Thursday saw a mixed day for the equities market, as traders considered hot and cold economic reports. The most disturbing news probably came from the Labor Department, which noted an increase of 12,000 in weekly jobless claims -- defying economists' expectations for a decline. Adding to that bearish momentum was the Conference Board, whose index of leading economic indicators improved by a smaller-than-expected margin in May. Meanwhile, the Philadelphia Fed reported that factory operations in the region improved in June, but at a frustratingly sluggish pace.
Photo: Traders on the floor of the NYSE.
However, a successful Spanish bond auction helped to offset some of the gloom and doom -- as did a benign report on consumer-level inflation from the Labor Department. A slew of companies reporting stronger-than-expected earnings, including RV maker Winnebago (WGO), also provided the impetus for the bulls fight-back.
All in all the day ended on the positive side for the major indexes which left the bulls in charge.
Not only did the markets avoid a steep selloff in response to the weak data, they closed at their highest levels of the day and extended the Nasdaq Composite's six-day win streak -- its longest streak since mid-April.
Buying in defensive stocks, such as utilities and consumer staples like Procter & Gamble (PG) and FirstEnergy Corp (FE), helped lift indexes just before the close.
"I don't think that the buyers are willing to give up on the market just yet. We still have quite a bit of momentum," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. "Even though we get these intraday sell-offs, they're met with a pretty well bid market."
The S&P 500 moved above its 200-day moving average for the first time in a month on Tuesday. Some investors see that as a bullish momentum signal.
"That is helping prop the market up. The question is if it does stay above that 200-day, does that help it go even higher," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 10,434.17) finished with a gain of 24.71 points, or 0.24%.
The S&P 500 Index (SPX – 1,116.04) had a small gain also, on the day, of 1.43 points, or 0.13%.
The Nasdaq Composite (COMP – 2,307.16) also had a small gain of 1.23 points, or 0.05%.
The Russell 2000 Index of smaller companies had a small loss of 0.28 points, or 0.04%, to settle at 665.85.
By closing in the black on Thursday, the blue chips climbed back into positive territory for the year. As recently as June 7 the benchmark index was down 5.9% on the year. Most of the Dow's 30 components made headway on Thursday, led by insurance giant Travelers (TRV) and General Electric (GE) . The index's worst performers were American Express (AXP) and Home Depot (HD) .
The Nasdaq Composite saw less buying but still managed to close at its highest level since May 18 and keep its winning streak alive, as Apple (AAPL) and Adobe (ADBE) closed solidly higher.
Trading volume: "The volume was very, very low," said Stephen Massocca, managing director of Wedbush Morgan in San Francisco. The positive finish was "largely short-term traders covering short term positions in a very quiet market."
About 7.94 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion.
On the New York Stock Exchange, losers beat winners by a narrow margin on volume of 1.16 billion shares. On the Nasdaq, decliners topped advancers by a narrow margin on volume of 1.78 billion shares. As well as the low volume, volatility was aggravated by options and futures expirations on Friday.
The quadruple witching period, as it is called, refers to the quarterly settlement and expiration of four different types of June equity futures and options contracts.
"It was a scramble as traders adjusted their positions into expiration in the last minute of trade for the June futures," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.
Notes of Interest….
• The Dow Jones Industrial Average’s (DJIA) maintained its grip on its 10-day moving average, as well as the 10,400 level.
• The S&P 500 Index’s (SPX) held steady above the key 1,100 region.
• The Nasdaq Composite (COMP), the tech-rich index, is now poised to challenge short-term pressure from its 20-week moving average, which hasn't been surmounted on a weekly closing basis since mid-May.
• Crude futures ended lower today, retreating from Wednesday's freshly tapped seven-week high. Black gold was pressured by a downbeat report on the U.S. jobs market, as traders considered the possibility of persistently weak demand for petroleum products. In fact, the day's lackluster economic data effectively offset the benefits of a stronger euro, which typically stokes demand for the dollar-denominated commodity. By the close, crude oil for July delivery was down 88 cents, or 1.1%, at $76.79 per barrel.
