Investors flee stocks, spooked by rising oil and gasoline prices, inflation fears and worries about Washington Mutual, Lehman Bros. and other financial companies. Anheuser-Busch gets a $46.3 billion takeover bid. Concern about Steve Jobs' health hits Apple shares.
Stocks fell sharply today as crude oil jumped over $136 a barrel again -- and briefly topped $138 -- amid concerns about the health of key banks and financial houses.
Crude oil closed at $136.38 a barrel, up 3.9% from Tuesday, after the Energy Department reported a surprising decline in domestic crude supplies. Crude peaked at $138.30, just 24 cents under Friday's record close of $138.54.
The Dow Jones industrials fell 206 points, or 1.7%, to 12,084. The Standard & Poor's 500 Index tumbled 23 points, or 1.7%, to 1,335, and the Nasdaq Composite Index slumped 55 points, or 2.2%, to 2,394.
After the close, shares of Anheuser-Busch (BUD, news, msgs) were up more than 7% to $62.59 after the maker of Budweiser, the best-selling U.S. beer, said it had received an unsolicited takeover bid of $65 a share from InBev, the Belgian-Brazlian brewing company. The offer values Anheuser-Busch at $46.3 billion.
Anheuser said it would make a determination on the offer "in due course." Many observers expect a nasty takeover fight.
The Dow's decline came after a 395-point loss on Friday and was its 15th loss of at least 200 points so far in 2008.
The slump, which has shaved 8% off the Dow since a May 19 intraday peak at 13,137, shows no signs of giving up. Before May 19, the major indexes had regained more than half of their losses from the market peaks last October through March. Those gains have been trimmed substantially.
The S&P 500 rose 14.6% between its March 17 low and May 19 intraday high. That gain has been chopped to 6.3%.
Investors are trying to decide how three forces will ultimately affect the economy and consumers:
- High oil prices. The big run-up this year and, particularly since May, has forced motorists around the world to cut back. It is changing spending habits and may cause more airlines to seek bankruptcy protection.
- The housing crunch. While there are signs of bottoming -- big price cuts have brought out buyers in Florida, the New York area and California -- a bottom nationally isn't apparent.
- The credit crunch. This is the most complex problem facing the economy and the markets. It has already caused the collapse of Bear Stearns. Washington Mutual (WM, news, msgs) and Lehman Bros. (LEH, news, msgs) have been under extreme pressure in the last week. WaMu fell 9.3% to $6.06. Lehman Bros. fell 13.6% o $23.75 after a Merrill Lynch analyst cut his rating on the stock.
Markets will contend with a government report on Thursday on retail sales, and tensions will rise as traders await the Labor Department's consumer price index report, due before Friday's open.
Just a tough day
It was a weak market from the start, and it was made worse when a key market support level -- 1,350 on the S&P 500 -- was breached.Only three of the 30 Dow stocks were higher, led by ExxonMobil (XOM, news, msgs), up 0.8% to $88.61, and Chevron (CVX, news, msgs), up 0.7% to $99.42. Chemical giant DuPont (DD, news, msgs) was up 0.4% to $45.89.
The five financial components of the Dow -- Bank of America (BAC, news, msgs), JPMorgan Chase (JPM, news, msgs), American International Group (AIG, news, msgs), American Express (AXP, news, msgs) and Citigroup (C, news, msgs) -- were all down 2% to 5%. Citigroup was the loser of the group, down 5.2% to $19.21.
Only 45 S&P 500 stocks were higher. Nine of the 10 sectors of the S&P 500 were lower; the one gainer: energy stocks.
In addition, just three stocks in the Nasdaq-100 Index ($NDX.X) rose. That index was off 45 points, or 2.3%, to 1,928. Apple (AAPL, news, msgs) was the biggest contributor to the Nasdaq-100's loss. Its 2.6% loss to $180.81 knocked about 7 points off the index. The issue: concerns about CEO Steve Jobs' health. Jobs, who previously had cancer, appeared gaunt Monday as he announced the new version of the iPhone; company officials have said he just had a bug.
