MarketView for May 19

Summary 

The Dow Jones industrial average and the S&P 500 indexes both ended the day on Tuesday under waters as financial shares sank as a result of what appeared on the surface to be some disappointing housing data. Financial shares were also lower after the Senate passed a bill to curb sudden credit card interest rate increases and hidden fees, a move that could potentially reduce the profits of major credit card issuers.

Shares of American Express were down 5.1 percent to $24.79, while Capital One fell 4.5 percent to $24.90, while those of JPMorgan Chase were down 3.9 percent to close at $36.81.

However, the Nasdaq rose ahead of results from Hewlett Packard, cushioned from the worst of the losses, with big-tech stocks like Apple up 0.6 percent to $127.45. Hewlett Packard, the world's top personal computer maker, gave a more pessimistic revenue forecast for the fiscal year as it reported in-line results, sending its shares lower.

Hewlett-Packard fell 3.9 percent to $35.14 in extended trade after rising more than 2 percent during the regular session when it was among the top boosts to the Dow industrials.

Also weighing on sentiment, U.S. housing starts and permits fell unexpectedly to record lows in April, causing the shares of residential construction companies to feel some pain.

Home Depot posted a stronger-than-expected quarterly profit, but its shares fell 5.3 percent to $24.63, putting the stock among the Dow's top drags, as the No. 1 U.S. home improvement retailer said its markets remain under pressure.

The Chicago Board Options Exchange Volatility index fell below 30 for the first time in eight months, extending a pullback from the bear market lows of early March.

The S&P 500 has climbed from a 12-year closing low in early March, rising 37.4 percent through May 8. However, the benchmark index gave up some ground last week and is now up 29.8 percent since March 9.

Housing Starts Fall

According to a report released Tuesday morning by the Commerce Department, housing starts and permits fell to record lows in April, with particular emphasis on a slump in multifamily units.

The statistics showed a 12.8 percent decline to an annual rate of 458,000 units last month, the lowest since records began in January 1959.

The drop reflected a 46.1 percent plunge in breaking ground for multifamily units and indicated homebuilding remains a drag on the economy. However, starts for single-family homes, rose 2.8 percent, a second straight gain that showed the worst-hit part of the market was stabilizing.

The good news is that the decline in starts should help the housing market work through a huge stock of unsold homes and lay the foundation for a recovery from a three-year slump, which was the main trigger of the economic downturn. Compared to the same period last year, housing starts were down 54.2 percent.

New building permits, which give a sense of future construction activity, fell 3.3 percent to 494,000 units in April, the lowest since records were started in January 1960. The decline in permits reflected a 19.9 percent decrease in new building plans for multifamily units. Building permits for single family homes rose 3.6 percent. Compared to April of last year, permits were down 50.2 percent. While housing activity continues to fall, the report still offered glimmers of hope for an economy in recession.

Crude Oil at 6-Month High

Oil prices rose on Tuesday, touching a six-month high of over $60 per barrel as a flurry of refinery problems led once again to supply fears ahead of the peak summer driving season. Sweet domestic crude futures for July delivery settled up 62 cents per barrel at $59.65, after reaching $60.48 a barrel, the highest level since November 11. London Brent settled up 45 cents per barrel at $58.92.

The gains were partially the result of a fire at Flint Hills Resources' 288,000 barrel-per-day oil refinery in Corpus Christi, Texas. The oil market closely monitors refinery operations in the spring as suppliers try to boost gasoline inventories ahead of summer vacation season when demand peaks.

The fire followed an explosion on Sunday at Sunoco's oil refinery in Marcus Hook, Pennsylvania that forced the company to shut a gasoline-manufacturing unit and slow crude oil processing.

Oil prices have been on an upward trend since mid-April in equity-led rallies. They have recovered from below $33 in December last year after a plunge from record highs above $147 in July.

Nigerian security forces clashed with militants on Tuesday close to an oil flow station in the western Niger Delta operated by Chevron. Africa's top oil and gas exporter is on alert for retaliatory attacks after launching its biggest offensive for several years last week against the militants.

Hewlett-Packard Outlook Disappointing

Hewlett-Packard released a disappointing outlook for the year as consumers and businesses reduce spending on computers, printers and services, sending its shares down about 5 percent.

The company reported a net profit of $1.7 billion, or 70 cents per share for the fiscal second quarter ended April 30, down from $2.1 billion, or 80 cents a share, a year ago.

If you excluded certain restructuring and acquisition-related items, HP posted a profit of 86 cents per share. Revenues decreased 3 percent to $27.4 billion. For the current quarter, HP is projecting earnings, excluding items, of 88 cents to 90 cents per share, with revenue flat to down 2 percent sequentially.

Last February, HP cut its full-year outlook after quarterly revenue missed expectations.

For fiscal 2009, the company still expects an adjusted earnings number of $3.76 to $3.88 per share, but now expects revenue to fall 4 to 5 percent. It had previously forecast revenues to decline 2 to 5 percent.

HP is the second largest information technology services company and the second largest manufacturer of servers, trailing IBM in both. Printers and printing supplies are another major business line.

The company's PC business, which is less dependent on corporate customers than Dell, has performed well in the downturn. Even as global PC shipments declined, HP managed to increase shipments by 2.9 percent in the first calendar quarter.