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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Tuesday, May 27, 2008
Summary Wall Street rebounded on Tuesday, the first day
of the holiday shortened week, led by Apple and other technology
bellwethers, as oil prices dropped sharply on the proposition that
higher prices are beginning to impact demand. Tuesday’s lower
prices, if they hold, are expected to shore up consumer and business
spending. The drop of nearly 3 percent in the price of domestic
sweet crude was welcome news after oil prices rose to a record above
$135 barrel last week, fanning worries about inflation, corporate
profits and a slowdown in consumer spending. Apple, it turned out, was
one of the day’s best performers on the NASDAQ. Apple ended the day up
$5.26, or 2.90 percent, to close at $186.43. Shares of consumer-oriented companies, such as Home
Depot, gained along with technology shares, even as energy companies saw
their share price decline in step with the price of oil. IBM led the
gainers on the Dow Jones industrial average with a rise of $3.12, or
2.51 percent, to end the day at $127.32, making it the second largest
gainer on the S&P 500 index. Home builders were also among standouts following a
Commerce Department report that showed a surprise 3.3 percent increase
in April new-home sales. Shares of Toll Brothers gained $0.33, or 1.57
percent to $21.40, while Centex, the fourth-largest domestic home
builder, ended the day up $0.39, or 2.05 percent, to close at $19.40. Among the nation’s largest retailers, Home Depot saw
its share price move up $0.51, or 1.91 percent, at $27.28 while rival
Lowe's closed up nearly $0.21, or 0.90 percent, at $23.51. Shares of
Wal-Mart climbed $0.65, or 1.17 percent, to close at $56.40. Airline stocks also gained on the lower crude oil
prices, with the airline index up almost 4 percent. Shares of Delta Air
Lines DAL surged $0.65, or 1.17 percent, to close at $5.92, while UAL
Shares United Airlines ended the day up $0.66, or 8.78
percent, to close at $8.18. Shares of AMR, parent of American Airlines,
ended up $0.52, or 8.23 percent, at $6.84 on the NYSE. However, after the bell AMR's shares fell more than 2
percent to $6.70 as the company announced capacity cuts and plans to
retire planes in response to rising fuel costs and the softening
economy. Also down in late trading activity were the shares of JetBlue,
which declined more than 4 percent after the carrier announced
plans to defer delivery of 21
aircraft and said it would issue convertible debt and a related share
deal with Morgan Stanley. JetBlue shares had ended up 5 percent at $4.41
on the NASDAQ. In the regular session, shares of banks and other
financial services companies were also among the notable gainers, with
value seen in the downtrodden sector. Shares of Citigroup closed up
$0.54, or 2.56 percent, at $21.66, while those of JPMorgan Chase were up
$0.69, or 1.63 percent, to close at $43.01. Domestic sweet crude oil for July delivery settled
down $3.46, or 2.6 percent, at $128.73 per barrel on the New York
Mercantile Exchange amid a stronger dollar and demand concerns. As a
result, energy shares were top drag on the S&P 500, with Exxon Mobil
down $90, or 0.99 percent, at $89.80, while Chevron ended the day down
$1.15, or 1.14 percent, at $99.58. In economic news, the Commerce Department reported
that new-home sales rose in April, marking the first increase since
October, although the gain came after a big downward revision to the
prior month. The Standard & Poor's/Case Shiller composite index of 20
metropolitan areas, meanwhile, showed prices of previously owned homes
fell 2.2 percent in March from February, deepening their year-on-year
decline.
Prices of Single Family Homes Fall Data released on Tuesday showed a dramatic decline in
the prices for single family homes. According to the data, prices fell a
record 14.4 percent in March from a year earlier. The Standard &
Poor's/Case Shiller composite index of 20 metropolitan areas released on
Tuesday showed prices of previously owned homes fell 2.2 percent in
March, deepening their year-on-year decline. Falling home prices have led to a wave of
foreclosures that is expected to grow worse before it gets better. The
crisis in foreclosures, which pressure prices even lower, has spurred
plans by regulators and lawmakers to keep borrowers in their homes by
forgiving a portion of their loan principal. Housing markets that grew the most during the housing
boom, such as However, the Commerce Department released
data indicating that sales of newly constructed single-family
homes rose in April for the first time in six months, while the
inventory of unsold new homes declined for the 12th straight month. But
the previous month's decline was even steeper than first reported.
According to the Commerce Department sales of new homes rose 3.3 percent
in April to a 526,000 annual rate. However, they were down 42 percent
from a year ago, the largest year-over-year drop in nearly 27 years. While April's sales gain was the first since October,
it followed a drop in March that was much sharper than previously
reported. Sales in March fell 11 percent; a month ago the department had
said they were off just 8.5 percent. Despite the lingering weakness in sales, the report
showed a sharp pullback in construction activity by builders was helping
to reduce the backlog of homes on the market. The inventory of homes
available for sale at the end of April fell 2.4 percent to 456,000, the
12th straight monthly decline. That represents 10.6 months' supply at
April's sales pace, down from 11.1 months' worth in March.