- Top Stocks blog: Should we care about Steve Jobs' appearance?
An additional issue came when the Semiconductor Industry Association cut its 2008 semiconductor sales growth outlook to 4.3% from 7.7%, citing continued price pressure from strong competition in memory chips, primarily DRAMs. DRAMs are dynamic random access memory chips, the most common kind of memory chips used in personal computers.
The Philadelphia Semiconductor Index fell 2.1% to 387 on the news. Dow component Intel (INTC, news, msgs) fell 3.8% to $21.81.
Meanwhile, the Federal Reserve said that economic activity remained weak in April and May. The Fed's latest Beige Book report, an anecdotal look at business conditions, found that consumer spending was pinched amid high prices for oil and food.
Seven out of 12 regions reported economic activity was softer in the six-week period. The five remaining regions reported they were stable or little changed from the similarly gloomy April survey. The housing market faced continuing pressure, and the cost of energy was seen damping tourism.
With today's close, the Dow is down 8.9% on the year and 14.7% from its October 2007 high. The S&P 500 is down 9.1% and 14.7%. The Nasdaq is off 9.7% and 16.3%.
| Wed. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $136.38 | $131.31 | $5.07 | 7.09% | 42.09% |
| Heating oil (per gallon) | $3.9748 | $3.8124 | $0.1624 | 8.40% | 50.03% |
| Natural gas (per million BTU) | $12.6600 | $12.4350 | $0.2250 | 8.18% | 69.18% |
| Unleaded gasoline (per gallon) | $3.4658 | $3.3193 | $0.1465 | 3.51% | 39.14% |
Falling oil supplies = higher prices
Crude's big gain today came after it had fallen 5.2% in the prior two sessions.The Energy Department said that oil inventories fell by 4.6 million barrels last week to 302.2 million. That drop was the fourth weekly inventory decline in a row -- and was far greater than analysts' expectations of a 1.5 million barrel decline.
As crude jumped, the national average retail price of gasoline hit a new high of $4.052 a gallon, AAA's daily Fuel Gauge Report showed.
The drop in oil supply was a surprise, trader Mark Solazzo of M. Solazzo Trading told CNBC this morning. "We were expecting more neutral numbers." Crude should hit $142 soon, Solazzo predicted. Analysts from Morgan Stanley and Goldman Sachs have predicted crude would hit $150 a barrel by July 4.
Motorists can expect gasoline prices around $4 gallon through next year, the Energy Department said today, with oil prices staying well above $100 a barrel.
Crude oil prices are likely to average $126 a barrel in 2009, $4 higher than this year, as oil supplies and demand are expected to remain tight, Guy Caruso, head of the department’s Energy Information Administration, told a congressional hearing.
Gasoline prices are likely to peak at $4.15 a gallon in August and won’t go down much after that, the agency projected. Gasoline may average $3.92 a gallon through 2009.
Motorists are starting to change their driving habits as fuel prices rise.
Gasoline demand fell 1.3% over the past four weeks compared with a year ago, the Energy Department said. MasterCard's Gasoline SpendingPulse report Tuesday also showed that demand at the pump fell. It was the seventh such report in a row to show a year-on-year decline in weekly demand.
Stephen Schork of the Schork Report newsletter wrote that the declines reflect changes in vacation plans.
"You have to get yourself to work -- either by car or mass transit -- every day," Schork wrote. "Conversely, you have greater discretion on how you allocate your vacation mileage . . . assuming Americans are going to take vacation this summer."
While crude supplies fell, distillate supplies (such as heating oil and diesel) rose by 2.3 million barrels to 114 million barrels, and gasoline supplies rose by 1 million barrels to 210.1 million barrels. Diesel prices have been soaring because of higher demand in Europe and Asia, especially China. China has said its oil imports jumped 25%, Bloomberg News reported. The catalyst: heavy demand from efforts to recover from the May earthquake in southwest China.
