MarketView for August 12

4
MarketView for Wednesday, August 12
 

 

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Wednesday, August 12, 2009

 

 

 

Dow Jones Industrial Average

9,361.61

p

+120.16

+1.30%

Dow Jones Transportation Average

3,747.68

p

+44.70

+1.21%

Dow Jones Utilities Average

373.01

p

+1.92

+0.52%

NASDAQ Composite

1,998.72

p

+28.99

+1.47%

S&P 500

1,005.81

p

+11.46

+1.15%

 

 

Summary  

 

Stock prices moved sharply higher on Wednesday after the Federal Reserve said it saw signs of a more stable economy. Stocks had been on track to close at their highest level in 10 months, led by technology and financials, but shares lost steam in the last half hour of trading.

 

The Federal Reserve said the economy was leveling out, and it left interest rates unchanged at the end of its two-day policy meeting. The Fed also said it will extend the duration but not the size of a program to buy long-term government debt, which is part of its effort to revive credit and stimulate the economy.

 

Shares of Applied Materials chalked up a 3.3 percent to close at $13.66 after the company said it would at least break even this year thanks to new orders and deep cost cuts. The PHLX semiconductor index .SOXX gained 1.8 percent.

 

Shares of Toll Brothers closed up 14.4 percent to $23.42 after it said its net signed contracts rose in the third quarter, the first increase in four years. Shares of Macy's were up 6 percent to $16.40 after the department store operator posted better-than-expected earnings and raising its outlook.

 

Fed’s View Is Positive

 

At the close of its two day meeting on Wednesday, the Federal Reserve stated that the economy was showing signs of leveling out two years after the onset of the deepest financial crisis in decades and it moved to phase out one emergency measure. At the same time, the Fed stated that was keeping its benchmark short-term interest rate steady near zero and said it would likely stay there for an extended period to guide the way to recovery. It was the clearest statement to date from the Fed, indicating that it sees the recession nearing an end and that shattered financial markets are healing.

 

"Information since the Federal Open Market Committee met in June suggests economic activity is leveling out," the Fed said, referring to its policy-setting panel. "Conditions in financial markets have improved in recent weeks." It is the first time since August 2008 that the committee's statement has not characterized the economy as contracting, weakening, or slowing. However, the Fed did caution that the economy remains fragile as employers continue to cut jobs and businesses trim investment.

 

Many peg the onset of the crisis to French bank BNP Paribas' move in August 2007 to freeze funds because of problems with U.S. subprime mortgages. In the months that followed, our economy became embroiled in the most damaging and painful recession in decades and the economic malaise spread around the world.

 

Treasury prices fell after the Fed statement in apparent disappointment that the Fed did not increase the amount of debt that it plans to buy but subsequently regained some ground. However, major U.S. stock indexes flirted with 10-month highs and the U.S. dollar rose against the yen.

 

The recession has seen tax revenues fall and spending rise, leading to a record federal budget deficit expected to top $1.84 trillion in the current fiscal year. At the same time, Fed Chairman Ben Bernanke's own hopes for a second term have a lot riding on his ability to restore growth and jobs after the Fed's role in controversial financial rescues and after questions about why the Fed did not spot the gathering storm earlier and take steps to prevent it.

 

Although recent reports imply that the economy may be coming out of its swoon and that job loss, may be moderating. Still, the Fed renewed its warning that economic activity is likely to stay soft for "a time." Household spending, while stabilizing, is still weak as a result of the grim labor market and tight credit, the Fed said.

 

To quell worries the Fed's bloated balance sheet may sow the seeds of dangerous inflation once the recovery gains traction, Bernanke has taken pains to explain the Fed has tools to pull money out of the financial system to prevent price pressures from building.

 

Some analysts also worry the Fed's easy money policies are setting the stage for another asset bubble, just as an extended period of low rates in the early part of the decade encouraged the housing boom that triggered the crisis.

 

The central bank cautiously moved to pull back some of that help for the economy on Wednesday, signaling it would slowly phase out a program to buy $300 billion in longer-term Treasuries by the end of October.

 

"To promote a smooth transition in markets as these purchases of Treasury securities are completed, the committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October," the Fed said.

 

The Fed launched the debt-buying program in March when it had already chopped interest rates to zero but wanted to open the money taps even wider to support the struggling economy. Treasury purchases were scheduled to expire in September.

 

The Fed's decision to refrain from expanding its bond buying while standing pat on rates contrasts with approaches taken by other central banks around the world faced different stages of economic and financial stabilization. The Bank of England stunned markets last week by expanding its program of bond purchases by a much larger amount than expected, saying the recession deeper than it had forecast.

 

Crude Rises Again

 

The price of crude oil rose again on Wednesday as optimism regarding the economy offset concerns over higher inventories and weak demand. Sweet domestic crude futures for September delivery settled up 71 cents per barrel at $70.16. London Brent settled up 43 cents per barrel at $72.89.

 

Oil trimmed gains after the Federal Reserve in its policy statement said the economy is leveling out and that it was extending purchases of long-term Treasury debt to the end of October. The dollar rose against the yen following the Fed statement.

 

Traders were also eyeing reports from the National Hurricane Center that the Atlantic could get its first named storm of the year as a tropical depression strengthens on a track toward the U.S. Virgin Islands.

 

Tropical storms and hurricanes can disrupt the operations of offshore oil platforms and coastal refineries.

 

Oil's strength came despite a report from the Energy Information Administration indicating that crude oil inventories rose 2.5 million barrels in the week to August 7, well over analysts' expectations for a 700,000 barrel build.

 

The build came as U.S. refiners cut back on runs with the recession keeping total product demand below year-ago levels.

 

Despite some positive economic signs, the International Energy Agency (IEA) forecast global oil demand growth will be lower in 2010 than previously expected, with little evidence a recovery is under way yet. The Paris-based agency, adviser to 28 industrialized nations, said global oil demand was now seen recovering by just 1.3 million barrels per day (bpd) in 2010, having fallen by 2.3 million bpd this year as the economic crisis curbed consumption.

 

Microsoft and Nokia Together

 

Microsoft and Nokia announced an alliance on Wednesday to bring business software to smart phones and counter the dominance of RIM’s BlackBerry. The alliance between the world's largest software company and cell phone maker means the latest versions of Microsoft's Office applications, including Word, Excel, PowerPoint and messaging, will be available on a range of Nokia cell phones, which make up 45 percent of the global smart phone market.

 

The two companies, at one time fierce rivals in the mobile telecommunications business, expect to offer Nokia phones running Office sometime next year.

 

"This is giving some of our competitors, let's spell it out, RIM, a run for their money," said Nokia Executive Vice President Robert Andersson, in a telephone interview. "I don't think BlackBerry has seen the kind of competition we can provide them now."

 

Research in Motion's BlackBerry created the market for mobile e-mail, and its dominant position in the corporate sector, especially in North America, has protected it from Nokia's attempts to crack the market in recent years. The alliance also aims to counter Google Inc's recent move into free online software, targeted at Microsoft's business customers, and the growing popularity of Apple Inc's iPhone device.

 

The alliance means Microsoft's new Office suite of applications could be available to a much wider audience than the users of Windows Mobile phones, which make up 9 percent of the smart phone market.

 

The two companies stressed that the new venture will not affect the future of Microsoft's Windows Mobile and Nokia's Symbian operating systems for smart phones. Executives said Nokia has no plans to make a Windows Mobile device.