MarketView for November 18

Summary 

Stock prices oscillated between negative and positive territory on Tuesday and as late as the last half hour of trading things were still looking grim but in a late fight back after a session in which stronger-than-expected results and outlook from Hewlett-Packard offset fears that more losses at Citigroup but in the end the Dow Jones industrial average managed to turn in a substantial gain for the day.

Hewlett-Packard helped the Dow outperform the other indexes as the computer maker's results underscored its resilience in the face of the economic crisis. Hewlett-Packard saw its share price rise 14.5 percent to end at $33.59. IBM, another tech bellwether, rose 3.4 percent to $80.08. At the same time, Citigroup's shares fell 6 percent to $8.36, hitting a 13-year low, on concern that its plan to slash 52,000 jobs might not be enough to return the second-largest U.S. bank to health.

Home Depot gained 3.6 percent to $20.71 after the world's largest home improvement retailer posted a better-than-expected quarterly profit, but said it expects a steeper drop in full-year sales as the housing sector's downturn bites harder into its bottom line.

Further fueling worries about the economy, the. Producer Price Index logged a record decline last month as energy prices and chain-store sales fell amid sluggish economic growth.

A report from the National Association of Home Builders showed no let-up in the housing sector's woes, with home builder sentiment falling to a record low in November.

Uncertainty about the fate of billions in government financial aid sought by General Motors and the other beleaguered domestic automakers added to the nervousness. Shares of GM cut earlier losses but ended down 2.8 percent at $3.09 while the executives of the "Big Three" were in Washington to ask for a Congressional bailout. Ford ended the day was down 2.3 percent at $1.68. Treasury Secretary Henry Paulson told a House Financial Services Committee hearing that the $700 billion bailout fund should not be used to prevent the failure of automakers.

Among the stocks that kept a lid on the Dow's advance Boeing, the day’s largest drag on the Dow amid concerns over whether the company will be able to meet profit estimates over the next two years. Boeing fell 3.9 percent to $39.56.

On the Nasdaq, Yahoo rose 8.7 percent to $11.55 after the departure of CEO Jerry Yang renewed hopes that it would clear the way for a deal with Microsoft.

Energy Kicks PPI Off Cliff

The Labor Department reported Tuesday that producer price index fell 2.8 percent in October, the largest one-month decline on records going back more than 60 years. The previous record holder was a 1.6 percent fall in October 2001, the month after the terrorist attacks. Energy prices fell by the largest amount in 22 years.

However, core inflation, which excludes energy and food, was not as well-behaved, rising by a bigger-than-expected 0.4 percent. The 0.4 percent rise in core inflation did not alter the view that rapidly falling energy prices and a sharply slowing economy were combining to slash inflation pressures. The 2.8 percent overall decline marked the third straight month that wholesale prices have fallen.

Many economists believe the economy has fallen into a recession that could be the worst downturn in more than two decades. The expectation is falling inflation pressures will give the Federal Reserve room to cut interest rates further to combat the downturn. Furthermore, the expectation now is that the Fed will cut the funds rate again when officials hold their last regular meeting of the year on Dec. 16.

The PPI report showed that energy prices fell 12.8 percent in October, the largest one-month fall since a 14 percent decline in July 1986. All varieties of energy showed a large decline with gasoline falling by a record 24.9 percent, surpassing the old mark of a 22.1 percent drop in March 1986.

Home heating oil prices were down 9.6 percent, natural gas intended for home uses fell by 5.9 percent, and liquefied petroleum gas dropped by 27.6 percent, the biggest decline in more than three decades.

Food costs edged down 0.2 percent last month, as declines in the price of milk and meats offset a big jump in vegetable prices.

Excluding food and energy, the 0.4 percent increase in core prices reflected higher costs for light trucks, the category that includes sport utility vehicles. The price of tires, civilian aircraft and malt beverages also were higher, although the cost of passenger cars fell by 1.7 percent.

Hewlett-Packard Sees Better Than Expected Outlook

Hewlett-Packard posted better than expected results and forecast full-year profit above Street estimates, underscoring its resilience to an economic crisis that has dragged down other tech companies.

As a result, the company’s stock price rose more than 14 percent as preliminary October quarter results suggested the world's largest-maker of personal computers was winning market share and benefiting from recurring revenue streams from services and printing supplies.

Hewlett-Packard has lost about a third of its market value in the last two months on fears of a sharp slowdown in PC spending, which had increased after chip giant Intel shocked markets with a revenue warning last week and electronics retailer Best slashed its outlook.

Hewlett-Packard's preliminary net profit in the fiscal fourth quarter that ended October 31, was 84 cents per share, or $1.03 excluding items such as restructuring and acquisition charges. Fourth-quarter revenue rose 19 percent to $33.6 billion, or an increase of 16 percent when adjusted for currency effects, compared with the average analyst estimate of $33.1 billion. The company forecast fiscal 2009 earnings excluding items of $3.88 to $4.03 per share.

Hewlett-Packard, which is scheduled to post full results next Monday, did not detail which parts of its hardware, software or services units were strong, saying only that it was benefiting from its global reach, diverse customer base and cost cuts. The company said last September it would lay off 24,600 employees following its acquisition of Electronic Data Systems. It also said on Monday it would extend its planned one-week holiday shutdown by an additional week to save costs.

Hewlett-Packard’s outlook initially bolstered the Nasdaq and other tech shares, including rivals Dell and IBM, but the rally lost steam due to persistent concerns about the worsening global economy.

Hewlett-Packard's revenue forecasts for both its fiscal first quarter, which includes the critical year-end holiday season, and fiscal 2009 were below Street expectations. Hewlett-Packard said the revenue outlook was based on an unfavorable currency impact of about 5 percentage points in the first quarter and 6 to 7 percentage points for the full year.

Could Santa Claus Be Readying A Visit To Circuit City

Mexican retail and media tycoon Ricardo Salinas Pliego owns 28 percent of Circuit City and could buy more of the troubled electronics chain, a Salinas spokesman said on Tuesday.

"Up to date, Mr. Salinas has purchased just under 28 percent of Circuit City," Luis Nino de Rivera, a spokesman for Salinas' business said. When asked whether Salinas could buy more Circuit City stock he said: "It is possible, of course."

Nino de Rivera said the acquisition was a personal investment by Salinas and the tycoon, who owns the TV Aztec broadcaster and retailer Elektra, was evaluating what to do with the Circuit City stake.

Circuit City filed for Chapter 11 bankruptcy protection last week, falling victim to tighter credit terms from vendors and decreased consumer spending. It hopes to emerge from bankruptcy in the first half of 2009.

Salinas acquired the stock in the open market before and after Circuit City went bankrupt and he has had no direct talks with the U.S. chain's management, Nino de Rivera said.