MarketView for April 25

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Friday, April 25, 2008

 

 

 

 

 

Summary

 

The relatively positive news from American Express last night after the markets closed had a positive effect on both the Dow Jones industrial average and the S&P 500 indexes, with the result that both closed out the day in positive territory. Unfortunately, the NASDADQ composite index was not as fortunate as Microsoft's weak profit forecast sent it into negative territory for the day.

 

Stocks were sharply lower shortly after the opening after a survey showed that consumer confidence was at its weakest point in 26 years in April. The index of consumer confidence fell for a third straight month in April on heightened worries over inflation and the sagging housing market. Yet, the market reversed course later in the day, with financials leading the parade upward.

 

American Express reported a decline in earnings. However, its numbers still exceeded Street expectations. At the same time, American Express reaffirmed its full-year earnings forecast, sending its shares up $2.59, or 5.73 percent, to close at $47.77, as it helped out the Dow.

 

The three major indexes ended Friday at their highest closing levels since January, continuing a rally started in mid-March after the Federal Reserve pumped cash into the financial system following the collapse of Bear Stearns. For the week, the Dow was up 0.3 percent, the NASDAQ rose 0.8 percent and the S&P chalked up a gain of 0.5 percent.

 

Meanwhile, Microsoft weighed on the indexes after it reported weak Windows software sales and a below-target earnings forecast a day earlier. As a result, Microsoft saw its shares close out the day down $1.97, or 6.19 percent, to close at $29.83. Microsoft's decline also helped to limit the gains of both the Dow and the S&P 500.

 

Higher oil prices underpinned the market's rise by lifting shares of oil services companies nearly 2 percent after a cargo ship chartered by the U.S. military fired warning shots at two small boats in the Gulf. Domestic sweet crude for June delivery settled up $2.46, or 2.12 percent, at $118.52 per barrel.

 

On the plus side for the day’s activity were the shares of Goodyear Tire & Rubber, which ended the day up $1.66, or 6.09 percent, to close at $28.91, after the company posted stronger-than-expected quarterly profit driven by price hikes, sales of more expensive tires and favorable foreign-exchange rates.

 

Limiting the Dow's advance was 3M, whose shares fell $1.31, or 1.66 percent, to close at $77.82 and exerted the heaviest weight on the blue-chip average. The stock fell a day after the company reported stronger-than-expected quarterly earnings but backed away from a previous target of 5 percent to 8 percent in volume growth this year, excluding the effect of the weak dollar.

 

Consumer Confidence Falls Again

 

Consumer confidence fell for a third straight month in April on heightened worries over inflation and the sagging housing market, according to a survey by The Reuters/University of Michigan Surveys of Consumers. It was the lowest point for consumer sentiment, as measured by that particular survey, in 26 years with the index of confidence for April dropping to 62.6 from 69.5 in March.

 

It was the worst reading since March 1982, when the stagflation period of low growth and high inflation was still an issue for many Americans.

 

Reinforcing the Michigan data was another gauge of the economy, from the Economic Cycle Research Institute, showed improvement but still pointed to an economy in recession.

 

The independent New York-based forecasting group said its Weekly Leading Index edged up to 132.1 in the week to April 18 from 132 the prior week. The index's annualized growth rate remained negative, but improved to minus 9.7 percent from minus 10.2 percent. It was the highest reading since minus 8.8 percent in the week ended February 1.

 

Crude Rises

 

The price of crude oil rose sharply on Friday on news that a ship under contract to the U.S. Defense Department fired warning shots at two boats in the Persian Gulf. The news raised concerns that a conflict between U.S. and Iranian forces could cut oil supplies from the region. A Navy spokeswoman said the origin of the boats was unclear.

 

The news was enough to send light, sweet crude for June delivery up to $119.55 before the contract retreated to settle up $2.46 per barrel at $118.52. In London, Brent crude futures settled up $2 per barrel at $116.34 on the ICE Futures exchange.

 

The incident worried investors because at first it appeared to be the latest in a series of encounters between U.S. forces and Iranian boats in the Gulf. Nonetheless, oil prices were already up before the report on news of a pipeline attack in Nigeria and a looming refinery strike in Scotland.

 

In Nigeria, the Movement for the Emancipation of the Niger Delta, or MEND, said its fighters hit an oil pipeline late Thursday, the fourth conduit the group has attacked in the past week. MEND said the pipeline belongs to a Royal Dutch Shell PLC joint venture. A Shell spokesman confirmed one of its pipelines had been hit, but provided no additional details. Separately, workers at an ExxonMobil Corp. joint venture in Nigeria cut production by an unspecified amount to demand more pay.

 

Adding to the supply concerns, BP PLC said it will shut down a 700,000 barrel-a-day pipeline system that carries oil from the North Sea to refineries in the U.K. on Saturday in anticipation of a strike at Scotland's Grangemouth refinery expected to begin Sunday. The refinery supplies power and steam to the pipeline; if it shuts down, the pipeline can't operate.

 

Oil's rise came as the dollar strengthened. A stronger dollar typically encourages selling by making commodities such as oil less effective hedges against inflation, and by making oil more expensive to overseas investors. Analysts say the dollar's steady decline over the past year is the chief culprit behind this year's rapid rise in oil prices.

 

At the pump, meanwhile, gas prices rose another 2.1 cents Friday to a record national average of $3.577 a gallon, according to AAA and the Oil Price Information Service.

 

In other trading on Friday, May gasoline futures rose 3.51 cents to settle at $3.0537 a gallon after earlier rising to a new trading record of $3.0815, and May heating oil futures rose 4.45 cents to settle at $3.3028 a gallon. May natural gas futures rose 17.3 cents to settle at $10.963 per 1,000 cubic feet.

 

Higher Earnings At Goodyear

 

Goodyear Tire & Rubber posted positive earnings on Friday indicating that it was profitable in the first quarter by focusing on higher-priced tires and strong international markets. However, the company also said it will cut tire production in North America, where sales have been sluggish.

 

The results from Goodyear, the world's third-largest tire manufacturer and the largest domestic tire company, indicated that it earned $147 million, or 60 cents per share, in the quarter that ended March 31, compared with a loss of $174 million, or 96 cents per share, in the same period in 2007. Sales rose to $4.94 billion from $4.5 billion a year ago. If you exclude one-time charges, Goodyear earned 67 cents per share from continuing operations.

 

Chairman and Chief Executive Robert J. Keegan said the results demonstrate success in emphasizing higher-margin premium product lines, reducing costs and paying down debt.

 

"While few businesses are immune to the effects of a weaker U.S. economy, and we have certainly experienced weaker conditions in our industry particularly in the OE (original equipment) business, we continue to be confident about the attractive market opportunities we see and our company's ability to fully capitalize on them," Keegan said in a conference call with analysts.

 

North American tire sales fell 1 percent, but Goodyear recorded an operating profit in the quarter compared with a loss from a year ago, helped by improved pricing and a better product mix.

 

Keegan told analysts the company wants to reduce inventory in North America and tire production by about 5,000 tires over the course of this year. Goodyear did not disclose where or when the cutbacks will occur or if jobs may be affected.

 

All three of Goodyear’s business segments outside North America notched sales gains. In Europe, the Middle East and Africa the increase was 16 percent over last year, in Latin America sales increased 29 percent and Asia-Pacific was up 21 percent. About 60 percent of Goodyear's revenue came from outside North America, Keegan said.

 

The loss a year ago was due in part to costs from a United Steelworkers strike. There were also large costs as Goodyear prepared to divest some assets and make changes to salaried workers' benefits. Goodyear has about 70,000 employees and makes products in more than 60 factories in 26 countries.