other major currencies, while gold prices rose.

Light, sweet crude fell 44 cents to $69.45 a barrel on the New York Mercantile Exchange.

Overseas, Japan’s Nikkei stock average fell 0.2 percent. In afternoon trading, Britain’s FTSE 100 rose 1.9 percent, Germany’s DAX index rose 1.7 percent, and France’s CAC-40 jumped 2.2 percent.

By Mark Clothier and Rob Williams

June 23 (Bloomberg) — Office Depot Inc., the second- largest office-supply retailer, sold BC Partners Ltd. a 20 percent stake for $350 million and gave BC three seats on its board.

BC Partners bought about $275 million of new 10 percent Series A redeemable convertible perpetual preferred stock and $75 million in newly created 10 percent Series B redeemable conditional convertible perpetual preferred stock, Office Depot said today in a statement. BC’s Raymond Svider, James Rubin and Justin Bateman will join the retailer’s board, which was expanded to 14 members.

The Series A shares can be converted into Office Depot common stock at a rate of $5 a share, a 32 percent premium over yesterday’s closing price of $3.79. The Series B stock will be convertible at the same rate if shareholders approve the transaction, Boca Raton, Florida-based Office Depot said.

Office Depot rose 9 cents, or 2.4 percent, to $3.88 at 11:15 a.m. in New York Stock Exchange composite trading. The shares gained 27 percent this year before today.

The chain, which announced in February that it was seeking “internal sources of liquidity,” said it will use the money for general corporate purposes. Sales at Office Depot have declined for five straight quarters. The company, which trails Staples Inc. in global revenue, reported a loss last year and analysts anticipate losses this year and next.

BC Partners was founded in 1986 as Baring Capital Investors by Dutchman Otto van der Wyck. BC Partners raised the first and later the biggest European buyout funds until being surpassed by London-based Permira Advisers LLP and CVC Capital Partners Ltd. BC spent 54 percent of its 5.9 billion-euro ($8 billion) fund, according to a January presentation. The firm owns British real estate agent Foxtons Ltd.

To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net; Rob Williams in New York at rwilliams80@bloomberg.net

Last Updated: June 23, 2009 11:27 EDT

Apple is one of the world’s coolest companies. But there is one cool-company trend it has rejected: chatting with the world through blogs and dropping tidbits of information about its inner workings.

Few companies, indeed, are more secretive than Apple [AAPL], or as punitive to those who dare violate the company’s rules on keeping tight control over information. Employees have been fired for leaking news tidbits to outsiders, and the company has been known to spread disinformation about product plans to its own workers.

“They make everyone super, super paranoid about security,” said Mark Hamblin, who worked on the touch-screen technology for the iPhone and left Apple last year. “I have never seen anything else like it at another company.”

But even by Apple’s standards, its handling of news about the health of its chief executive and co-founder, Steven P. Jobs, who has battled pancreatic cancer and recently had a liver transplant while on a leave of absence, is unparalleled.

Mr. Jobs received the liver transplant about two months ago, according to people briefed on the matter by current and former board members. Despite intense interest in Mr. Jobs’s condition among the news media and investors, Apple representatives have declined to address the matter, reciting with maddening discipline only that Mr. Jobs is due back at the company by the end of June.

Mr. Jobs was actually at work on Apple’s sprawling corporate campus on Monday, according to a person who saw him there. Company representatives would not say whether he had returned permanently.

Even senior officials at Apple fear crossing Mr. Jobs. One official, who is normally more open, when asked for a deep-background briefing about Mr. Jobs’s health after the news of the transplant had become public, replied: “Just can’t do it. Too sensitive.”

Secrecy at Apple is not just the prevailing communications strategy; it is baked into the corporate culture. Employees working on top-secret projects must pass through a maze of security doors, swiping their badges again and again and finally entering a numeric code to reach their offices, according to one former employee who worked in such areas.

Work spaces are typically monitored by security cameras, this employee said. Some Apple workers in the most critical product-testing rooms must cover up devices with black cloaks when they are working on them, and turn on a red warning light when devices are unmasked so that everyone knows to be extra-careful, he said.

Apple employees are often just as surprised about new products as everyone else.

“I was at the iPod launch,” said Edward Eigerman, who spent four years as a systems engineer at Apple and now runs his own technology consulting firm. “No one that I worked with saw that coming.”

Mr. Eigerman was fired from Apple in 2005 when he was implicated in an incident in which a co-worker leaked a preview of some new software to a business customer as a favor. He said Apple routinely tries to find and fire leakers.

Philip Schiller, Apple’s senior vice president for marketing, has held internal meetings about new products and provided incorrect information about a product’s price or features, according to a former employee who signed an agreement not to discuss internal matters. Apple then tries to track down the source of news reports that include the incorrect details.

Five years ago, Apple took its obsession with secrecy to the courts. It sued several bloggers who had covered the company, arguing that they had violated trade-secret laws and were not entitled to First Amendment protections. A California appeals court ruled for the bloggers, and the company had to pay $700,000 in legal fees.

Apple also sued a blog called Think Secret and settled the case for an undisclosed amount, but as part of the settlement that blog shut down.

Regis McKenna, a well-known Silicon Valley marketing veteran who advised Apple on its media strategy in its early days, said the culture of secrecy had its origin in the release of the first Macintosh, which competitors like Microsoft (MSFT) knew about before it was unveiled.

