MarketView for May 11

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MarketView for Tuesday, May 11
 

 

 

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Tuesday, May 11, 2010

 

 

 

Summary 

  

It was another volatile day on Wall Street, albeit not like we have seen during the past couple of days, but not a cakewalk either. The Dow Jones industrial average and the S&P 500 indexes both found themselves in negative territory at the closing bell on Tuesday as fears that a $1 trillion bailout for Europe is only a band aid and will not solve the region's deep-seated problems. Furthermore, there is concern on the Street that those problems will morph into problems for our economy.

 

As a result it was a trading session that saw little in the way of real news when compared with recent days, and yet the session was marked by investors selling stocks in afternoon trading as concerns over the Greece contagion crept back into the market.

 

Gold hit a new all-time high above $1,230 an ounce as investors sought the perceived safety of the precious metal, while falling crude oil prices hit shares of energy companies like Exxon Mobil.

Shares of Walt Disney gained 1.3 percent to end regular trading at $35.76, ahead of quarterly results.

 

After the closing bell, Disney's stock slid 2.9 percent in extended-hours trading following the release of its quarterly results, in which Disney's earnings barely exceeded the Street's forecasts. The company's media network division fell short with operating income of $1.3 billion, as compared with estimates of $1.43 billion.

 

The reason the Street watches Disney so carefully is the entertainment and media company's performance is an indication of the strength of consumer spending, which accounts for about two-thirds of all domestic economic activity.

 

Domestic sweet crude oil futures ended lower, with crude for June delivery settling down 43 cents, or 0.56 percent, at $76.37 per barrel. That hurt energy shares such as Exxon, which fell 0.5 percent $64.46.

 

Helping Nasdaq and the biotech sector, Gilead Sciences authorized a program, for the second time this year, to repurchase up to $5 billion in common stock through May 2013. Gilead's shares rose 2.3 percent to $39.26.

 

Earnings season continued, with Church & Dwight posting a first-quarter earnings number that beat expectations. However, the company, whose consumer products include Arm & Hammer baking soda and Trojan condoms, also gave a weak second-quarter earnings outlook. Its stock fell 3.4 percent to $67.01.

 

Overseas, Toyota reported fourth-quarter earnings that comfortably exceeded forecasts. Toyota's ADRs rose 0.9 percent to $77.46.

 

Federal Reserve Likely To See One-Time Audit

 

The Senate on Tuesday effectively setback the Federal Reserve's tradition of secrecy but postponed an overhaul of mortgage finance giants Fannie Mae and Freddie Mac under a massive reform of banking regulations. Tuesday's votes on two amendments on the broad Senate reform bill highlighted the scope of the legislation, as well as widespread public frustration with the government's unprecedented Wall Street bailouts.

 

The Senate unanimously voted to expose the details of the Fed's emergency lending during the crisis, when it pumped hundreds of billions of dollars into financial markets to stabilize the banking sector and economies worldwide. The proposal would mark a first in putting the U.S. central bank under congressional scrutiny, but is a much softer measure than had first been proposed.

 

The Senate defeated a proposal that would have ended government control of Fannie Mae and Freddie Mac. The troubled housing finance giants were seized by the Bush administration at the height of the crisis in 2008 and put into what was described then as temporary conservatorship.

 

Fannie and Freddie, which guarantee about half of all U.S. residential mortgages, have already received a total of about $145 billion in government aid, and the two firms in the last week both said they need billions more.

 

In a unanimous voice vote, the Senate specified that money recovered from bailed-out banks should go toward paying down the ballooning budget deficit, rather than job-creation efforts or other new spending. A final vote on the financial-regulation bill, with nearly 200 other amendments still vying for attention, looked unlikely until next week.

 

So far, the Senate has settled on a method to unwind troubled financial giants and set up wide-ranging consumer protections. But the chamber still has yet to determine how to ensure that speculative trading activity does not again put the financial system as a whole at risk.

 

The Federal Reserve's role in the run-up and the response to the crisis has come under particular scrutiny, with some lawmakers accusing the Fed of regulatory lapses and some questioning its rescue actions. Under a measure approved by a vote of 96 to 0, the investigative arm of Congress would conduct a one-time audit of the central bank's emergency lending since December 2007.

 

In addition, the Fed would be required to publicly disclose by December 1 of this year detailed information about which financial institutions it assisted with its lending. The Fed had warned that earlier proposals could compromise its independence and make monetary policy vulnerable to political meddling.

 

However, at least one Fed policy-maker on Tuesday said a one-time audit of the Fed's emergency measures would be acceptable.

 

"I'm comfortable with the modified Sanders amendment," Jeffrey Lacker, president of the Richmond Federal Reserve Bank, told reporters. If the Senate bill is approved, it will have to be merged with the House bill before a package could go to Obama to be signed into law.

 

Hiring At 15-Month High

 

Hob hiring hit their highest level in 15 months during March, while job openings also rose, according to a government report released on Tuesday that again confirmed that the recovery in the labor market is gaining traction. New job hires rose to 4.24 million from 4.01 million in February, the Labor Department said in its monthly Job Openings and Labor Turnover Survey. March hiring was the highest since the 4.3 million seen in January 2009, the department said.

 

Job openings increased to 2.69 million in March from 2.65 million the prior month. The survey lags many job market gauges but can provide insight into labor market dynamics.

 

The hires rate increased to 3.3 percent in March from 3.1 percent in February, the Labor Department said in Tuesday's report. The job openings rate, a gauge of demand for labor, was unchanged at 2 percent. Job openings have, however, trended higher from a 2.3 million low in July 2009. However, with 15 million people out of work in March, there were 5.6 workers for every job opening, unchanged from February's ratio.