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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Thursday, May 1, 2008
Summary Stock prices were sharply higher on Thursday as a
rebound in the dollar and retreating oil prices calmed fears about
inflation and renewed to some extent the moribund appetite for
riskier assets, including undervalued technology shares. Shares of
Intel, a technology bellwether, gained $1.03, or 4.63 percent, to
close at $23.29. The three major indexes closed at their highest level
since the first half of January as equities extended a rally started in
mid-March on optimism that credit markets and the economy have begun to
stabilize. Investor confidence was on the mend a day after the
Federal Reserve trimmed rates again and hinted at a pause in its recent
campaign to lower borrowing costs. Financial stocks were the main
attraction, led by a nearly 7 percent surge in shares of American
Express. The NASDAQ was powered by a 3.5 percent jump in
shares of Apple on news that Apple will sell movies on iTunes the same
day they are available on DVD, giving further momentum to the company's
lucrative iPod franchise. Apple's stock jumped $6.05, or 3.48 percent,
to close at $180.00. The dollar's rise to a seven-week high against a
basket of major currencies knocked crude oil prices lower. Crude, like
many other commodities, is priced in dollars and becomes less affordable
to overseas buyers when the greenback strengthens. Crude futures for
June settled down 94 cents per barrel at $112.52. Oil's decline, along with disappointing quarterly
results from Exxon Mobil, sent energy shares down sharply. Apache
saw its share price fall $8.27, or 6.14 percent, to close at
$126.41, while the S&P index of energy shares fell 2.2 percent. There is always some good in everything and in this
case the decline in oil was a boon for retailers, which in turn are
vulnerable to high gas prices that deprive consumers of disposable
income. Blue-chip financial shares were also higher.
Citigroup ended the day up $1.04, or 4.17 percent, to close at $25.99,
while Bank of ended the day up $1.85, or 4.93 percent, to close at
$39.39. American Express was up $3.31, or 6.89 percent, to close at
$51.33, making it the Dow's best performer.
Unemployment Claims Rise
The number of workers claiming jobless benefits hit a four-year high and planned layoffs soared, according to data released on Thursday by the Labor Department. According to the Department, the number of workers remaining on jobless benefits jumped to 3.019 million in the week ended April 19, the highest since April 2004.
Initial claims
for jobless benefits increased more than expected to 380,000 in the week
ended April 26, from a slightly upwardly revised 345,000 the previous
week. Adding to the gloomy jobs picture, a report from the Chicago-based
employment consulting firm Challenger, Gray and Christmas showed planned
job cuts by U.S. companies rose 68 percent in April from the prior month
to a 19-month high.
Manufacturing Contracts
The manufacturing sector contracted for a third straight month in April. The manufacturing data, released by the Institute for Supply Management, was marginally better than expected, though it was the fourth month in five that the index showed a contraction in manufacturing.
The ISM index of
national factory activity was unchanged in April from March at 48.6. Any
number under 50 signifies a contraction. However, the ISM gauge of
inflation was at its highest since May 2004, highlighting the dilemma of
slow growth and strong price pressures facing the Fed.
Oil Retreats A slightly stronger dollar and the end of an oil
workers' strike in The dollar's rise against the euro and other
currencies stripped away some of oil's appeal to speculators who have
been betting for months that the dollar would continue to fall. When the
dollar gains ground, commodities such as oil lose their value as a hedge
against inflation, prompting selling. Also, a stronger dollar makes oil
more expensive to investors overseas. As the dollar has strengthened this week, oil futures
are down more than $7 from their Meanwhile, a strike that cut production at an Exxon
Mobil facility in The dollar's recent gains have come on a view that
the Federal Reserve's interest rate cutting campaign is nearing its end;
lower interest rates tend to weaken the dollar. Now with the benchmark
federal funds rate at 2 percent, it becomes obvious that the Fed cannot
go much lower.. However, other nations' central banks are considering
raising interest rates, actions that could further weaken the dollar. If
that happens, or if there is a major supply disruption, crude prices
could easily rise to $130, sending gas prices to $4 per gallon and
beyond. At the pump, the average national price of a gallon
of regular gas rose 0.6 cent to a record $3.623 Thursday, according to a
survey of stations by AAA and the Oil Price Information Service. Diesel
prices inched 0.1 cent higher to a record $4.251 a gallon. Gas prices
are already higher than $4 in many parts of the country, including in Despite crude's recent declines, gas prices are
likely to keep rising for a while. Crude's rapid rise over the past year
has squeezed refinery profit margins; refiners must pay for the oil they
refine into fuel, but have been unable to raise gas prices fast enough
to keep up with crude. While oil prices are up about 73 percent in the
last year, gas prices are only up 22 percent. In other Nymex trading Thursday, June heating
gasoline futures fell 2.81 cents to settle at $2.8782 a gallon, and June
heating oil futures fell 4.03 cents to settle at $3.1177 a gallon. June
natural gas futures fell 28.2 cents to settle at $10.561 per 1,000 cubic
feet. The Energy Department said natural gas inventories rose by 86
billion cubic feet last week, more than many analysts had expected.