• Gold futures rallied to an all-time high today. A solid session for the euro -- combined with disappointing economic data and weakness in the equities market -- propelled the precious metal to its highest closing price on record, as traders piled into the safe-haven commodity. Gold for August delivery tacked on $18.20, or 1.5%, to finish at $1,248.70 per ounce, after touching an intraday acme of $1,252.50.
• Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.19% from 3.28% late Wednesday. Treasury prices and yields move in opposite directions.
A trio of disappointing indicators on the U.S. economy weighed on Wall Street Thursday morning, threatening to end the Nasdaq Composite's five-day winning streak and overshadowing upbeat sentiment overseas in the wake of a solid Spanish bond auction.
Jobless Claims Unexpectedly Rise to 472,000
First-time applications for state unemployment benefits rose by 12,000 last week to a seasonally adjusted 472,000, the Labor Department reported Thursday, providing further evidence that U.S. labor markets remain very weak.
Meanwhile, the total number of people collecting unemployment benefits of any kind fell by 350,000 to 9.47 million in the week ending May 29 from 9.82 million.
The number of people collecting federal benefits fell by 170,000 to 5.28 million.
Consumer prices dip for second straight month, pulled down by less expensive energy
Consumer prices fell for the second straight month, extending a break for Americans' pocketbooks. Less expensive energy bills were the main factor pulling down prices.
The Labor Department reported Thursday that the Consumer Price Index, the government's most closely watched inflation barometer, dropped 0.2 percent in May, following a 0.1 percent dip in April.
It marked the biggest decline since consumer prices plunged 0.7 percent in December 2008. That was a period when the worst recession since the 1930s stoked fears of deflation. The country didn't get stuck in a deflationary spiral then, and probably won't now, economists say.
Deflation is dangerous. It's a widespread and prolonged drop not only in the prices of goods at stores but also real estate, stocks and wages. America's last serious case of deflation was during the Great Depression of the 1930s.
Meanwhile, "core" consumer prices, which strip out volatile energy and food, edged up 0.1 percent in May, after being flat in April. That meant core prices are up only 0.9 percent over the past year -- below the Fed's inflation target.
For the year, overall consumer prices rose 2 percent -- within the Fed's inflation comfort zone.
Falling energy prices pulled overall prices down last month.
Photo: June 13, 2010, an unidentified oilfield employee works high on a new well in the Sakhir, Bahrain, desert in the Persian Gulf. Consumer prices fell for the second straight month, extending a break for Americans' pocketbooks. Less expensive energy bills were the main factor pulling down prices.
Energy prices dropped 2.9 percent, the most in more than a year. Gasoline prices posted the biggest decline -- down 5.2 percent in May, the sharpest decline since December 2008.
Prices at the pump have dropped about 8 percent since hitting $2.93 a gallon on May 6. Global oil prices have been falling amid fears that the European debt crisis will hurt growth on the continent and possibly slow the global recovery.
Food prices were flat in May, down from a 0.2 percent rise in April. Falling prices for fruits and vegetables swamped rising prices for meat, cereals and dairy products.
Even though inflation is tame, workers' paychecks aren't benefiting. Average hourly earnings adjusted for inflation was flat for the 12 months ended May. That followed a 0.5 percent drop in April.
Because inflation isn't a problem for the economy, the Federal Reserve has leeway to keep holding a key interest rate at a record low near zero. Low rates should help nurture the economic recovery and nip deflationary forces. The Fed is all but certain to leave rates at record lows when it meets next on June 22-23. Economists now predict the Fed won't start boosting rates until next year -- or possibly 2012.
Fed Chairman Ben Bernanke says he expects inflation to be under wraps because there is so much "slack" in the economy. Companies are wary of jacking up prices because consumers are spending cautiously. Factories and businesses are still operating well below full throttle. Workers aren't likely to see hefty pay raises any time soon given high unemployment.
Best Buy shoppers, for instance, spent less than expected this spring, contributing to a rocky first quarter for the chain. Best Buy actually sold more TVs, but at lower prices. The average TV was about $150 cheaper in April than a year earlier, according to the NPD Group. Prices, however, are coming down more slowly than before as the market for flat-screen sets matures.
