MarketView for May 15

MarketView

Events defining the day's trading activity on Wall Street

Lauren Rudd

Thursday, May 15, 2008

Summary

Stock prices turned in another day of higher prices, albeit on light volume with the number of shares traded on the NASDAQ exceeding the number on the Big Board. Trading volume continued to be very light on the NYSE, with about 1.20 billion shares changing hands, well below last year's estimated daily average of roughly 1.90 billion. On Monday, NYSE volume hit its low for the year at 1.05 billion.

Meanwhile, the S&P 500 index hit to its highest close since January. Aiding the day’s momentum was a pullback in oil prices that in turn helped to ease a bit some of the Street’s concerns over the possibility of rising inflation. Finally, Carl Icahn’s proposed proxy battle for control of Yahoo so that he can resurrect the deal with Microsoft, helped out the tech sector.

The NASDAQ also had its best close since January 3. Shares of Intel ended the day up $1.13, or 4.74 percent, to close at $24.97, after Lehman Brothers raised its price target on the stock, citing strength in notebooks and servers. The Philadelphia Stock Exchange index of semiconductors rose 2.1 percent.

Crude oil futures fell to below $122 a barrel during the session, but shares of energy companies gained UBS sharply raised its projection for oil prices. Shares of Exxon Mobil ended the day up $, or 1.6 percent, to close at $91.30. June crude settled down 10 cents per barrel at $124.12. Supposedly a surprisingly large increase in natural gas inventories contributed to the drop in the price for crude oil.

News late in the session that key members of the U.S. Senate reached a deal on a housing rescue plan raised hopes for the beleaguered home market. In the sweeping housing rescue plan, Fannie Mae and Freddie Mac would backstop a government mortgage insurance fund. Shares of home builders surged after the news. An index of home builders .DJUSHB rose 3.7 percent.

Retailers benefited after JC Penney indicated that its earnings in the current quarter could top Street expectations. The outlook drove JC Penney's battered stock up $2.07, or 4.68 percent, to close at $46.32 even though it posted a 50 percent profit drop in the first quarter.

However, recent economic data continues to paint a mostly weak picture of the U.S. economy. A report showed softer-than-expected U.S. industrial output for April and a manufacturing report from the New York Federal Reserve Bank was also weak. Meanwhile, initial jobless claims rose slightly more than expected in the latest week.

Senate Agrees On Housing Plan

In the sweeping housing rescue plan, Fannie Mae and Freddie Mac would backstop a government mortgage insurance fund, two industry sources told Reuters. Shares of home builders surged after the news. An index of home builders rose 3.7 percent.

Leaders of the Senate Banking Committee on Thursday reached a deal on a broad housing rescue plan in which Fannie Mae and Freddie Mac would support a federal mortgage insurance fund, two industry sources said.

Committee Chairman Christopher Dodd, a Connecticut Democrat, said an accord had not yet been finalized, but he told reporters after a meeting of the panel, "We're getting pretty close to it. ... We're down to a few issues." The $300 billion mortgage insurance fund is to be run by the Federal Housing Administration.

Developing a mechanism to fund the program was seen as key to getting the rescue plan out of the Banking Committee and to the Senate floor for final approval, although that could still be a distant prospect. Aides said Senate leaders are not yet engaged in the housing package debate.

Apparently, Fannie Mae and Freddie Mac would direct money from a new affordable housing fund to backstop the mortgage insurance fund. In the first year, 100 percent of their contributions would go to the new FHA program. That would fall to 75 percent in the second year and 50 percent in the third.

The White House has threatened to veto a similar rescue package passed last week by the House of Representatives, partly because of the cost to taxpayers. But the Bush administration has left open the door to discussions.

The administration wants to ensure Fannie Mae and Freddie Mac face tougher oversight and want to see legislation retool the FHA with a system that sees riskier borrowers pay a higher mortgage insurance premium.

Both the Senate and House packages contain approaches to address those key White House goals. But both packages also propose setting up the FHA mortgage insurance fund, an idea that the administration dislikes.

The Congressional Budget Office has said that the mortgage insurance plan would cost up to $2.7 billion. That would pay for expanding the FHA so it can help arrange lower-cost refinancing for as many as 500,000 homeowners whose homes have lost value since they took out their mortgages.

Homebuilder Sentiment Falls

Home builder sentiment fell for the first time in four months in May, edging closer to the record low set in December, as market conditions continued to worsen, an industry group said on Thursday.

According to the National Association of Home Builders the index fell to within one point of the record low of 18 set in December. The gauge started in January 1985. The turn for the worse is indicative of the struggle home builders are facing as they grapple with the worst U.S. housing market downturn since the Great Depression.

The National Association of Home Builders said its preliminary NAHB/Wells Fargo Housing Market Index (HMI) fell to 19 from 20 in April, within one point of the record low of 18 set in December. The gauge started in January 1985.

The gauge of current single-family homes sales fell to 17 from 18. The index of sales expected in the next six months dropped to 27 from 30. The prospective-buyer traffic measure declined to 17 from 19, the group said.

Tighter lending standards are fueling the unwieldy supply of homes for sale. It has become increasingly difficult for prospective buyers to obtain a home loan and that is having an impact on sales.

Many potential home buyers are cautious about buying and fear that the home they buy today may be worth less in the near future.