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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Monday, June 2, 2008
Summary
The
pressure began to be felt even before Wall Street opened, particularly
for financial stocks, as European markets fell after British mortgage
lender Bradford & Bingley indicated that the Wall Street did not disappoint. Stock prices moved
sharply lower on Monday as a result of renewed fears the credit crunch
has yet to run its course after Standard & Poor's downgraded the debt
ratings of three major league investment banks and Wachovia, the
fourth-largest domestic bank, ousted its chief executive. Standard & Poor's cut the credit ratings of Lehman
Brothers, Merrill Lynch and Morgan Stanley, stating that the outlook for
the large investment banks was now mostly negative. The rating agency
also warned that it may cut Wachovia’s rating after the ouster of CEO
Ken Thompson, following growing legal troubles and loan losses tied to
the purchase of a big mortgage lender just before the housing market
imploded. S&P's action rocked global markets already smarting
from a stark warning on the state of S&P's move signaled that financial institutions,
which have written down more than $350 billion in losses related to
subprime mortgages globally, are still vulnerable. As a result, Lehman
Brothers ended the day down $2.98, or 8.10 percent, to close at $33.83,
Morgan Stanley fell $1.13, or 2.55 percent, to close at $43.10, while
Merrill Lynch ended the day down $1.30, or
2.96 percent to close at $42.62. Wachovia said it would replace CEO Ken Thompson
following growing legal troubles and loan losses tied to the purchase of
a big mortgage lender before the housing market imploded. Wachovia's
shares fell $0.40, or 1.68 percent, to close at $23.40 on concerns the
move could signal more bad news ahead for the bank, which has seen its
stock tumble 58 percent over the past year. In another executive shake-up, Washington Mutual, a
nationwide bank and home lender slammed by the mortgage slump, said it
would strip chief executive Kerry Killinger of his title of chairman
next month.
Meanwhile, the day’s economic data also helped to
send stock prices lower. Manufacturing contracted in May for the fourth
consecutive month and inflation pressures surged to their highest in
four years, heightening fears the economy could be sliding toward
stagflation. Therefore, it was no real surprise that when the
closing bell rang, the three major equity indexes had fallen about 1
percent, breaking a four-day streak of gains for the S&P 500 and NASDAQ.
The equities retreat fueled a broad rally in government bonds, sending
benchmark yields down by the greatest amount since last March. Technology shares, which have been top performers
over the past three months, also fell on economic concerns and as
investors locked in profits. In May, technology overtook financials as
the largest sector of the S&P 500. IBM fell $2.07, or 1.60 percent, to
closer at $127.36 and was the top drag on the Dow. Energy-sensitive airline shares slid as the price of
oil edged higher again after a brief respite last week. At the same
time, industrial conglomerates, sensitive both to the price of oil and
concerns about the economy, also lost ground. 3M Company ended the day
down $1.31, or 1.69 percent, to close at $76.25. General Motors was a bright spot, gaining $0.34, or
1.99 percent, to close at $17.44 after the weekly business newspaper
Barron's said shares of the
Economic Data Points To Slowing Economy Manufacturing contracted in May for the fourth
consecutive month and inflation pressures surged to their highest in
four years, with Wall Street now fearing that the economy could be
sliding into a period of stagflation. The Institute for Supply Management (ISM) report on
national factory activity fueled concerns about rising prices in a weak
economy. According to the ISM, its index of manufacturing rose in May,
to 49.6 from April's 48.6, slightly above Street expectations. However,
it remained below the level of 50, signaling contraction. ISM report showed a worrying trend for inflation,
with its index of prices paid jumping to 87.0, the highest since April
2004, from 84.5 in April. Inflation was also a concern in The contraction in the May ISM index was the fifth in
six months. However, the weak dollar has mitigated the damage to the
factory sector this year by boosting exports. The ISM index of new
export orders rose to 59.5, the highest since May 2004, when it was at
60.0. This was up from April's reading of 57.5. This year's manufacturing downturn is the worst since
the five months of ISM contraction in the February-to-June 2003 period
and comes as the deepest housing slump since the Depression has weakened
the broader economy. A separate report showed construction spending fell
less than expected in April. Construction spending fell 0.4 percent in
April on continued deterioration in the residential sector, but outside
of home building, private spending rose for the third straight month.
This bolstered the argument that the economy is weak but may not be in
recession. Treasury securities, which perform better during slow
economic times, gave up some ground immediately after the ISM report but
subsequently resumed their march higher, helped by weaker stocks.
FedEx To Drop Kinko’s Name – Take A Charge – Raise
The Dividend FedEx announced on Monday that it plans to drop the
Kinko's name on its copy and office service stores and book an $891
million charge for the quarter that ended Saturday. The charge relates
to the value of the Kinko's name and a write-down of the value of its
acquisition of the brand. The charge, which works out to $2.22 a share,
was not part of FedEx's earnings forecast. The company said it will
change the name of its FedEx Kinko's stores to FedEx Office over the
next several years. The company early last month cut its outlook to $1.45
to $1.50 per share, down from $1.60 to $1.80, because of increasing fuel
costs. FedEx reports its financial results for the fiscal fourth quarter
June 18. The name change is among a series of recent moves the
company has made since it acquired the Kinko's copy chain in 2004 for
$2.4 billion. Earlier this year, the company reduced future capital
commitments by slowing the rate of expansion from about 300 locations in
fiscal year 2008 to about 70 in fiscal 2009.
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MarketView for June 2
MarketView for Monday June 2
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