MarketView for August 15

Summary

Stock prices continued to see some upward momentum with the result that both the Dow Jones industrial average and the S&P 500 indexes were able to close out the day in positive territory. Aiding the rise was the hope that as commodity prices continued their downward spiral that consumer spending would rise.

Meanwhile, a rally by the dollar as a result of fears of a slowdown in foreign economies helped to send the price of crude oil to a 15-week low. However, that sent energy and commodity-related companies' shares lower, including those of Exxon Mobil, which acted as a drag of the day’s trading activity. Meanwhile, a report showing a surprising rise in manufacturing in New York State in August added to the positive sentiment.

Retail stocks received a breath of fresh air after Kohl's raised its full-year forecast, saying it would be able to weather a tough economy. J.C. Penney's shares where higher after it reported earnings that exceeded Street expectations.

However, the Dow ended the week down 0.6 percent, the NASDAQ ended the week up 1.6 percent and S&P 500 rose 0.1 percent for the week. Trading was mixed in thin volume as options expiration added to the session's volatility, analysts said.

The price of sweet domestic crude settled down $1.24 per barrel, or 1.1 percent, at $113.77l. Commodity markets tumbled across the board, with gold sinking below $800 an ounce to almost a nine-month low as evidence mounted that slowing economic growth was hitting global demand.

The lower price of crude sent an index of airline stocks upward by 4.5 percent. Among blue chip manufacturers, United Technologies rose 1 percent to $66.80.

Shares of Autodesk surged 11.7 percent to $38.37 and gave the largest boost to the Nasdaq 100 after the engineering software maker posted a quarterly profit that was slightly above its own forecast.

Shares of MBIA and Ambac Financial moved higher on news that Standard & Poor's is no longer reviewing the ratings on the insurance arms of both companies for downgrade. It seems that consumer sentiment improved slightly in early August, thanks to a drop in gasoline prices as inflation expectations improved.

Down, Down She Goes

The price of domestic sweet crude for August delivery fell below $114 per barrel on Friday as a result of growing concerns over weakening economies in industrial nations abroad and the stronger dollar.

Domestic sweet crude settled down $1.24 at $113.77 per barrel, after going as low as $111.34 per barrel, the lowest level since May 2. London Brent settled down $1.13 per barrel at $112.55.

Crude has fallen sharply since reaching an all-time high of $147.27 a barrel on July 11 as growing global economic problems and high fuel prices have cut demand in top consumer the United States as well as Europe. The Organization of Petroleum Exporting Countries cut its 2008 demand forecast on Friday and added that ample supplies were paving the way to building inventories. Output by the producer group rose 145,000 barrels per day in July to 32.8 million bpd, the International Energy Agency said this week.

The euro hit a six-month low against the dollar on Friday following further proof that the U.S. economic slowdown is spreading. The economy of the 15-nation euro zone contracted 0.2 percent in the second quarter, data showed on Thursday.

Industrial Output Up In July At Half The Previous Month’s Rate

The Federal Reserve reported Friday that industrial production edged up 0.2 percent last month. That was half the pace of the 0.4 percent gain in June. The increase reflected a 0.4 percent gain in output at manufacturing plants. Motor vehicles and parts had the largest increase in manufacturing, advancing for a third straight month.

These gains were not seen as signaling a sustained rebound, however, given the problems facing the auto industry this year. Instead, the rebound in auto activity was viewed as a temporary improvement because a strike ended at parts supplier American Axle.

Even with the recent gains, production at auto plants remained 10.4 percent below where it was a year ago as automakers struggle with slumping demand due to the weak economy and the big spike in gasoline prices, which has hurt sales of their once-popular sport utility vehicles.

The modest increases in June and July production had followed three straight monthly declines. The manufacturing sector has been battered by the prolonged slump in housing and the multiple problems in the auto industry.

Industries that did well in July were for the most part connected to exports, which have been booming this year as declines in the dollar have boosted the competitiveness of U.S. products in foreign markets.

The 0.4 percent increase in manufacturing helped to offset a big 1.9 percent drop in output at utilities, a decline which followed a 2.3 percent surge the previous month. Both changes were seen as weather-related.

The large increase in June came from hotter-than-normal weather requiring increased electricity production. The decline in July reflected a return to more normal weather which meant a drop in utility output compared to the previous month.

Output in the mining sector rose a strong 0.9 percent, matching the increase of the previous month. The gains in this sector have been paced by strong activity in oil and natural gas production.

With all the changes, the nation's factories, mines and utilities operated at 79.9 percent of capacity in July, up slightly from June when the operating rate was 79.8 percent of capacity. That level remained below the average operating rate of 81 percent seen over the last 25 years.

While the surge in U.S. export sales has been a bright spot, there is concern that this boom may not last given the spreading weakness in major overseas markets in both Europe and Japan.

Hershey Plans An 11 Percent Price Increase

Hershey announced on Friday that it plans to raises prices on its products by an average of 11 percent in an effort to reduce the impact of rising commodities costs. At the same time the chocolate giant reduced its projections for 2008 and 2009.

"Commodity costs have been volatile over the last several years and continue to remain at levels that are well above historical averages," Hershey's President and Chief Executive David J. West said in a statement.

According to the company, it expects net earnings per share in 2008 of $1.43 to $1.51 per share. If you exclude business alignment and impairment charges, the company has projected earning of $1.85 to $1.90 per share. However, Hershey cautioned that due to current economic conditions, its profit would likely fall at the low end of that range. The company said it expects sales to increase by 3 to 4 percent.