MarketView for June 30

Summary  

Wall Street gave up most of its gains of the day before on Tuesday as an unexpected decline in consumer confidence counteracted much of the optimism that an economic recovery was actually underway. Nonetheless, Wall Street still managed to chalk up its best quarter in a decade.

The drop in the Conference Board's measure of consumer confidence in June suggested that the 18-month-long recession had yet to loosen its grip on the economy. The downbeat expectation among consumers is a major obstacle as their spending is a major driver of corporate profits and accounts for roughly two-thirds of U.S. economic activity.

Tuesday's standout decliners included industrials, energy, financials and material stocks, some of the very same sectors that helped underpin the market's push to recover from the 12-year lows of early March as investors bet on economic stabilization.

Even so, the S&P 500 posted its best quarterly performance since the fourth quarter of 1998. The benchmark S&P 500 rose 15.2 percent in the second quarter, while the Dow Jones industrial average was up 11 percent and the Nasdaq rose 20.1 percent. For the quarter, the Wilshire 5000, the broadest measure of publicly traded U.S. companies, is up 16.21 percent or about $1.5 trillion.

However, the Dow still closed out the month of June down 0.6 percent, while the S&P 500 inched up 0.02 percent, and the Nasdaq climbed 3.4 percent. Meanwhile, looking back to its 12-year closing low on March 9, the S&P 500 is up 35.9 percent.

Among industrial stocks, shares of Caterpillar rose 4.9 percent to $33.04, while on the technology front IBM fell 1.3 percent to $104.42. On the Nasdaq, Qualcomm fell 1.9 percent to $45.20, making it the worst drag for the Nasdaq.

Sliding oil prices gave investors a reason to sell some energy shares, with Exxon Mobil down almost 1 percent at $69.91. Crude oil futures settled down $1.60 per barrel, or 2.2 percent, at $69.89. Shares of refiners, such as Sunoco and Tesoro, fell after Goldman Sachs cut them to "sell" from "neutral. Sunoco closed down 0.4 percent to $23.20, while Tesoro was down1.2 percent to $12.73.

On the final day of the second quarter, money managers set out to burnish their portfolios by selling losing stocks and scooping up winners in a move that helped the market end sharply off its lows. At the same time, volume was on the lighter side due to a holiday- shortened week. The markets will be closed for the Independence Day holiday on Friday.

Tuesday's other economic news were separate reports that showed single-family home prices fell in April but the pace of decline moderated, and business activity in the Midwest contracted again in June, but at a less severe rate than expected.

Discouraging Economic News

Consumer confidence fell unexpectedly to 49.3 in June from 54.8 in May, according to a report released on Tuesday, indicating that households felt gloomier about their current situation and less optimistic about what the coming months might bring.

A separate report on April house prices in major cities offered some encouraging signs that the worst of the housing slump may be over, but that was not enough to lift investors' spirits. At the same time, economic data indicated that business activity in New York City and the Midwest remained weak, while retail chains slogged through a rough June.

The Standard & Poor's/Case Shiller home price indexes showed prices of single-family homes declined in April from the prior month, but the pace of the slide moderated. The 20-city price index dipped 0.6 percent from the previous month.

There were a few more glimmers of hope as 13 of the 20 metropolitan areas tracked showed some improvement. The laggards included Las Vegas, Phoenix and Miami, which were among the cities that saw the biggest run-up in house prices in the middle part of this decade.

In New York, the National Association of Purchasing Management-New York's monthly measure of business activity showed conditions worsened in June, although the purchasing and supply managers surveyed felt a bit better about the six-month outlook.

The index of current business conditions tumbled to 44.8 in June from 61.3 in May, while the six-month outlook index rose to 58.3 from 56.1 a month earlier. A similar report on activity in the U.S. Midwest in June showed some improvement from May, but still pointed to a weak economy.

Readings on the health of retailers were mixed. A report from the International Council of Shopping Centers and Goldman Sachs showed that chain store sales rose modestly last week from a year earlier, but a separate report from Redbook Research showed a sharp decline.

Still, both groups expected a weak monthly performance from the major retail chains as consumers cut spending. It is tougher than usual to try and track retail sales because Wal-Mart has stopped providing a monthly report on its sales.

Crude Prices Fall

The price of sweet crude oil futures for august delivery fell 2 percent to below $70 per barrel on Tuesday, settling down $1.60 per barrel at $69.89, after earlier rising to an eight-month high of $73.38. London Brent settled down $1.69 per barrel at $69.30.

The dollar rose against the euro, weighing on dollar denominated commodities with the CRB commodity benchmark trading down 1.70 percent on Tuesday afternoon. Driven by hopes of a global economic recovery, oil prices rose more than 40 percent in the second quarter, the highest quarterly percentage gain since 1990.

Earlier, oil prices surged on unusually high Asian trading volumes, which some traders attributed to big fund players in the market.

Oil markets were also awaiting U.S. inventory data from the American Petroleum Institute, due Tuesday afternoon, expected to show a draw in crude stockpiles and a build in product inventories as the world's top consumer heads into the July 4 Independence Day holiday weekend. The U.S. Energy Information Administration will release its weekly inventory report on Wednesday.