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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Wednesday, June 25, 2008
Summary Stock prices were slightly higher on Wednesday, as
the price of oil declined, while the Federal Reserve held its key
interest rate steady and reduced expectations for a rate hike at its
next meeting. Blue chips staged a large reversal in the last half hour
of trading, with the Dow Jones industrial average all but erasing a
100-point gain, as it failed to shrug off the steep drop in the price of
Boeing’s shares, which fell to a two-year low after Goldman placed a
sell recommendation on the stock because of a declining order rate and
high fuel prices. Meanwhile, the Federal Reserve increased optimism on
the Street when it said in its accompanying statement that downside
risks to growth appeared to have diminished somewhat. It was the first
time the The pullback in oil prices added to the positive mood
as did a stronger-than-expected quarterly profit from Jabil Circuit, a
contract electronics maker. However, the picture was not quite so rosy
looking ahead to Thursday’s opening bell after Research in Motion
reported results and an outlook that fell short of Street expectations. In other extended-hours trading, shares of Nike fell
4.5 percent to $63. Nike posted a rise in quarterly profit but its
shares slid on weakness in its In the energy markets,
Fed Keeps Rates Unchanged As expected, the Federal Reserve left interest rates
unchanged at the conclusion of their two day meeting, although it did
voice its concern over the issue of rising inflation, taking a small
step down the road toward higher borrowing costs. The decision leaves
the benchmark federal funds rate at 2 percent. Government bonds
initially fell after the announcement but later reversed course as the
Street scaled back expectations for a rate hike at the Fed's next
meeting in August. "Although downside risks to growth remain, they
appear to have diminished somewhat, and the upside risks to inflation
and inflation expectations have increased," the Fed said. In its
statement, the Fed said "overall economic activity continues to expand."
After its last policy meeting on April 30, it described economy activity
as "weak." The Fed's policy-setting panel voted 9-1 in favor of
the decision. Dallas Fed President Richard Fisher dissented, saying he
preferred to raise rates. It was the first time the Fed has held rates steady
at a policy-setting session since embarking on a series of rate
reductions in September to put a floor under an economy hit hard by a
housing downturn and credit crisis. Policy-makers at the central bank are at a difficult
juncture. A deepening housing decline looks like it will be a drag on
economic growth for months to come, even as higher oil and commodities
prices threaten to ignite a broader inflation. Senior Fed officials in recent weeks have said that
risks of a serious recession had receded after a period of turmoil
marked by surging mortgage delinquencies and the near-bankruptcy of
investment bank Bear Stearns, and they have begun to turn their sights
on the need to contain inflation. While the Fed focuses on so-called core prices that
strip out volatile food and energy costs as the best gauge of inflation
trends, policy-makers have expressed concern that record-high oil prices
could trigger a wider range of price increases. Top Fed officials have said they would be
particularly vigilant to ensure expectations of higher inflation do not
build, warning that could set off a harmful upward spiral of rising
prices and wages.
Latest Economic News Is Tepid At Best Durable goods orders held steady last month, but
sales of new single-family homes fell, government data showed on
Wednesday, highlighting a weak economy. New orders for goods expected to
last three years or longer were unchanged in May after two straight
months of decline, the Commerce Department said, while a key barometer
of business confidence fell less than expected. A separate Commerce Department report showed new
sales of single-family homes declining 2.5 percent in May from the month
before and by over 40 percent from May 2007. Non-defense capital goods orders excluding aircraft,
a closely watched proxy for business spending, fell 0.8 percent in May
and came on the heels of a 3.1 percent increase for the month of April. Orders for computers and electronic products rose 2
percent while orders for electrical equipment were up 1.5 percent, the
Commerce Department said. However, stripping out transportation, durable
goods orders fell 0.9 percent in May, as compared with a 1.9 percent
rise in April. Overall shipments of durable goods shrank 1.1 percent
after rising 1.8 percent in April. Orders for motor vehicle and parts
fell 3.3 percent. Sales of newly constructed single-family homes fell
2.5 percent in May to an annual rate of 512,000 units and were down more
than 40 percent from a year ago, the Commerce Department said. The
inventory of new homes available for sale in May dropped 1.7 percent to
453,000 -- the 13th consecutive monthly decline. The May sales pace put
the supply of homes available for sale at 10.9 months' worth, the
Commerce Department said. The Commerce Department separately said it had
revised May building permit data to show a 0.4 percent decline compared
with a steeper 1.3 percent decline than had been previously reported. Mortgage applications hit their lowest in nearly
6-1/2 years last week despite a sharp drop in interest rates. The
Mortgage Bankers Association said its index of mortgage applications
dropped 9.3 percent last week. The report was the latest sign to suggest
the housing market had yet to reach bottom. Demand for loans to purchase
a home fell 7.4 percent and refinancing applications plunged 12.1
percent.
