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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Thursday, June 12, 2008
Summary Stock prices moved higher across the board on
Thursday after a stronger-than-expected May retail sales report and a
$46 billion takeover bid for Anheuser-Busch helped the market recover
from several days of negative numbers. Shares of Anheuser-Busch
rose$.05, or 5.23 percent, to close at $61.40 after it said it had
received an unsolicited takeover bid from Belgium-based InBev. At the
same time, the market began Thursday's session at its most oversold
condition since early March, according to the 14-day relative strength
index of the S&P 500 index. Microsoft was the top-weighted gainer in the S&P 500
after ending deal talks with Yahoo – while the price of Yahoo’s shares
fell sharply and weighed on the NASDAQ. Before the news about the
collapse of the Yahoo talks, the market fell from session highs as a
sharp drop in oil prices reversed and crude oil ended the session
higher. Microsoft ended the day up $1.12, or 4.13 percent, to close at
$28.24, while Yahoo fell $2.63, or 10.06 percent, to close at $23.52. Wal-Mart saw its share price gain $0.59, or 1.01
percent, to close at $59.11 after data showed retail sales growth
exceeded Street expectations. Mid-priced big-box chain retailer Kohl's
ended the day up $1.29, or 3.03 percent, to close at $43.88, while Saks
gained $0.28, or 2.39 percent, to close at $11.99. Shares of Lehman Brothers sank for a fifth straight
day after the investment bank replaced its chief financial officer and
its chief operating officer. Shares of Lehman ended the trading day down
$1.05, or 4.42 percent, to close at $22.70. The shares are down 33
percent in the past week. Qualcomm was a top contributor to the gains within
both the S&P 500 and the NASDAQ after the wireless chip maker lifted its
quarterly profit outlook. Qualcomm gained $2.67, or 5.77 percent, to
close at $48.98. Crude oil settled up 36 cents at $136.74 per barrel
after erasing an earlier drop of almost $4. Soaring crude prices have
been a major factor in the Dow Jones industrial average losing 200
points on Wednesday amid fears that higher energy prices will result in
higher inflation.
Rebate Checks Boost Retail Sales Cash from government stimulus checks helped push
retail sales up at twice the rate expected in May but the strength could
be fleeting as households contend with soaring prices and the worst
housing slump in decades. The full percentage point gain in retail sales in May
reported by the Commerce Department on Thursday surprised financial
markets and bolstered bets the Federal Reserve would begin to bump up
interest rates within a few months to tamp down inflation. Higher gasoline prices gave a lift to service station
sales last month, but even with those stripped out, sales rose 0.8
percent, the biggest gain in a year. Consumers snapped up a range of
items from clothing to sporting goods to electronics. Sales at general merchandise stores, which include
discounters like Wal-Mart and Target, saw the largest increase in 14
months. However, most economists do not view the data as suggesting a
fundamental shift in an otherwise weak spending trend. The Treasury
Department sent out about $48 billion in tax rebates during May as part
of a plan to spur the economy, eclipsing the $3.9 billion increase in
sales. Economists generally agreed the stimulus payments had
lifted sales, although they said it was impossible to know how big an
impact they had. Some analysts also said upward revisions to sales data
for the prior two months suggested the consumer and the economy have
been faring better than expected. Nonetheless, Treasury debt fell on both the data and
a fresh warning on inflation from a Fed official as traders braced for a
series of rate hikes. Futures markets showed dealers saw a good chance
the central bank could begin to raise benchmark overnight rates as early
as September. "Inflation is on everybody's mind. ... We have to
take appropriate steps to do something about that," Philadelphia Federal
Reserve Bank President Charles Plosser said on CNBC. Even with the last month's sharp rise in consumer
spending, which fuels roughly 70 percent of total economic output;
conditions in the labor market have been deteriorating. The government
said earlier this month that the economy shed jobs for a fifth straight
month in May as the unemployment rate shot up to 5.5 percent from 5
percent in April. A Labor Department report on Thursday showed more
workers than expected signed up for unemployment aid last week,
suggesting the job market was still weakening. Economists expect little
improvement soon, particularly with a wave of planned auto plant
shutdowns. New applications for state jobless benefits jumped to
384,000 last week from 359,000 in the prior week, while the total number
of unemployed on the benefit rolls in the week ended May 31 rose to 3.14
million, a four-year high. While the weak labor market has kept pressure
for higher wages under wraps, the rising cost of oil and food has put
stress on household and business and raised alarm bells at the
The Labor Department said on Thursday that import
prices rose 2.3 percent in May, capping the largest three-month increase
in more than 17 years, as the cost of imported petroleum surged 7.8
percent. Excluding petroleum, import prices moved up only 0.5 percent. A separate report from the Commerce Department showed
business inventories rose 0.5 percent in April, more than expected,
while sales were their strongest since November. Even with the latest increase, business inventories
still remain lean. The stock-to-sales ratio, which measures how long it
would take to empty inventories at the current pace, fell to 1.25 months
in April, the lowest in five months.