Thursday's price report also showed that new car prices edged up 0.1 percent last month, while clothing prices rose 0.2 percent. Recreation prices were flat.
Prices for education and prescription drugs each increased 0.3 percent -- categories that are up sharply over the past year. Prices for airline fares jumped 1.9 percent last month, while prices for tobacco and other smoking products rose 1.3 percent, the most in nearly a year.
Slower growth reported in June in Philly region
Manufacturing activity increased in the Philadelphia region for the 10th straight month in June, but at a much slower pace than in May, according to a monthly survey of companies released Thursday by the Federal Reserve Bank of Philadelphia.
The Philly Fed index fell from 21.4 in May to 8.0 in June, the bank said.
Economists were expecting the index to strengthen to 22. Readings over zero indicate growth, with the smaller number in June indicating fewer firms were growing than in May. In June, about 26% of firms said business had improved from May, while 18% said it had worsened. Most noticed no change.
The new orders index rose from 6.1 in May to 9.0 in June. The shipments index fell from 15.8 in May to 14.2 in June. The employment index dropped from 3.2 in May to negative 1.5 in June.
Details of the report weren't quite so soft as the headline index, which is based on a separate general question, noted John Ryding of RDQ Economics. If the Philly Fed index were constructed like the Institute for Supply Management index as a composite of specific questions, it would have risen to 53.3% in June from 51.6% in May, Ryding said.
Companies weren't able to pass along higher prices for inputs. The prices-paid index fell to 10 from 35.5, while the prices-received index fell to negative 6.5 from 3.5, showing that more companies cut prices than raised them.
Manufacturing executives were more upbeat about the medium term, however. The expectations index increased to 40.2 in June from 37.0 in May. About 52% of firms expect conditions to be better in six months, compared with 12% who expect worse conditions.
"It adds up to a modest, uneven recovery," said Paul Ballew, chief economist at Nationwide Insurance in Columbus, Ohio, and a former senior economist with the Federal Reserve. "We're not expecting some light switch being turned on here."
Leading indicators rise 0.4 percent in May
A private research group says its gauge of future economic activity rose 0.4 percent in May, signaling slow growth in the U.S. economy in the summer and fall.
The Conference Board's leading economic index is designed to forecast economic activity in the next three to six months. Economists polled by Thomson Reuters had expected a reading of 0.5 percent in May.
Turmoil in stock markets and a troubled housing market weighed on the index, while measures related to interest rates and an increasing amount of money in the economy tugged it higher.
The Conference Board revised its reading for April to no change from a 0.1 percent drop. It also revised its March reading to a 1.4 percent gain from a 1.3 percent rise.
The Energy Sector
BP PLC Chief Executive Tony Hayward told a congressional panel Thursday that it's still too early to determine the exact cause of the Deepwater Horizon rig explosion on April 20 and subsequent oil leak, now in its 59th day.
If lawmakers expected to unearth specific information on faulty procedures on the rig that blew up and sank two days later, they probably were disappointed. Hayward said the cause of the blast is under study by several internal and external teams from BP and the government, with no conclusions yet released.
Photo: BP CEO Tony Hayward is sworn in on Capitol Hill in Washington, Thursday, June 17, 2010, prior to testifying before the Energy and Environment subcommittee on Oversight and Investigations hearing on the role of BP in the Deepwater Horizon Explosion and Oil Spill. (AP /Haraz N. Ghanbari)
"I hear the concerns, fears, frustrations and anger being voiced across the country," the chief executive commented. "I understand it, and I know that these sentiments will continue until the leak is stopped, and until we prove through our actions that we will do the right thing."
Hayward added the accident "never should have happened," and that he's been "personally devastated" by the tragedy, which killed 11 workers and continues to leak oil into the Gulf of Mexico in the worst such spill in U.S. history.
The hearings didn't seem to have much of an effect on BP's stock price. Its U.S.-listed shares fell 0.4% to close at $31.71 on Thursday.
S&P cut BP's long-term credit rating to A from AA- and kept it on CreditWatch with negative implications, indicating that it can further downgrade the oil company in the future.