Crude Prices Fall On Weak Demand And Increased
Supply The price of crude oil fell more than $2 per barrel
on Wednesday after weekly data indicated that crude inventories rose
while rising fuel prices continued to erode demand. The increase came as gasoline demand, which has
fallen as high fuel prices force motorists to adjust their driving
habits, dipped 2.1 percent over the past four weeks compared with
year-ago levels. Rising oil prices have weighed
on the economies of consuming nations, jumping nearly 40 percent this
year to a record near $140 a barrel. Oil has rallied over the past year
as supply struggles to keep pace with demand from emerging economies
like An influx of funds into commodities as a hedge
against inflation, combined with the weak dollar has supported prices
this year. The dollar fell to two-week lows versus the euro on
Wednesday, as selling accelerated in the aftermath of the Federal
Reserve's decision to hold key interest rates steady at 2.0 percent.
Limited support for crude prices came from continuing
supply disruptions in
Earnings Rise At Research In Motion But Not The
Share Price Research In Motion reported higher first-quarter
earnings on Wednesday after the close of regular trading as the company
continued to sign up subscribers for its BlackBerry smartphones at a
rapid clip, but its shares dropped 8 percent in late trading as the
results and outlook fell short of Street expectations. According to the company, it earned $482.5 million,
or 84 cents a share, in the three months ended May 31. That was up from
a profit of $223.2 million, or 39 cents a share, a year earlier. The
company said that revenue surged to $2.24 billion, up 107 percent from a
year earlier, and that it added 2.3 million subscribers, or about
100,000 more than it expected. However, while the per-share earnings came within the
outlook the company gave in April, it was in sufficient as far as the
Street was concerned. RIM's shares, which had risen roughly 20 percent
since early April, dropped sharply in after-hours electronic trading,
shedding $11.24, or 7.9 percent, to $131.10 from their regular-session
close of $142.34. The results were a departure from the company's recent
quarters, when it comfortably exceeded forecasts. For the second quarter, RIM said it expects sales of
between $2.55 billion and $2.65 billion and earnings of between 84 and
89 cents a share. It also said it expects to add about 2.6 million new
subscribers. The company is betting that new product launches,
such as its recently announced BlackBerry Bold will help it grow for the
balance of the year and beyond, despite a slowdown in the U.S. economy.
RIM's mainstay base of business users has been expanding, but the
company is also pushing strongly into the broader retail market in a bid
to diversify. It has kept large corporate and government clients
interested with top-end handsets like the Bold, while at the same time
offering a large lineup of multimedia features for consumers with its
Pearl and Curve smartphones.
Higher Earnings At Oracle Oracle reported after the closing bell on Wednesday
that its quarterly earnings number increased 27 percent on strong new
software license revenue. Net income came in at $2.04 billion, or 39
cents per share, in Oracle's fiscal fourth quarter ended May 31, which
is its strongest quarter each year. It reported net income of $1.60
billion, or 31 cents, a year earlier. The company showed earnings of 47
cents per share, excluding items. Growth accelerated in the
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MarketView for June 25
MarketView for Wednesday June 25
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