Consumer Spending Rises Do not be fooled by the larger-than-expected increase
in consumer spending. People aren't buying more; they are just paying
more for what they buy. The Commerce Department reported Thursday that
consumer spending was up 0.4 percent. However, once inflation was
removed, spending edged up a much slower 0.1 percent. The March reading was the fourth straight lackluster
performance and did nothing to alleviate worries that consumer spending,
which accounts for two-thirds of total economic activity, remains under
severe strains, reflecting an economy beset by multiple problems. Rising food costs, soaring energy prices and falling
employment have pushed consumer confidence to its lowest levels in five
years. Incomes in March rose a weak 0.3, but after removing inflation,
after-tax incomes were flat. In other signs of economic stress, the Commerce
Department said Thursday that construction spending fell 1.1 percent in
March with housing activity plunging by a record 4.6 percent, indicating
builders are still cutting back sharply in the face of the worst slump
in housing in more than two decades. On the inflation front, a price gauge tied to
consumer spending rose by 0.3 percent in March, triple the 0.1 percent
rise in February. Much of that jump reflected higher food and energy
costs. Core inflation, which excludes those categories, rose by 0.2
percent in March and is up 2.1 percent over the past 12 months, higher
than the Fed's 1 percent to 2 percent comfort zone.
Exxon Disappoints Wall Street Exxon Mobil posted a $10.89 billion first-quarter
profit on Thursday, but still managed to disappoint Wall Street as weak
production volumes and low refining margins blunted the impact of
record-high crude prices. Earnings rose 17 percent year over year, and
were the second-highest in Exxon's near-record profits brought sharpened
scrutiny from politicians and consumer groups, who are upset about
sky-high gasoline prices at the pump. Benchmark Exxon posted record earnings of $40.6 billion in
2007, with revenue higher than the gross domestic product of A steep drop in profit margins for gasoline cut into
Exxon's earnings as the company, like other refiners, struggled to pass
on higher crude costs to customers. First-quarter gasoline prices rose
33 percent year over year in the Exxon spent $31.8 billion to buy back shares in 2007,
while shelling out $20.9 billion for capital expenditures. In 2008, the
company expects to increase its capital spending to around $25 billion. The world's largest publicly traded company earned
$2.03 a share in the first quarter, up from net income of $9.28 billion,
or $1.62 a share, in the same period last year. Revenue rose to $116.85
billion from $87.22 billion. The company also had a whopping 49 percent
effective income tax rate in the quarter, up from 44 percent last year,
which also weighed on earnings. Earnings at its exploration and production segment
increased 45 percent to $8.79 billion, while refining profits dropped 39
percent to $1.17 billion. The company said its production shortfall resulted in
part from production-sharing contracts that give host countries a larger
share of oil and gas produced as commodity prices rise. The decline of
older fields and the loss of operations that were nationalized by Exxon reached a deal with a Nigerian oil union on
Thursday after an eight-day old strike had shut down virtually all of
the 800,000 barrels per day of production in the country, which could
hit the company's second-quarter output figures. Meanwhile, earnings at
Exxon's chemicals unit dropped 17 percent to $1.03 billion.
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MarketView for May 1
MarketView for Thursday May 1
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