"The downgrade reflects our opinion of the challenges and uncertainties that BP continues to face in the aftermath of the explosion on the Deepwater Horizon," said Simon Redmond, an S&P credit analyst.
"These challenges and uncertainties include the difficulties BP is experiencing in containing the spill as well as the ultimate extent of the pollution, the consequences for BP of ongoing official investigations, and the implications of these investigations for the magnitude and timing of further cash payments by BP," he added.
S&P also noted that BP is under intense political pressure in the U.S.
Hayward faced members of the House Energy and Commerce subcommittee about five decisions made by BP before the disaster.
In opening remarks, lawmakers asked about the design of the damaged well, the cement bond log and other technical issues, as well as whether cost-cutting moves led to the accident. Committee Chairman Rep. Henry Waxman (D., Calif.) said investigators combed through 30,000 emails and other internal BP communications.
"We can find no evidence you paid any attention to the tremendous risks" at the Macondo well at the Deepwater Horizon rig, according to Waxman said.
Hayward repeatedly insisted that he "wasn't part of the decision-making" in the drilling of company's stricken well. Waxman told BP's chief that he wasn't taking responsibility for the accident. "You're kicking the can down the road," he said.
A stronger euro helped the market. The euro rose after a bond offering by Spain's government drew solid demand. Traders have been concerned that European countries like Spain with high debt loads would have trouble raising money because of worries about defaults. A stronger euro is seen as a sign of confidence in Europe's ability to cut its debt without jeopardizing an economic rebound.
"The economic news is pretty tepid, but the good news is Spain had a relatively good auction. So there's a tug-of-war between economic fundamentals and sovereign debt issues," said Karl Mills, chief investment officer and fund manager at Jurika, Mills & Keifer.
"I think people want to remain bullish when they look at corporate earnings and GDP, but that's tempered by debt issues in Europe and the recent retail and jobs reports, which have been pretty poor," said Robert Siewert, portfolio manager at Glenmede.
In currencies, the euro climbed to $1.2396, up more than 5 cents from the four-year low it reached last week.
The euro rose 0.6% versus the dollar, continuing to recover after touching a four-year low of $1.188 last week. The dollar fell 0.7% against the yen.
European Markets: Britain's FTSE 100 rose 0.3 percent, Germany's DAX index rose 0.5 percent, and France's CAC-40 gained 0.2 percent. Japan's Nikkei stock average fell 0.7 percent.
Asian Markets: were mixed. Japan's Nikkei lost 0.7% and Hong Kong's Hang Seng rose 0.4%. China's Shanghai Composite lost 0.4%.
Company Earnings Reports
There have been some positive notes today particularly from the earnings arena. Several companies have presented earnings reports that exceeded the analysts’ expectations. These are:-
• Pier 1 Imports (PIR)
• Smithfield Foods Inc. (SFD)
• Actuant Corp (ATU)
• Kroger Co. (KR)
• J. M. Smucker Co. (SJM)
• Winnebago Industries (WGO)
Winnebago (WGO) reported EPS of 21 cents, easily beating the Street’s view of just 3 cents.
The No. 1 U.S. RV maker’s revenue surged 165.1% to $134.8 million, but managed to miss estimates for $137.9 million. Winnebago said its results were driven by a 120.3% annual increase in motor home unit deliveries.
Company News and Movements:
• Steel Dynamics, Inc. (STLD) warned Wednesday night that its second-quarter results will fall short of Wall Street's expectations. The company is predicting a profit of 20 cents to 25 cents per share, compared to analysts' average estimate for 34 cents per share. STLD cited lower scrap prices, as well as declining flat-rolled volumes and margins, for the lowball guidance.
"We believe steel service center inventories of sheet products continue to remain low and anticipate buying activity to increase after the typical early July holiday and maintenance shutdowns by manufacturing companies," reported CEO Keith Busse.
• First Solar, Inc. (FSLR) earned a bullish brokerage note this morning, as Credit Suisse upwardly revised its rating from "neutral" to "outperform." The firm also raised its price target on FSLR from $110.20 to $150, implying expected upside of approximately 21% from Wednesday's close.
