MarketView for November 11

Summary 

Stock prices were lower again on Tuesday, partially because of slowing demand at Alcoa and a dismal outlook from Tyco International, both signals that ht economy could be getting worse rather than better. Alcoa closed down 7 percent after the company slashed a further 350,000 tons of aluminum-making capacity worldwide, blaming faltering global demand. Tyco warned that its fiscal-year profit would be well below Street's estimates due to the downturn and the stronger dollar.

At the same time, signs of weakness in China's economy further fed worries about the breadth of the slowdown, reducing the Street’s appetite for equities. Chinese import growth slowed in October and inflation fell to a 17-month low as demand cooled. The result was a wide spread bout of  selling with commodity-related shares falling sharply as resources ranging from oil to silver were stung by fears that the economic gloom will reduce demand.

Starbucks provided more evidence that consumers are cutting back in a harsh economic environment. The coffee chain operator's stock fell 2 percent after its profit and outlook disappointed investors and it cut plans for to open new shops.

American Express fell 6.6 percent to $22.40, a day after it said it won approval to become a bank holding company, in a move that would give it more access to government money. General Motors slid for a fifth straight day, down 13.1 percent at $2.92 over concerns as to whether or not the auto sector will be able to secure desperately needed cash infusion from the government.

The market's slide puts it in a precarious position as investors had hoped November would mark the start of a sustained recovery after a disastrous October sent stocks to their lowest in more than five years.

Technology stocks were also hard hit. Google slid 2.3 percent to $311.46 after Goldman Sachs cut its price target and fourth-quarter revenue view on the company.

Crude Down 5 Percent

The price of domestic sweet crude futures settled down $3.08 per barrel at $59.33, the lowest settlement price since March 2007, after touching $58.32 earlier. London Brent crude settled down $3.37 at $55.71 per barrel.

Oil demand forecasts have been cut dramatically due to the economic slowdown in the United States and Europe. Some said total global oil demand could contract next year and prices could be hit further.

The U.S. dollar rallied against a basket of currencies on Tuesday as global economic worries prompted investors to shun riskier assets and flock to the safety of the greenback. A firmer dollar makes oil more expensive for holders of other currencies and tends to pressure the crude price lower.

Concern about China's economy was spurred by customs data which showed import growth slowed in the world's No. 2 oil consumer in October. Oil prices jumped 2 percent on Monday after China announced a $600 billion economic stimulus plan.

An OPEC source said the cartel may cut oil output by a further 1 million barrels per day when it meets next month in Algeria because of slowing world demand. Domestic weekly inventory data is expected to increase by as much as 800,000-barrel of crude stocks, as demand continues to slow. Distillate stocks should rise by 500,000 barrels and gasoline by 800,000 barrels. The data will be released on Thursday this week, a day later than usual due to Tuesday's U.S. Veterans Day holiday.

PC and Chip Manufacturers Hit With Analyst Downgrades

The computer chip and PC manufacturing sectors were hit by a number of analysts, concerned about the weakening global economy and slack demand, lowering their earnings estimates. Hewlett-Packard and Dell saw their share prices fall after Barclays Capital analyst Ben Reitzes cut his forecasts on the two computer manufacturers. Reitzes said in a note that HP is better positioned than Dell and will benefit from PC and server share gains from its chief competitor.

Reitzes lowered HP's fiscal 2009 earnings estimate to $3.80 a share from $4.08 and its 2010 estimate to $4.25 a share from $4.65. The average analyst estimate for 2009 is $4.05 and for 2010 is $4.58, according to Reuters Estimates.

He expects HP to be hurt by slackening PC and server demand, as well as a shift toward netbooks that the company was slow to recognize, but benefit from cost savings from its acquisition of EDS.

Reitzes took Dell's fiscal 2009 estimate to $1.30 a share from $1.37 and slashed his 2010 forecast to $1.18 a share from $1.38. The average analyst estimate is $1.41 for 2009 and $1.56 for 2010, according to Reuters Estimates.

Dell is slated to release fiscal third-quarter results a week from Thursday and HP will report fiscal fourth-quarter earnings on November 20.

Analysts also reduced their expectations for Intel and Advanced Micro Devices. The technology industry is feeling the brunt of the economic slowdown. With consumers and business around the world tightening their belts, IT budgets are contracting and new technology purchases are being canceled.

GM Shares Hit 65-Year Low

General Motors saw its share price fall to a 65-year low on Tuesday, extending recent steep declines on concerns the automaker might run desperately short of cash by early next year. Other automakers and parts suppliers also saw their share price decline across the board amid increasing concerns about whether the industry could survive a deep downturn in domestic auto sales.

GM has several options to improve liquidity; however survival in its current form will require the help of the government, the company's suppliers, or both. While government aid would decrease the risk of a bankruptcy, any assistance will come at a significant cost to existing shareholders.

The White House said on Tuesday it was open to considering any proposals from Congress to accelerate loans to the auto industry from the already-appropriated $25 billion package. House Speaker Nancy Pelosi said she was confident Congress would act on emergency legislation for the auto industry next week.

GM's shares closed down 13 percent, or 44 cents, at $2.92 on the New York Stock Exchange. The stock earlier dropped as much as 18 percent to $2.76, its lowest since 1943.

GM shares have lost nearly 40 percent since Friday when the company reported a deeper-than-expected third-quarter loss and said its cash burn rate had accelerated, as an extended slump in car sales raised questions about the future of the U.S. auto industry.

GM announced additional steps to increase liquidity, but said that, even with those moves, liquidity would be at or near the minimum needed to run its business through the rest of 2008 and would fall significantly short of the minimum needed during the first two quarters of next year.

Separately, GM said it scrapped plans for an announcement at the Los Angeles Auto Show next week. The company previously scrapped plans to unveil a new Cadillac CTS coupe and a Buick LaCrosse sedan at the show.

GM spokesman Scott Fosgard said the decision was made partly to save money and partly because it was felt any product announcements the automaker made would be lost in the coverage of its financial difficulties.

GM Vice Chairman Bob Lutz was scheduled to attend the LA show to make an announcement about the company's development of the all-electric Chevrolet Volt.