Financial stocks are a big worry
While oil prices were a big problem, financial companies were also weighing on the market as traders speculated that rising inflation may force central banks around the world to raise interest rates.Washington Mutual and Lehman Bros. pushed financial shares to the lowest level in five years.
Lehman Bros. fell after Merrill Lynch analyst Guy Moszkowski cut his rating on the firm to "neutral" -- a week after telling clients to buy the stock.
The enormity of Lehman's second-quarter loss, he said, indicated the company's profit potential has been reduced, he told clients in a note today.
The bigger question is how long Wall Street's fourth-largest investment bank can remain independent. Many analysts now believe the answer is: "not long." The company is too small and doesn't have any specialties that can help it stay independent, BusinessWeek said today.
In addition, Goldman Sachs (GS, news, msgs) was down 2.9% to $162.40 on speculation the investment bank would report large write-downs when it reports quarterly figures next week, Reuters said.
Meanwhile, Burlington Northern Santa Fe (BNI, news, msgs) led industrial shares lower after UBS said the second-largest U.S. railroad may cut its profit forecast. FedEx (FDX, news, msgs) and United Parcel Service (UPS, news, msgs) slid 4% and 2.8%, respectively, on higher oil prices.
Alcoa (AA, news, msgs) was the Dow's biggest loser, falling 7.5% to $39.53. The rating on the shares was cut to "neutral" from "overweight" today by JPMorgan Chase -- which also said the company's new chief executive officer, Klaus Kleinfeld, will disappoint investors.
Kleinfeld also said that higher input costs will likely hurt near-term earnings.
"While the market appears to be discounting a sale of Alcoa or at least some sort of spinoff to separate its upstream from its downstream businesses, we believe that both of these assumptions are incorrect," JPMorgan's analyst wrote in a note to clients.
Fertilizer stocks jump
One sector that did do well today was fertilizer companies, thanks in part to some positive comments from Agrium (AGU, news, msgs) and Potash of Saskatchewan (POT, news, msgs).Agrium this morning lifted its second-quarter forecast to between $2.80 and $3.00 per share, up from a previous prediction of $1.92 to $2.22 per share. The stock jumped 8.5% to $98.96 on the news. The strong global demand for food puts Potash in "the greatest period of growth," company CEO Bill Doyle said to a RBC Capital Markets conference in Toronto. Soaring prices have not hit demand, either, Doyle said, adding that "we're nowhere near peak pricing."
Potash shares rose 1.2% to $223.10.
Fertilizer companies have been booming as corn, wheat and soybeans have hit record highs in recent months. Farmers have been taking advantage of the high prices and planting more crops, which, in turn require more fertilizer.
Inflation the word of the day again
One day after comments from Federal Reserve Chairman Ben Bernanke about inflation risks sent jitters through the markets, another Fed board member had some thoughts about inflation today.Fed Vice Chairman Donald Kohn said he thinks that the Fed should stick with its current policies on inflation and unemployment because other policies could make things worse.
Kohn spoke this morning at the Boston Fed's annual economic conference, the same conference where Bernanke spoke on Monday. The three-day conference ends today.
- Readers talk: Should the Fed raise rates?
"Fed officials will remain hawkish on inflation risks," said Michiyoshi Kato, senior vice president of currency sales at Mizuho Corporate Bank in Tokyo, to Bloomberg News. "U.S. officials' verbal intervention is too much to ignore."
Bernanke said that the Fed will "strongly resist" any surge in inflationary pressure -- a signal that the Fed is done lowering interest rates. Bernanke's words prompted speculation that the Fed could even raise rates at coming meetings to dampen expectations of inflation. Most economists expect the Fed to keep rates steady at 2% at its meeting later this month.
Mortgage applications rise
Mortgage applications jumped 10.9% in the week ending June 9, compared to the last week in May, the Mortgage Bankers Association reported this morning.Refinancing applications rose 8.4%, and filings for mortgages to buy homes increased 12.8%. Total applications were still down 16.5% from the same week in 2007.