Consumer Confidence At 16 Year Low Consumer confidence fell to its lowest point in 16
years during May as rising gasoline costs and falling home prices made
Americans nervous about the future. According to the Conference Board,
its monthly measure of consumers' mood fell to 57.2 from 62.3 in April.
The index has fallen by almost half since last July, when housing market
troubles triggered the most severe credit crisis in at least a decade.
At the same time, inflation expectations rose to an all-time high 7.7
percent, well above April's 6.8 percent. The pain was felt across the board; with consumers
worried about both what is happening now and what might be to come. The
present situation index dropped to 74.4 from 81.9, while the
expectations barometer dived to 45.7 from 50.0. "Weakening business and job conditions coupled with
growing pessimism about the short-term future have depleted consumers'
confidence in the overall state of the economy," said Lynn Franco,
director of The Conference Board Consumer Research Center.
Fed Says No To Inflation The Federal Reserve will not repeat the policy
mistakes of the 1970s by letting inflation spiral out of control, San
Francisco Federal Reserve Bank President Janet Yellen said on Tuesday.
According to Yellen, benchmark interest rates have been cut far enough
given current growth and inflation risks, and that with more weak data
almost certainly ahead, it would not make an automatic case for more
rate cuts. Some market-based measures of inflation expectations
had risen recently, but Yellen said that she would not characterize
expectations as having become unmoored. "This is not the 1970s, but we
can't let it get to be the 1970s. Our behavior is critical to that. We
have to be the barrier" to high inflation, Yellen said after the speech. "At a time when commodity prices are rising as
rapidly as they are, inflation is a concern," she said. Those price
hikes, especially for energy and food, are taking "a huge toll on
households," she said. Yellen said the tax rebate checks, now being mailed
out, should make a notable difference in the second and third quarters
of this year. In line with comments earlier this month, Yellen gave
no indication that she favored another cut to benchmark interest rates,
noting that the real federal funds rate -- the fed funds rate less the
rate of inflation -- is "at an accommodative level of around zero." On the other hand, "the Fed will have to be attentive
to removing accommodation" as growth picks up, Yellen said, adding that
potential rate hikes are "down the road." That suggested the Fed could launch an extended pause
in interest rate moves at its next meeting on June 24-25. Financial markets suggest the Federal Open Market
Committee will keep benchmark rates steady for the next few meetings,
before possibly starting to raise rates in the fourth quarter. Prospects
for a quarter-percentage point rate increase in October are running at
about 50 percent. Yellen is not a voting member of the FOMC this year. The economy faces headwind from financial turmoil,
the weak housing market and high commodity prices that together make
risks to the growth outlook unusually high, Yellen said. Whether or not the current slowdown is termed a
"recession" might not be known for months or even years, when final
growth figures can be pored over by the National Bureau of Economic
Research, she said. Global commodity prices have been driven up in part
by the weak U.S. dollar and market speculation, but in larger part by
fundamental factors, she said, answering questions from the audience. Despite activity that is "weak across most sectors of
the economy," Yellen told reporters that some recent data had come in
better than expected, and that even as consumer confidence has slumped,
retail spending has held up reasonably well. The job market has also avoided a worst-case scenario
so far, despite four straight months of net losses and 321,000 jobs lost
so far in 2008. "My sense is that the labor market is weak, but not
dramatically slow," Yellen said. She said the further weakness in the housing market
still had the potential to create a "negative feedback loop" in the
economy as falling household wealth hits consumer confidence and chokes
off spending. The housing market will likely not hit bottom until
sometime in 2009, she noted. Still, Yellen said the Fed is aware that its
credibility could be eroded "if people see us at too attentive to
downside risks to the economy" at the expense of watching inflation. Recent inflation data have been disappointing, the
San Francisco Fed president said, adding that price pressures should
start to ease before long. "I would expect that inflation will moderate in
coming quarters, as more slack in labor and product markets emerges and
as commodity prices level off," Yellen said.
Dollar Steadier The dollar steadied against the euro on Wednesday
after rebounding from one-month lows the previous day, when a slide in
oil and an unexpected rise in The dollar eased against the yen and the Swiss franc
after the FBI said on Tuesday that groups monitoring Islamic militant
websites say al Qaeda will soon post a video urging jihadists to use
biological, chemical and nuclear weapons to attack the West. The dollar climbed broadly on Tuesday after a report
showed U.S. sales of newly built single-family homes increased in April
from March, the first rise since October. But April sales also recorded
the biggest year-on-year drop in nearly 27 years. Oil fell to $128 a barrel, moving away from record
highs hit above $135 last week. Surging oil prices have fanned fears about the
ability of The dollar fell 0.2 percent against the Japanese
currency to 104.05 yen. Traders said Japanese exporters sold the dollar
as they expect the Despite the dollar's strong rebound from a one-month
trough against the euro, many traders were careful about drawing any
conclusion about the
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MarketView for May 27
MarketView for Tuesday May 27
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