• BP plc (BP), the oil-spill culprit was hit with a downgrade to "neutral" at Bank of America-Merrill Lynch. The firm said that the oil major's cleanup efforts "will materially erode BP's competitive advantage versus peers for the foreseeable future." Meanwhile, Barclays cut BP from "equal weight" to "underweight," while Collins Stewart took the road less traveled by raising its rating on the stock from "hold" to "buy." The bullish broker cited a favorable shift in BP's risk/reward profile.
• QUALCOMM, Inc. (QCOM) is facing an antitrust investigation by the European Commission, after U.K.-based chip maker Icera alleged that the company "engaged in anticompetitive activity," according to a QCOM statement. QCOM said the probe is "at a very preliminary stage," and European regulators confirmed that it's primarily a "fact-finding exercise" at this point.
• Ford Motor Company (F) is in the hot seat this morning after hedge-fund manager Jim Chanos said he's betting bearishly on the automaker. In an interview with Bloomberg, Chanos explained that he's adding to short sales of Ford, because he believes the automaker will be at a competitive disadvantage to rivals General Motors and Chrysler during upcoming labor negotiations.
• Amazon.com, Inc. (AMZN) was initiated at "market weight" by Thomas Weisel, with the brokerage firm declaring that the stock looks fairly valued at current levels. Additionally, Weisel cited its expectations for weaker earnings and revenue growth going forward. The equity is fractionally lower this afternoon, with AMZN struggling to maintain a foothold above key support at its 10-month moving average.
• EMC Corporation (EMC), the shares snagged an upgrade from "hold" to "buy" at Argus, with the brokerage firm doling out a $25 price target on the tech stock. EMC has crept fractionally higher on the news to trade near $19.35, extending a longer-term uptrend along the support of its 10-week, 20-week, and 32-week moving averages. However, round-number resistance at $20 looms large -- this region has rebuffed EMC's advances since December 2007.
• Dreamworks Animation (DWA) saw its shares sink 4% after warning at a conference that its second-quarter results will decline due to a poor showing for “Shrek Forever After.” According to Dow Jones Newswires, Dreamworks said it sees second-quarter EPS being “meaningfully below” the year-earlier period, compared to the Street’s expectation for a rise of 17%.
• Aetna (AET) jumped 4% as the health-care provider said it expects second-quarter EPS to exceed 68 cents a share thanks to better-than-expected underwriting margins. Analysts had been projecting EPS of 68 cents.
• AOL (AOL) announced plans to sell its struggling social-networking site Bebo to California-based turnaround firm Criterion Capital Partners for an undisclosed price. AOL said it will treat the Bebo common stock as worthless and The Wall Street Journal said the price tag was just a fraction of the $850 million AOL paid for the business two years ago.
The following companies had some impressive options movements:-
• Transocean LTD (RIG)
• Diamond Offshore Drilling, Inc. (DO)
• Cirrus Logic Inc. (CRUS)
The late rebound following downbeat employment and manufacturing news suggests that investors may be getting more confident about the economic recovery, said Philip Orlando, the New York-based chief equity market strategist at Federated Investors.
"I think we're starting to see a change in psychology," Orlando said. "We're beginning to ignore bad news and focusing on the bigger, better long term picture, and that's encouraging."
Still, investors were also looking for safe holdings, a sign that the economy is uncertain enough for them to hedge their bets. Treasury prices rose, pushing down interest rates, and gold closed at a record high.
Traders have been trying to determine where stocks are headed since major stock indexes hit their 2010 peak in late April. The Dow has risen 6.3 percent from its lowest close of the year on June 7 but it's still down almost 7 percent from its high of 11,205 on April 26.
“I would not have been surprised if today was a 100-point down day,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research. “When you have a neutral reaction to bad news, that’s got to be a win for the bulls. The market is just taking a pause here and trying to decide what direction to go from and whether it’s got enough juice to go higher.” It is especially pleasing and quite impressive, taking into account past performances, with the markets' ability to shrug off negative headlines because the action comes after Wall Street closed flat on Wednesday and the Dow soared more than 200 points on Tuesday.
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