Crude Prices Push Higher Once Again The price of crude oil rose again on Thursday after
concerns about a possible strike in Oil prices did fall as low as $131.55 per barrel
early in the trading day as a result of some strength in the dollar,
before rebounding on news Nigeria's senior oil workers union renewed a
strike threat against Chevron, raising supply worries. A strike would
further slash oil output in Oil's earlier losses came as the dollar gained on a
government report showing total sales at U.S. retailers rose 1 percent
in May, twice as much as expected. The weak dollar in recent months has
pushed investors into commodities as a hedge against inflation. Oil's earlier losses also came amid news that
regulators were seeking a deal with their counterparts in Crude oil prices have jumped roughly 40 percent this
year, hitting an all-time high above $139 last week. Commodities markets
have boomed over the past six years as demand from emerging economies
tests supply growth. Oil consuming and producing nations, often at odds
over the cause of the spike in prices, will meet in "The market fundamentals are not affecting prices.
The problem is the economic crisis in the United States, which led to a
fall in the dollar's value, and threats against Iran, which increased
geopolitical tensions," OPEC President Chakib Khelil said, according to
Algerian state news agency APS. "Supply at present exceeds demand, and there is a
surplus of around 500,000 barrels per day," Khelil said, adding that
OPEC would hold its scheduled meeting on September 9 to "evaluate the
market and take decisions to stabilize it."
Yahoo Says Goodbye to Mr. Microsoft – Hires Mr.
Google Yahoo's efforts to revive takeover talks with
Microsoft have reached a dead end, prompting it to hire Google to handle
some of its advertising sales. The news caused Yahoo shares to plunge 10
percent as investors abandoned hope that Microsoft would renew a nearly
five-month quest to buy Yahoo. While a stock sell-off is never welcome news for any
company, Wall Street's disenchantment comes at a particularly bad time
for Yahoo and its board of directors. Yahoo is trying to fend off a
shareholder mutiny led by activist investor Carl Icahn , who has vowed
to replace the company's board because of the way the directors handled
the Microsoft negotiations. But Icahn has been hoping to engineer a sale to
Microsoft, so some shareholders may be reluctant to support his
attempted coup unless he can demonstrate his slate of directors has a
better turnaround plan than the current board. The fate of Yahoo's board
is scheduled to be determined at the company's Aug. 1 annual meeting. With Microsoft apparently out of the picture, Yahoo
is turning to Google to help its chief executive, Jerry Yang, prove he
made the right decision last month when he turned down Microsoft's
takeover bid of $47.5 billion, or $33 per share. Yang asked for $37 per
share, prompting Microsoft CEO Steve Ballmer to withdraw the oral offer. If the Google partnership passes what's likely to be
a rigorous review by antitrust regulators and lawmakers, Yahoo intends
to use it rival's superior search technology to display ads on its own
Web site as well as those of its partners' in the United States and
Canada. Yahoo estimated the arrangement could boost its revenue by as
much as $800 million during the first 12 months of the partnership. The
deal shapes up as a major victory for Google, which didn't want Yahoo to
fall into Microsoft's clutches. Yahoo's advertising partnership with Google won't
start until the late September at the earliest because the two companies
voluntarily agreed to wait at least 3 1/2 months to allow the government
to review a deal involving the two leading players in search
advertising. Google already holds about 75 percent of the $11
billion search advertising market in the "Clearly, it's time to move on," Yang said during a
Thursday conference call with analysts. Before signing the Google deal, Yahoo made a
last-ditch effort to persuade Microsoft to revive its last takeover
offer of $47.5 billion. However, after withdrawing that bid last month,
Ballmer began to focus his efforts on convincing Yahoo to sell its
search operations instead. Yahoo concluded that its search engine was
too important to sell piecemeal. Without explaining its logic, Microsoft said it
believed a deal involving Yahoo's search engine would have been more
valuable to Yahoo than if it had bought the entire company at $33 per
share. Microsoft said it remains open to buying Yahoo's search
operations. Yahoo's deal with Google includes an escape hatch
should Microsoft or another suitor buy the company. If Yahoo is sold,
Google would receive a termination fee of up to $250 million. That
clause could still raise hope that Icahn might be able to renew the
Microsoft talks if he can win control of Yahoo's board. Investors
clearly favor a sale of Yahoo in its entirety. Yahoo shares fell $2.63,
or 10.1 percent, to close at $23.52, then shed another seven cents in
after-hours trading. The Google partnership expands upon a two-week trial
conducted in April while Yahoo was trying to pressure Microsoft into
raising its bid. The tests confirmed Google's technology would generate
more revenue for Yahoo than its own system, which cost more than $2
billion to acquire and improve. Nevertheless, Yahoo still intends to use
its own search engine to distribute some ads and process all search
requests. Working with Google will give Yahoo "the best of both worlds,"
Yahoo President Sue Decker said in Thursday's conference call. But Microsoft and a variety of consumer interest
groups already have signaled they will turn up the political heat in an
attempt to prevent Google from working with Yahoo. The outcry already
has drawn the attention of U.S. Sen. Herb Kohl, who chairs an antitrust
committee. "The consequences for advertisers and consumers could
be far-reaching and warrant careful review, and we plan to investigate
the competitive and privacy implications of this deal further," said
Kohl, a Wisconsin Democrat. Google and Yahoo have hope they can overcome the
antitrust concerns by persuading lawmakers and regulators that their
deal is similar to business arrangements between rivals in other
industries.
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MarketView for June 12
MarketView for Thursday June 12
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