Monday saw stocks kick off the session on a cautious note, after the Group of 20 (G20) – which includes the U.S. – over the weekend vowed to halve their respective national deficits by 2013. However, data showing a modestly larger-than-expected increase in consumer spending last month helped the major market indexes claw their way into the black by midday. Furthermore, the Street got an added intraday lift from Big Tobacco, after the U.S. Supreme Court issued a favorable ruling expected to save the cigarette industry billions of dollars. Nevertheless, in keeping with the recent trend of late-session unpredictability, stocks spent the final hour of trading wavering in and out of positive territory, eventually ending the session just south of breakeven.
Photo: Specialists watch their screens as they work on the floor of the New York Stock Exchange, Monday, June 28, 2010, in New York.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 10,138.52) finished with a loss of 5.29 points, or 0.05%.
The S&P 500 Index (SPX – 1,074.57) had a small loss also, on the day, of 2.19 points, or 0.20%.
The Nasdaq Composite (COMP – 2,220.65) also had a loss of 2.83 points, or 0.13%.
The Russell 2000 Index of smaller companies had a loss of 3.57 points, or 0.55%, to settle at 641.54.
Shares of Coca Cola Co (KO) and Procter & Gamble Co (PG) were two of the Dow Jones Industrial Average's best performers. Coca-Cola rose 1.6 percent to $51.08 and P&G gained 1.4 percent to $60.62.
The telecom sector was a bright spot, up 1% after President Barack Obama signed a memorandum to nearly double the amount of federal and commercial spectrum available for smart phones and wireless Internet devices. Sprint Nextel Corp. (S) jumped 6.2%, while MetroPCS Communications Inc. (PCS) added 0.8% and AT&T Inc. (T) rose 0.7%.
Consumer staples were among the best performers after a report on personal spending came in somewhat better than expected and the Supreme Court issued a decision that will benefit tobacco companies.
Bank stocks were lower as investors continued to digest the Wall Street reform bill Congress finalized last week. Lawmakers are expected to vote on the sweeping overhaul this week and send the bill to President Obama in July.
About 7.08 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, the lowest volume since April 5 and below last year's estimated daily average of 9.65 billion.
Declining stocks outnumbered advancing ones on the New York Stock exchange by 1626 to 1420 while on the Nasdaq there were 1572 declining stocks and 1090 advancers.
Notes of Interest….
• The Dow Jones Industrial Average’s (DJIA) briefly crossed the 10,200 threshold during the course of the session, before succumbing to resistance at its 20-day moving average.
• Crude futures dropped today, thanks to disintegrating concerns about a potential hurricane disrupting production. More specifically, weather experts are no longer predicting Tropical Storm Alex to threaten refining areas in the Gulf of Mexico. Meanwhile, the greenback's newfound strength also weighed on black gold, making it more expensive for foreign-currency holders to scoop up the dollar-denominated commodity. By the close, crude oil for August delivery shed 61 cents, or 0.8%, to finish at $78.25 per barrel.
• August-dated Gold futures settled with a loss of $17.60, or 1.4%, at $1,238.60 an ounce. The strengthening dollar weighed on gold futures today, with the malleable metal finishing the session in the red. Nevertheless, the Commodity Futures Trading Commission said more investors were bullish on gold last week compared to the week prior, implying that many traders are betting on more record-high prices for the precious metal.
• Bonds: The yield on the 10-year Treasury note, considered a benchmark because it's used to set rates on consumer loans including mortgages, fell to 3.03 percent Monday, its lowest point since late April 2009. At that time, the markets were still recovering from the devastation of the financial crisis and collapse in stocks.
Personal Income and Outlays
U.S. consumer spending rose slightly more than expected in May even as savings touched their highest level in eight months, a government report showed on Monday.
The Commerce Department said spending edged up 0.2 percent after being flat in April. Analysts polled by Reuters had expected consumer spending to rise 0.1 percent.
Consumer spending is being closely watched to gauge the strength of the economic recovery after the government lowered estimates for the first quarter, holding back gross domestic product growth during that period.
A government report on Friday showed consumer spending, which normally accounts for 70 percent U.S. economic activity, rose at a 3 percent pace in the January-March quarter -- slower than the 3.5 percent the government had estimated last month.