“It really started around trying to keep the surprise aspect to product launches, which can have a lot of power,” Mr. McKenna said.

He added: “But what most people don’t understand is that Steve has always been very personal about his life. He has always kept things close to the vest since I’ve known him, and only confided in relatively few people.”

Apple’s decision to severely limit communication with the news media, shareholders and the public is at odds with the approach taken by many other companies, which are embracing online outlets like blogs and Twitter and generally trying to be more open with shareholders and more responsive to customers.

“They don’t communicate. It’s a total black box,” said Gene Munster, an analyst at Piper Jaffray who has covered Apple for the last five years.

Mr. Munster said he jokes with other colleagues covering the company about how Apple routinely “jams the frequencies,” or gives them misinformation to throw them off the scent of a new product or other news it hopes to keep confidential. Four years ago, he said, a senior Apple executive directly told him the company had no interest in developing a cheap iPod with no screen. Soon after, the company released just that: the iPod Shuffle.

For corporate governance experts, and perhaps federal regulators, the biggest question is whether Mr. Jobs’s approach has led to violating laws that cover what companies must disclose to the public about the well-being of their chief executive.

On that key issue, the experts are divided. Some believe Apple did not need to disclose Mr. Jobs’s liver transplant because Mr. Jobs was on a leave of absence and had passed responsibility for the day-to-day operations of the company to the chief operating officer, Timothy Cook.

Other governance experts argue that the liver transplant now makes one of Apple’s assertions from January — that Mr. Jobs was suffering only from a hormonal imbalance — seem like a deliberate mistruth, unless Mr. Jobs’s health condition suddenly deteriorated. Of course, no one knows enough to say definitively.
…While Fake Steve Jobs Returns to Blogging
Most governance experts do seem to agree on one point: that the secrecy that adds surprise and excitement to Apple product announcements is not serving the company well in other areas.

“In this environment, where transparency is critical, the more information you give the marketplace the better,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “For a technology company that views itself as innovative, it’s a little odd that they are getting a reputation for lack of transparency.”

Apple’s stock dropped $2.11 to $137.37 on Monday amid a larger market sell-off. And the company did, in fact, have something to reveal: it said it had sold a million units of its new iPhone 3G S over the weekend, well above analysts’ forecasts.

This story originally appeared in the The New York Times

By Alexis Xydias

June 19 (Bloomberg) — Futures traders are demanding the smallest discounts to speculate on European stocks since June 2007 as equities rally and financial markets recover from last year’s credit seizure.

Markdowns that traders require to exchange the current Dow Jones Euro Stoxx 50 Index futures contract, which expires today, for one that matures in three months was 2.63 index points as of June 17, according to estimates by Frankfurt-based Deutsche Bank AG. The discount averaged 8 points in the two weeks leading up to the December expiration, the widest difference since the data began in March 2006.

The narrowing gap for the so-called rollover shows traders are growing less concerned about financial markets freezing again, like they did when Lehman Brothers Holdings Inc. collapsed in September. It also suggests that investors are growing less pessimistic about stocks in the benchmark index for the euro region’s biggest companies.

“The last remnants of the panic are vanishing,” said Gunnar Stangl, the head of portfolio strategy at Commerzbank AG in Frankfurt. “A normally operating futures market is yet another sign confirming that the panic is over.”

Rollover discounts compare the spread between the market values of current and approaching futures contracts and their so-called theoretical fair values.

The contract on the Euro Stoxx 50 that expires in September traded at 2,406 at 10:48 p.m. in Frankfurt yesterday, compared with its 2,410.95 theoretical value, which takes into account the index price, expected dividend payments, days to expiration and interest rates. The contract that expires today traded at 2,412 compared with a fair value of 2,414.52.

Futures Trading

Futures trading plunged as the Euro Stoxx 50 tumbled from its bull-market high on July 16, 2007, until March 9 of this year and wiped out almost 1.6 trillion euros ($2.2 trillion) in market value. The volume of Euro Stoxx 50 futures fell 63 percent in January from a year earlier to 607 billion euros, the steepest decline this decade, according to data from Frankfurt- based Eurex. In March, open interest had the biggest drop in at least six years, tumbling 40 percent to a four-year low of 48.2 billion euros, the data show.

There are currently 2.8 million Euro Stoxx 50 futures traded on Eurex, Europe’s largest derivatives exchange, with a notional value of 68 billion euros of shares, according to the exchange’s Web site.

Diminishing Discounts

Futures discounts are diminishing along with the cost of borrowing in dollars between banks and the price of protecting European corporate debt from default.

The Libor-OIS spread, a measure of the willingness of banks to lend to each other, has dropped to 37 basis points from 87 before New York-based Lehman’s collapse, the biggest bankruptcy in history. Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings slid as low as 101.75 basis points this month, compared with 102 on Sept. 12, according to CMA DataVision.

The Euro Stoxx 50 is still down 26 percent since the day before the Lehman debacle, even after a three-month, 33 percent rebound. The VStoxx Index, which measures the cost of using options as insurance against declines in the index, has dropped to 32.44 from a record 87.51 in October.

“Seeing Euro Stoxx 50 roll costs revert closer towards a longer-term average is somewhat of a representation of an overall normalization of the market, which would be in line with the decline in volatility and the rebound in equities we had in the last three months.” Pamela Finelli, an equity derivatives strategist at Deutsche Bank in London, said in an interview.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.