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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Tuesday, July 1, 2008
Summary Stock prices were a shade higher on Tuesday, the
start of both a new quarter and the second half of the year. Acting as a
major catalyst to the day’s upward momentum was some surprising news of
stronger-than-expected June sales from General Motors. In addition, the
bottom feeders were hard at work scouring for bargains among some
oversold financial stocks, all of which overshadowed the ongoing
concerns over record oil prices. The modestly positive start to the
third quarter followed the Dow Jones industrial average's worst first
six months since 1970. General Motors saw its share price end the day up
$0.25, or 2.17 percent, to close at $11.75, after the company posted
better than expected sales that in turn eased some of Wall Street’s
concerns regarding the impact of high fuel costs on the economy.
However, GM's positive surprise was the exception, not the rule. Ford
and Chrysler were among those feeling the deep pain of higher gasoline
prices and as a result, posted poor June sales. Financial shares, which had earlier led decliners in
the S&P 500, turned higher in afternoon trading. UBS upgraded American
Express, Capital One Financial and Discover Financial Services to
"neutral" from "sell," writing to clients that the current valuations
now reflect for the most part the difficult operating outlook those
companies are facing. In other words, the bad news is now built into the
share price. American Express closed up $2.35, or 6.24 percent, at
$40.02 and was the top contributor to the Dow on Tuesday. Capital closed
out the day up $2.13, or 5.60 percent to close at $40.14, while Discover
Financial gained $0.83, or 6.30 percent, to close at $14.00. An index of
S&P financial stocks rose 1 percent. Among financial shares, Lehman Brothers rose $, or
5.8 percent, to close at $20.96 after Morgan Stanley put out a buy
recommendation on the investment bank's beaten-down shares. Nonetheless, is spite of the day’s better than
expected news, concerns over rising inflation continued to weigh on the
market. Crude oil futures for August delivery closed at a record $140.97
per barrel on In trading after the closing bell, Starbucks saw its
share price rise sharply by more than 3 percent to $16.14 after the
company stated that it is increasing planned store closures and will cut
as many as 12,000 jobs. A report by the Institute for Supply Management
indicated that manufacturing activity expanded in June for the first
time in five months, helped by a weak dollar which subsequently resulted
in increased exports as our goods become cheaper on the world markets.
Nonetheless, inflationary pressures were at their highest level since
the stagflation-ravaged 1970s. Apple saw its share price increase by $7.24, or 4.32
percent, to close at $174.68 and was among the top contributors to the
NASDAQ after Sanford C. Bernstein raised its price target on Apple. Shares of commercial lender CIT Group rose $2.02, or
29.66 percent, to close at $8.83 after the company agreed to sell its
home lending business and other housing portfolio holdings. The Commerce Department reported that construction
spending fell 0.4 percent in May as home building continued to
deteriorate. The data will add to concerns that the country has entered
a period of weak growth accompanied by high inflation.
Manufacturing Increases but Inflation Also Rises Although manufacturing expanded in June for the first
time in five months, helped by a weak dollar, It was accompanied by
increased inflationary pressures that soared to their highest level
since the stagflation-ravaged 1970s. The Institute for Supply Management
said its index of national factory activity rose in June to 50.2,
topping the 50 level that marks expansion for the first time since
January. The increase was attributed to a weak dollar, which helps
exports, and some restocking of inventories. While the index was just above forecasts and May's
reading of 49.6, the report also showed manufacturers are slashing jobs
while being pinched by soaring prices and weak demand. Federal Reserve
officials will pay particular attention to the prices paid gauge of
inflation, which jumped to the highest level since July 1979. This year's manufacturing slump was the worst since
2003, when the ISM index spent five consecutive months below 50, from
February to June that year. However, the index did not reach the low-40s
depths hit during the recession of 2001. The recent slide in factory activity has been
mitigated by a sharp dollar decline, which has kept domestic goods more
competitive abroad than they might have been otherwise. As evidence of
this, the ISM's gauge of new export orders held near May's
four-and-a-half-year high last month. Still, June's rebound was slight
and economists cautioned that it by no means signaled an extended
expansion. The ISM index of prices paid jumped to 91.5 from 87.0
in May, and there were worrying signs that manufacturers were passing on
their higher prices. "I'm seeing evidence in the market that the
magnitude of the increases is so large that people can't help
themselves," said Norbert Ore, head of the Institute for Supply
Management's Business Survey Committee. "Most of those companies are adamant that they have
to have the price increase in order to stay in business," he said.
