Today, investors got the interest rate cut from the European Central Bank they were hoping for, and stocks jumped as a result. The Dow Jones Industrial Average (^DJI 0.69%) and S&P 500 closed in record territory once again, as the blue chips gained 98 points, or 0.6%, and the S&P improved 0.7%. The Nasdaq moved up 1%.
Taking steps to boost the economy and counter the threat of deflation, the European Central Bank cut benchmark rates to 0.15% and, for the first time, introduced a negative interest rate on deposits at 0.1%. This means that banks will have to pay the ECB to hold on to their money. That move could spur more lending and help fuel its sluggish economic recovery. The European economy is on stabler ground than it was a few years ago when the central bank was offering bailout assistance to the weakest economies, but growth on the continent which, along with the U.S. and China, is one of the world's three major economic engines, has lagged, causing headwinds at a range of companies, especially manufacturers.
Elsewhere, the number of first-time jobless claims rose slightly from 304,000 to 312,000, slightly above expectations of 310,000. The number still remains near post-recession lows, and the four-week average for initial claims dropped to 310,250, its lowest point since June 2007. Continuing unemployment claims also fell once again, dropping to 2.603 million, the lowest it's been since October 2007. The reports bode well for tomorrow's official jobs report, which will let the market know how many jobs were added last month, and what the current unemployment rate is. Economists are predicting 220,000 new jobs were added in May.
After hours, Diamond Foods (DMND.DL) was getting crunched, falling 9% on a disappointing earnings report. The maker of nuts and branded snack food products, including Kettle Chips, said revenue increased 3.2%, to $190.9 million, short of estimates at $191.7 million, while its adjusted per-share profit of $0.11 missed expectations of $0.17. Performance in its Snacks segment was strong, climbing 9.6%, though sales of Nuts continued to fall, declining by 5%. CEO Brian Driscoll said he was "very pleased" with year-over-year improvements in sales and gross margin. In its guidance, management only said it projects an increase in adjusted EBITDA despite increased tree nut commodity costs. Investors still seem to be waiting for Diamond's profits to come following an accounting scandal two years ago that forced the CEO and CFO to resign. Still, sales turning positive, and an improving gross margin, are certainly positive signs.
Earlier in the day, Rite Aid (RAD -20.53%) shares tumbled on its own weak outlook, finishing down 8%. The drugstore chain said that higher-than-expected costs for generic drugs were weighing on its bottom line, and it expects a per-share profit of just $0.04 this quarter, below estimates of $0.08. For the full year, it lowered its EPS guidance to $0.30-$0.40 from $0.31-$0.42, against the consensus at $0.39. Guidance on the top line was unaffected, and sales continue to steadily improve as Rite Aid said comps increased 3.5% in May. The lowered guidance was only minor, but shares have nearly tripled in the last year, so the stock price may have finally gotten ahead of expectations.
