MarketView for June 29

 

 

Summary  

 

After getting off to a slow start in the morning, stock prices closed out the day sharply higher on Monday as higher oil prices lifted shares of energy companies and fund managers snapped up this quarter's winners in a windows dressing effort to impress their clientele. Fund managers are enhancing their portfolios before the quarter ends on Tuesday in a ritual known as "window dressing" by selling some of the quarter's losers and scooping up the winners. This move bolstered stocks as well.

 

Financials were the day's top advancer and the leader for quarterly gains, followed by technology.

Energy shares were also among the quarter's strongest performers, and a 3.4 percent jump in the price of oil pushed them upward even more on Monday.

 

Exxon Mobil, the Dow's top performer, closed out the day up 2.2 percent at $70.58. Occidental Petroleum closed up 2.9 percent at $66.13. Sweet domestic crude August oil futures settled up $2.33 per barrel at $71.49 after Nigerian militants said they attacked the country's oil facilities, which set off some concerns about supply.

 

The S&P 500 is up 16.2 percent so far for the quarter, putting it on track for its best quarter since the fourth quarter of 1998, when the index rose nearly 21 percent. The S&P 500 has gained 37 percent since hitting a 12-year closing low in early March as early signs of an economic rebound surfaced.

 

Shares of home builders helped underpin the market on Monday after Credit Suisse raised its rating on KB Home, citing stronger orders and more attractive valuation. KB Home closed out the day up 5.1 percent at $14.11.

 

Needless to say, the Street was also cognizant of Bernie Madoff’s final day in court, at which time he was sentenced to 150 years in prison for running what has been called a $65 billion Ponzi scheme. When Madoff's fraud was revealed last December, its scope was so brazen and so massive that it shocked Wall Street and investors alike and made everyone question their broker.

 

Signs of life in overseas markets also added to Wall Street's positive mood. Shanghai's benchmark stock index reached a one-year closing high for the fourth straight session as signs of a Chinese economic recovery and ample liquidity boosted the market, improving investor sentiment.

 

On the Nasdaq, Microsoft was up 2.2 percent to $23.86 after Deutsche Bank raised its price target on the stock to $30 from $22.

 

Ford May Yet End Up Smelling Like A Rose

 

Ford said on Monday it expects to gain market share in June as its sales would hold up much better than the rest of the industry and signaled its increasing confidence by raising production. As a result, the company announced it would increase North American production in the third quarter by about 5.4 percent from a plan disclosed in early June amid signs that demand has begun to stabilize. That plan had set Ford's first year-over-year quarterly production increase in North American in two years.

 

However, Ford also expects its domestic sales to be down 10 to 20 percent in June from a year earlier, while the industry overall could post declines of 25 percent to 30 percent. Nonetheless, the company expects its share of the U.S. market in June to be comparable to May, when it posted its best overall share in three years and up from a year ago.

 

Ford, the only domestic automobile manufacturer to have avoided bankruptcy, has forecast a second-half recovery in demand. Ford posted a company record $14.7 billion net loss in 2008 and expects to return to profitability in 2011.

 

Ford said on Monday that it would increase its third quarter production plan to 485,000 vehicles in North America, about 5.4 percent above its previous schedule, by building an additional 15,000 cars and 10,000 trucks. The increase is "really in response to where we are seeing some demand for new products and share gains," Ford spokesman Mark Truby said.

 

The total represents a 16 percent increase from the 418,000 vehicles Ford built in the third quarter of 2008. It is spread among the lineup and includes some Focuses, crossovers, pickup trucks and Mustangs, Ford said.

 

Automobile sales hit their lowest monthly levels since the early 1980s from late 2008 through the first few months of this year. The industry posted U.S. sales of 13.2 million vehicles last year. Through the first half of this year, sales have been running at a rate of about 9.5 to 9.6 million vehicles.

 

Ford shares closed up 17 cents, or 3.03 percent, at $5.78 Monday.

 

Worst Could Be Over

 

Growing confidence that the economy is putting the worst recession in decades behind it has pushed the index known as Wall Street's fear gauge to its lowest level since just before Lehman Brothers collapsed last September.

 

The CBOE Volatility Index .VIX, known as the VIX, provides investors with portfolio insurance against fluctuations in the S&P 500 index .SPX. It soared to historic highs in the weeks after Lehman's rapid failure pushed financial markets to the brink and left an already crippled economy in tatters. However, amid numerous signs the economy is on the edge of a recovery, coupled with the best quarter for stocks in more than 10 years, the VIX has begun to look like its old self again.

 

The VIX, which is calculated from Standard & Poor's index options, tracks the market's expectations of volatility over the next 30 days. It often moves inversely to the S&P benchmark and goes up as options premiums are raised.

 

The S&P 500 .SPX hit a more than 12-year low in early March, down more than 57 percent from the record high it set in October 2007, after the bursting of the housing bubble spiraled into a credit crisis and then into a global recession.

 

The VIX hit an intraday record high of 89.53 in late October, but on Monday it closed at 25.35, its lowest level since September 11, 2008, before the weekend when Lehman collapsed.

 

Stabilization of key economic indicators such as payrolls, home prices, bond yields and consumer confidence, as well as the Obama administration's plan to reactivate the recession-hit economy, has established some belief that the economy's outlook has improved. The Street is still looking forward to this week's key housing and job market data on expectations that it will show further signs that the worst is over.

 

However, keep in mind that although the VIX has returned to levels similar to those seen before financial markets imploded, analysts said that does not mean the economy has recovered from the hit it took last year.

 

Fed’s Midwest Factory Index Down

 

The Chicago Federal Reserve Bank said on Monday its Midwest manufacturing index fell in May to its lowest point in more than 15 years due to a sharp decline in output from the automobile industry. The Chicago Fed Midwest manufacturing index is a monthly estimate of manufacturing output in the region by major industries. The survey covers the five states that make up the seventh Federal Reserve district: Illinois, Indiana, Iowa, Michigan and Wisconsin.

 

The index fell 3.1 percent to a seasonally adjusted 78.2 from a downwardly revised 80.7 in April, which was originally reported at 81.0. The May index was at the lowest level since September 1993. Compared with a year earlier, Midwest output was down 24.4 percent, far steeper than the 15.2 percent decline on a national level, the report said.

 

Regional auto production fell 10.7 percent in May, with the deterioration accelerating from 3.0 percent in April. The Chicago Fed's auto index fell to 44.7, the lowest since March 1991 when it was at 43.1. On a year-over-year basis, the auto industry was the weakest of the four sectors tracked by the Chicago Fed, with a 39.2 percent drop in output. This compares with a national decline of 22.0 percent.

 

"The troubles of the Detroit Three auto companies seem to be affecting Midwestern production much more than that of other areas because of their operations' concentration in the Midwest," Chicago Fed senior economist William Strauss said in a statement.

 

Midwest steel and machinery output also contracted last month, falling 2.2 percent and 3.3 percent, respectively.

 

Resource sector output bucked the negative trend for a second month in a row, amid resurgence in commodity prices. It rose 0.2 percent in May compared with a upwardly revised 0.7 percent increase in April.

 

On the year, regional resource output was down 10.0 pct in May versus a national decline of 8.0 percent.

 

Food and chemical output increased last month from April, but paper, nonmetallic mineral and wood production slipped, the Chicago Fed said.