MarketView for April 14

 

 

Summary  

 

Wall Street stumbled somewhat on Tuesday after a surprising drop in retail sales dented hopes the recession was abating. The sell-off halted a three-day run-up in the S&P 500, but the benchmark index is still up 24 percent since hitting a 12-year closing low on March 9.

 Adding to the problem were fears that Goldman Sachs' share offering could prompt others to follow suit, thereby reducing the ability of banks to extend loans due to a shortage of capita.

 

However, it was the financial sector, which had recently led the stock market's 5-week rebound from 12-year lows that took largest hit. Goldman Sachs shares slid 11.6 percent to $115.11, a day after the company said it would raise $5 billion by issuing common stock and posted a stronger-than-expected quarterly profit. Equity offerings are traditionally a drag due to their dilutive effect. Additionally, analysts said there were concerns about the quality of Goldman's earnings.

 

Shares of JPMorgan, due to post quarterly results on Thursday, fell 9 percent to $30.70 and contributed the most to the Dow's decline. Bank of America fell 8.4 percent to $10.09, while shares of Wells Fargo, which last week posted surprisingly upbeat preliminary first-quarter results, slid 7.2 percent to $18.27. In contrast to other bank stocks, Citigroup (C.N) ended up 5.5 percent at $4.01.

 

Retail sales in March were also lower after two consecutive months of increases and sparked selling across the board, with the shares of retailers, manufacturing companies, technology companies and energy companies among the casualties. week bounce suggested. The gloomy news on retail shows that "maybe the economy hasn't turned around as the last 5-

 

After the bell, shares of Intel shed 4.6 percent to $15.28. The company gave no formal second-quarter revenue forecast even as it posted stronger-than-expected first-quarter results. In regular trading, Intel ended the day up 0.2 percent at $16.01.

 

Shares of Apple were a top drag, down 1.6 percent at $118.31, followed by Web search leader Google, off 2.4 percent at $368.91.

 

eBay said after the bell it would spin off its fast-growing Skype unit, a Web telephone service company, through an initial public offering, ending speculation about an imminent sale. Shares of eBay rose more than 5 percent to $15.14 after hours. They had ended the regular session down 1.7 percent at $14.38.

 

During the regular session, consumer-oriented stocks felt the sting of the morning's unexpectedly weak retail sales data. The stock of department store operator Macy's (M.N) tumbled 7.3 percent to $11.99, while shares of Wal-Mart Stores (WMT.N) , the world's biggest retailer, fell nearly 1 percent to $51.12, and consumer goods maker Procter & Gamble (PG.N) declined 1.6 percent to $47.25.

 

McDonald's saw its share price fall 2.3 percent to $54.82, making the stock one of the top drags on the Dow industrials. Consumer spending accounts for about two-thirds of our domestic economic activity and is a pillar of corporate profits.

 

In recent weeks, investor sentiment had been buoyed by some reassuring economic reports, including several on housing that suggested the economic slump was abating.

 

In a major speech, President Obama said there were signs of recovery, but "by no means are we out of the woods just yet."

 

On the energy front, Chevron ended in regular trade down 2.1 percent at $66.58, and shares of ConocoPhillips lost 1.2 percent to $39.57.

 

Among bright spots, shares of Johnson & Johnson finished up 0.4 percent at $51.37 after the diversified health-care company reported a better-than-expected profit.

 

Retail Sales Leave Much To Be Desired

 

The Commerce Department reported on Tuesday that retail sales fell unexpectedly by 1.1 percent in March after chalking up increases for two straight months, dimming hopes the 16-month-old recession was on the way up from the basement.

 

Despite the weak March sales data, consumer spending likely rebounded in the first quarter, which could mean gross domestic product fell less steeply than the 6.3 percent annual rate recorded in the last three months of 2008.

 

Federal Reserve Chairman Ben Bernanke, meanwhile, said figures released in the last few weeks on housing, and consumer spending suggest signs of improvement.

 

"Recently we have seen tentative signs that the sharp decline in economic activity may be slowing. A leveling out of economic activity is the first step toward recovery," Bernanke said on Tuesday.

 

The Commerce Department said March retail sales were weighed down by declining purchases for big-ticket items like motor vehicles and electronic goods.

 

It said February retail sales were revised upward to show a 0.3 percent gain, from a previously reported fall of 0.1 percent, while January's figures were adjusted to show a hefty 1.9 percent rise.

