MORNING WATCH, August 31

Stocks rose Friday morning on hopes the government will step in to help troubled borrowers and the economy. Shortly after the opening bell, the Dow Jones Industrial Average () had risen more than 100 points. The NASDAQ () was up 20.

President Bush is expected to announce today a plan that will let the Federal Housing Administration [FHA] guarantee loans on some lower and middle income borrowers. The FHA will help those that have fallen 90 days behind on payments by allowing them to refinance at more favorable rates. The idea is to help stem the tide of subprime loan defaults that have rattled the financial markets over the past few months.  

Countrywide Financial (), the largest lender, is up $1.20 to $20.84  on the news. Lehman Brothers (), which is a big player in the market for mortgage backed securities, jumped $1.63 to $55.40. Accredited Home Lenders () surged 43%. It is also benefiting from news that Lone Star Funds has made a new offer to buy the firm for $214 million, or $8.50 a share.

Dell Computer () gave the tech sector an early boost after reporting quarterly earnings of 32 cents a share, which beat analyst estimates by 3 cents. Revenues also topped expectations. DELL rose 20 cents to $28.66 a share. Omnivision Tech () is up $1.35 to $21.26 after posting better than expected earnings and raising guidance for the next quarter.

The day’s economic news is also helping early trade. A report early in the day showed personal incomes rising .5% and spending increasing by .4% during the month of July. Economists were looking for both spending and incomes to increase by .3%.  Meanwhile, the core Personal Consumption Expenditures [PCE] index, a gauge of inflation, rose just .1% last month. Economists were looking for a .2% increase.

The Chicago Purchasing Manager’s Index [PMI], a report on factory orders, and the University of Michigan sentiment index are due out a bit later this morning.

Attention will also turn to Fed Chairman Ben Bernanke. The head of the Fed delivers a speech at 10:00 a.m. Eastern time. Investors will be listening carefully in order to determine whether or not the Fed is leaning seriously towards easier monetary policy, and possible a rate cut at its next meeting on September 18.

Bonds are taking a hit ahead of the speech. The benchmark ten-year Treasury bond (September) is down 18/32^nd and its yield is back up to 4.57 percent. Crude gained 97 cents to $74.33 a barrel and gold is up $8.50 to $682.20 an ounce.  

The financial market’s focus now seems to be on the economy and the view that things are going to get better. That, in turn, has been enough to lift stocks in early trade. Certainly, many investors hope to close out the month of August on a strong note.

Frederic Ruffy
Senior Writer & Index Strategist
Optionetics.com ~ Your Options Education Site
Visit Fred Ruffy’s Forum