Rates on 30-year fixed mortgages averaged 6.24% last week, up slightly from 6.17% the previous week. The average rate on 15-year fixed mortgages rose to 5.78% last week from 5.7%.
Last year, the average rate on a 30-year fixed mortgage was 6.61%."Buyers do seem to be responding to the drop in home prices," said Russell Price, senior economist at H&R Block Financial Advisors, to Bloomberg News. The S&P/Case Shiller home price index fell 14% in the first quarter of 2008 from the same quarter a year ago.
However, Price cautioned that "credit availability is much tighter than it was previously, and this will delay the sector's recovery."
Chrysler could cut production
Privately held Chrysler will likely cut production of truck sales because of weak demand, CEO Bob Nardelli said at a conference late Tuesday.Nardelli also said Cerberus Capital Management, the private-equity firm that bought an 80.1% stake in Chrysler last August, is not "second-guessing" its decision to buy the automaker and that Chrysler will be an independent company three years from now.
- Top Stocks blog: Ford shareholders want out
Auto makers have been slammed by a slowdown in demand for high-profit vehicles like SUVs and trucks. Chrysler's U.S. sales fell 25% in May, compared to last year, and the company's market share dipped by 2 percentage points to 10.6%.
Nardelli said the company is working on building an international presence, with emphasis on opportunities in China, India and Brazil. Chrysler's former corporate parent, German automaker Daimler, had helped the company on the international front. Daimler still owns 19.9 of Chrysler.
Staples' sweetened bid wins over Corporate Express
Staples (SPLS, news, msgs) this morning said it finally won the support of Dutch office-supplies company Corporate Express, after raising its bid to $2.6 billion, or $14.30 per share in cash.Staples raised its bid three times before Corporate Express agreed to a deal. The first offer came in February.
The deal will help boost Staples' office-supplies division, which is its most profitable business. Shares of Staples were up 5.3% to $24.38 today, tops among S&P 500 stocks.
| Wed. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 1.905% | 1.970% | -0.065 | 2.97% | -39.33% |
| 5-year Treasury note yield | 3.469% | 3.541% | -0.072 | 1.82% | 0.41% |
| 10-year Treasury note yield | 4.073% | 4.099% | -0.026 | 0.67% | 0.94% |
| 30-year Treasury bond yield | 4.702% | 4.701% | 0.001 | -0.11% | 5.45% |
| Currencies | |||||
| U.S. Dollar Index | 73.235 | 73.740 | -0.505 | 0.39% | -4.51% |
| British pound in dollars | $1.9639 | $1.9646 | -0.0008 | -0.98% | -1.28% |
| Dollar in British pounds | £0.5092 | £0.5090 | 0.0002 | 0.99% | 1.29% |
| Euro in dollars | $1.5569 | $1.5564 | 0.0005 | 0.06% | 6.52% |
| Dollar in euros | € 0.6423 | € 0.6425 | -0.0002 | -0.06% | -6.12% |
| Dollar in yen | 106.81 | 106.81 | 0.00 | 0.40% | -4.51% |
| Canadian dollar in U.S. dollars | $0.981 | $0.981 | -$0.0001 | -2.60% | -1.22% |
| U.S. dollar in Canadian dollars | $1.020 | $1.019 | $0.0009 | 2.69% | 1.24% |
| Commodities | |||||
| Gold | $882.90 | $871.20 | $11.70 | -0.50% | 5.36% |
| Copper | $3.5795 | $3.5600 | $0.02 | -0.73% | 17.71% |
| Silver | $16.8550 | $16.6350 | $0.22 | -0.06% | 12.97% |
| Corn | $7.0325 | $6.7325 | $0.30 | 17.36% | 54.39% |
| Crude oil (NYMEX) (per barrel) | $136.38 | $131.31 | $5.07 | 7.09% | 42.09% |
No comments:
Post a Comment