 

Stock prices fell on the data, with shares of department store chain Macys dropping over 7 percent. Government bond prices rose as investors bailed out of stocks.

 

President Barack Obama said there were signs of recovery in the economy, but "by no means are we out of the woods yet."

 

The March data, which showed broad declines, had been negatively affected by Easter falling in April and did not weaken the argument consumer spending was stabilizing after huge drops in the second half of 2008.

 

Weekly retail sales reports suggest consumers were shopping again in early April. U.S. chain stores sales rose 0.8 percent last week, building on the previous period's 0.6 percent gain, according to the International Council of Shopping Centers.

 

Separately, the Johnson Redbook retail sales index climbed 0.9 percent in the first week of April after rising 0.4 percent the previous week.

 

Consumer spending accounts for over two-thirds of U.S. economic activity. The housing-led recession, characterized by steep job losses, plunging asset values and tight credit conditions, is forcing households to scale back consumption.

 

Excluding motor vehicles and parts, sales fell 0.9 percent in March, compared to a 1 percent gain the prior month. The data highlighted the continuing problems in the U.S. auto industry, with vehicle and parts sales dropping 2.3 percent after a 3 percent decline in February.

 

Gasoline sales fell 1.6 percent in March after increasing by 3.1 percent the previous month. Sales of electronic goods and appliances tumbled 5.9 percent, reversing a 0.7 percent gain in February, while building materials eased 0.6 percent after slipping 0.5 percent.

 

In another report, the Commerce Department said U.S. business inventories fell 1.3 percent in February following a decline of a similar margin the prior month. Motor vehicle and parts inventories dropped l.3 percent in February.

 

Producer Price Index Falls

 

A on Tuesday indicated that prices received by producers fell a surprising 1.2 percent last month, underscoring the economy's weakness and lack of pricing power. The Labor Department said U.S. producer prices fell 1.2 percent in March and compared with the same period a year ago slumped 3.5 percent, the largest decline since 1950. Core producer prices, which exclude food and energy costs,, were unchanged in March. The core producer price index stood 3.8 percent higher from the same month last year.

 

Crude Falls To Below $50 A Barrel

 

The futures price of a barrel of crude oil for May delivery fell to under $50 per barrel on Tuesday on forecasts for softer 2009 global petroleum demand and for a weekly build in domestic crude supplies. The Energy Information Administration (EIA) lowered its 2009 world oil demand forecast by 180,000 barrels per day, to just over 84 million bpd.

 

Domestic sweet crude fell 64 cents, or nearly 1.3 percent, to settle at $49.41 per barrel. Brent crude settled down 18 cents per barrel at $51.96.

 

The International Energy Agency, adviser to 28 industrialized countries on energy policy, cut its world oil demand forecast for 2009. That outlook called for even weaker global demand than Tuesday's U.S. forecast. OPEC, the source of more than a third of the world's oil, publishes its monthly view on Wednesday.

 

In addition to the forecasts for global supply and demand, traders will also focus on the latest snapshot of domestic supply. U.S. crude oil supplies rose for the sixth consecutive time last week as imports rebounded, and that could have lifted inventories to the highest in almost 19 years.

 

Intel Exceeds Expectations

 

Intel Corp exceeded quarterly earnings expectations and declared that the worst may be over for the tech sector, but its shares still fell 4.5 percent after it failed to give a clear revenue forecast. The company said on Tuesday it believed personal computer sales hit a trough in the first quarter but there was still too much market and economic uncertainty to give a precise projection for the second quarter.

 

Intel said, for internal planning purposes, it was planning for revenue to come in flat after the first quarter's $7.1 billion. Before Tuesday's after-hours drop to $15.29 from a close of $16.01, Intel’s shares were up 32 percent from a 2009 nadir of $12.01. That rise was nearly twice the Nasdaq's gain of 17 percent over the same period.

 

Gross margins, a closely watched barometer for the company, came to 45.6 percent in the first quarter. For the second quarter, the company expects margins to remain in the mid-40s. Intel, which controls roughly 80 percent of the global microprocessor market, is closely watched as a barometer of overall IT industry health.

 

The company also reported a net profit in the first quarter ended March 28 of $647 million, or 11 cents a share, down 55 percent from $1.44 billion, or 25 cents a share, a year earlier. Industry executives, still shaken by one of the sector's worst downturns ever, argue that too much uncertainty remains for the future. Intel's revenue fell 26 percent to $7.1 billion in the reporting period, versus the average analyst estimate of $6.98 billion.