Broadbased gains as better retail sales confirm recovery signs

By Ronda Fears

Nashville, Tenn., May 14 - Better than expected retail sales sparked widespread gains throughout the market as the news was taken as a firm sign of recovery in the economy and in corporate profits. Toys R Us took it as a cue to launch its mandatory deal, although the company already had planned to make the offering this month.

Buyers chased much of the tech sector higher, notably chips. But there was considerable interest in several beaten down names in the healthcare and biotech areas, where even a drug failure headline didn't hold back Abgenix. Health-related names were getting propped up by the overall bullish market tone, but also by good news from Genentech and OSI Pharmaceuticals.

"Buyers emerged and we were off to the races. It was a chase today, although I'm sure there were people already positioned, betting on a comeback in techs," said the head trader at a major investment bank in New York.

"Besides what was all over the tape about techs and biotech, we also were seeing buyers for a lot of cyclicals and industrials, particularly anything related to consumer goods or making stuff people use, because that's now what the pundits are saying - that consumers are driving this economic recovery."

Noted were gains in SPX Corp., Briggs & Stratton, Continental Airlines, EGL Inc. and Navistar.

The SPX 0% due February 2021 added 2 points to 75 bid, 75.375 offered with the stock up $5.51 to $140.90.

Continental's 4.5% due 2007 gained 3 points to 90.5 bid, 91.25 offered as the common rose $1.46 to $23.18.

Navistar's 4.75% due 2009 was up 1.125 points to 97.125 bid, 97.875 offered while the shares saw a rise of 90c to $38.17.

EGL reported that its first quarter loss narrowed due to aggressive cost-cutting to $3.9 million, or 8c per diluted share, from a net loss of $9.1 million, or 19c per share, a year earlier. The EGL 5% due 2006 gained 7.75 points to 124 bid, 124.625 offered with the stock up $1.74 to $18.32.

Another trader noted buying in GenCorp's 5.75% due 2007, which gained 3.25 points to 113 bid, 113.25 offered with the stock up 75c to $15.65.

While economic recovery and hopes of corporate profits sparked marketwide increases, the driver was the retail sales figures.

Retail sales in April saw a total increase of 1.2% and were up 1.0% without auto sales, the U.S. Commerce Department reported. Both figures were much stronger than expected by Wall Street analysts that were projecting a total rise of 0.6% and 0.7% excluding autos.

"The general theory right now is that the consumer is leading this recovery. I'm still not a full-fledged bull and there are a lot of hedge fund guys who are still pretty bearish on the market as a whole," said a convertible trader at a hedge fund in New Jersey.

"Spending cuts by companies trickle down a lot faster than higher spending by consumers climbs up into the pockets of corporations."

Several retail names in the convertible universe were higher on the news and their own earnings reports.

The TJX Cos. beats analysts' expectations and the 0% due 2021 added 1.5 points to 79.5 bid, 80 offered with the stock up 68c to $2.137.

J.C. Penney also beats analysts' estimates and said it forecasts full year EPS of 90c to $1, which is inline with the analyst consensus of 92c. The J.C. Penney 5% due 2008 climbed 4.875 points to 107.25 bid, 107.75 offered with the stock up $1.69 to $24.89.

Also higher were Gap, Barnes & Noble and Amazon.com.

Techs were on a tear, and convertible traders said there were a few chasers in the sector buying paper but volume was not as heavy in the converts as the stocks. Many people were covering shorts in the stock, one trader noted.

Chip names notably higher included Agilent, which reports results Thursday, Cymer and Semtech.

Agilent's 3% due 2021 gained 5.5 points to 116.75 bid, 117 offered while the stock rose $2.59 to $31.05.

Cymer's 3.5% due 2009 added 7.5 points to 123 bid, 124 offerd with the stock up $1.03 to $22.50.

Semtech's 4.5% due 2007 climbed 5 points to 109.5 bid, 110.5 offered as the stock added $2.57 to $36.37.

Brocade also gave networks and software names a huge boost when earnings and guidance remarks were accidentally webcast ahead of a conference call scheduled for Wednesday, as Brocade's growth projection gave rise to several peers.

Brocade securities headed north but the stock was halted so the company could rectify the situation, and when trading resumed so did the march northward.

The company said in a statement that "due to a clerical error, a financial webcast held today contained internal preliminary Question and Answer session preparation notes for the company's upcoming Financial Results conference call" for second fiscal results and guidance for fiscal third quarter. The company said the conference call is still slated to take place Wednesday.

The Brocade 2% due 2007 added 4 points to 89 bid 89.75 offered. The stock closed up $2.30 to $24.08.

Emulex also was sharply higher, with the 1.75% due 2007 gaining 4.625 points to 89 bid, 90 offered while the stock rose $3.62 to $31.25.

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