"Generally they are very successful in trying to pass that on to
customers. The thought of trying to offset that with productivity
couldn't be done." The ISM employment index fell to 43.7 in June from
45.5 in May, its lowest since May 2003, offering a hint at Thursday's
national employment report. Although Retail gasoline demand remained is down as high
prices at the pump trimmed demand for the fuel, MasterCard Advisors said
Tuesday. "The regional year-over-year view shows all regions
but the Gasoline consumption in the West Coast, The national average price of gasoline dipped 1 cent
last week, but at $4.06 per gallon was more than 36 percent higher than
this time last year. Despite a year-on-year drop in demand of 1.99
percent, there was an uptick in gasoline consumption ahead of the Fourth
of July holiday weekend, McNamara said. American motorists pumped an
average of 9.545 million bpd last week, an increase of 1 percent from
the previous week. However, weekly demand dropped 2.1 percent when
compared with the same week last year. Fourth of July weekend is traditionally the busiest
holiday travel weekend of the year. But for the first time in 10 years,
travel is expected to decline, according to AAA. The four-week moving
average for gasoline demand was down 2.9 percent at 9.345 million bpd,
dropping for the 12th week in a row.
Crude Prices Hit New Record
Oil prices rose on Tuesday on forecasts global
supplies will struggle to keep pace with demand and concerns tensions
between The International Energy Agency
on Tuesday cut its global oil supply capacity forecast by 2.7 million
barrels per day to 95.33 million barrels per day by 2012. The cut offset
downward revisions to expected demand as high prices bite into fuel use
in some consumer nations, such as the The Energy Information Administration on Monday cut
domestic oil demand figures for April, knocking oil from its record
peaks. retail gasoline demand fell by 2.1 percent last week compared to
a year ago, MasterCard Advisors said. Concerns that tensions between The U.S. State Department on Tuesday criticized
reported comments by an unidentified senior defense official who told
ABC News there was an increasing likelihood OPEC President Chakib Khelil said on Tuesday the
cartel did not have enough spare capacity to replace Iranian oil, if Oil prices have jumped nearly seven-fold since 2002
as supplies struggle to keep pace with demand from emerging markets like Ali al-Naimi, oil minister for OPEC kingpin Weekly U.S. oil inventory data, due on Wednesday, is
expected to show a 100,000-barrel fall in crude stocks, a 200,000-fall
in gasoline stocks, and a 1.9-million-barrel build in distillates.
Auto Sales Hit 3-Year Low
Domestic auto sales for the month of June hit a
15-year low, but a month-end clearance sale helped General Motors retain
its lead position and steer clear of the wipeout many had feared, with a
resulting increase in its share price on Tuesday. Record gas prices and declining
trade-in values for big trucks and SUVs hit truck sales hard while major
automakers, including In a reversal of recent trends, Ford sales were down 28 percent, while Chrysler saw
its sales fall 36 percent, the weakest result in the industry. Now
controlled by Cerberus Capital Management, the privately held automaker
relies on light trucks for almost 70 percent of its sales. By contrast,
Honda, which says it has the most fuel-efficient vehicle line-up among
major automakers, bucked the downturn and posted a 1 percent sales gain. The sales rate for vehicles dropped to 13.6 million
units on an annualized and seasonally adjusted basis, down from 15.7
million a year earlier, according to tracking firm Autodata. It was the
weakest month since August 1993. The current expectation on the Street is that
full-year auto sales will come in at about 15 million vehicles, down
from 16.15 million in 2007. June had three fewer sales days than the
same month a year earlier, leading to a difference of about 10
percentage points between adjusted and non adjusted figures. GM shares, which touched a 54-year-low on Monday and
have been trending lower for two months, rose as much as 15 percent on
the June sales figures, pulling the broader GM's more modest sales decline in June showed that
its incentive program had succeeded. GM has avoided such a strategy in
recent years because it cuts into profit margins and can rob sales from
future months. GM sales chief, Mark LaNeve, said the month-end June
promotion had cost the automaker an additional $400 on the average
vehicle. Now the question is whether the cash-strapped domestic auto industry is headed for even weaker sales in the second half of the year. Ford's marketing chief Jim Farley pointed out that consumer fundamentals and confidence had deteriorated in the first half of the year and added, "The economy enters the second half of the year with a notable absence of momentum and a high degree of uncertainty."
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MarketView for July 1
MarketView for Tuesday July 1