Spending adjusted for inflation increased 0.3 percent last month after being flat in April. Real spending on services increased 0.3 percent, while spending on goods rose 0.2 percent, reversing the prior month's 0.1 percent decline, the Commerce Department said.
Personal income increased 0.4 percent after gaining 0.5 percent in April. Markets had expected income to rise 0.5 percent last month.
Real disposable income climbed 0.5 percent following a 0.6 percent increase the prior month.
The saving rate rose to 4.0 percent from 3.8 percent in April. Savings increased to an annual rate of $454.3 billion, the highest level since September. The report also showed the personal consumption expenditures price index, excluding food and energy, rising 1.3 percent in the 12 months to May.
The index, a key inflation measure monitored by the Federal Reserve, increased 1.2 percent in April.
Consumer spending remains a sticking point for the economy, which won't have a strong recovery until consumers feel more confident about buying again. With the recovery looking more uncertain, many investors are choosing to go with bonds because they are considered stable. And investors are willing to put up with bonds' lower returns simply because they are safer than stocks.
Retailers were hurt by the consumer spending report. Macy's Inc. lost 20 cents, or 1.1 percent, to $18.82, and Amazon.com Inc. fell $3.20, or 2.6 percent, to $117.80. Home Depot Inc. fell 61 cents, or 2 percent, to $29.59.
"What has been driving the market higher has been expectations that the good manufacturing recovery we've seen is going to take root and drive the whole economy forward," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
"But the big concern there is, the consumer has to be the one to step up to the plate and make that happen."
Meanwhile, tobacco stocks rose after the Supreme Court said it wouldn't take up a case between the government and tobacco makers. The decision prevents the government from getting billions of dollars from makers of cigarettes for anti-smoking campaigns. Reynolds American Inc. rose $2.08, or 4.1 percent, to $53.45, and Altria Group Inc., parent of Philip Morris USA, rose 64 cents, or 3.3 percent, to $20.34.
Gun Control Laws
A decision from the court signaled that gun control laws in Chicago and a nearby suburb likely would be struck down by a lower court. That gave a boost to shares of gun makers. Smith & Wesson rose 23 cents, or 5.6 percent, to $4.33, while Sturm, Ruger & Co. climbed 33 cents, or 2.2 percent, to $15.39.
Leaders of the world's most important economies agreed to ambitious targets for getting deficits under control, pledging to cut them in half by 2013, according to a statement made following the G-20 summit this weekend in Toronto.
But the leaders acknowledged that progress on deficit reduction will take more time for some countries, and included a special provision for Japan, which is heavily reliant on external borrowing.
The Energy Sector
Developments in the Gulf of Mexico Oil Spill
* Costs to BP of its oil spill response hit $2.65 billion, the company said on Monday.
* BP is facing rising collateral requirements with its trading partners as it comes under financial pressure because of the spill.
BP (BP) is now spending $100 million a day to handle the resources necessary to clean up and contain the Gulf of Mexico oil spill.
* BP Plc (BP) and Russia's government traded words over the future of the energy giant's chief executive, Tony Hayward, as a growing storm delayed efforts to capture more oil gushing into the Gulf of Mexico.
* The Federal Reserve Bank of New York, probing the exposure of big financial firms to the British energy giant, gave banks a "passing grade," a source told Reuters.
* Tropical storm Alex was expected to become a hurricane on Tuesday as it headed northwest toward the Mexico-Texas border but was likely to stay far from the oil spill in the Gulf of Mexico.
* High waves from Alex will delay BP's plan to add more oil-siphoning capacity at the gushing leak until next week, a company executive said on Monday.
OIL SPILL CAPTURE
* BP said its siphoning systems collected or burned off 22,750 barrels of oil on Saturday. The highest amount burned or collected since the April 20 explosion and leak was last Tuesday, when 27,100 barrels were kept out of the Gulf.
* To date, the total volume of oil recovered or flared is about 435,600 barrels, the company said on Monday.
* It might have been better for the environment to have done nothing about the enormous spill except to keep the oil out at sea, British scientists said on Monday.
* Key U.S. lawmakers investigating the BP oil spill have asked major energy companies for information on their response plans after it was discovered some companies' plans had errors including protecting species that don't live in the Gulf of Mexico.
SPREADING IMPACT, REACTION
* Oil from the spill washed ashore at one of the largest tourist beaches in Mississippi on Monday, forcing tourists to pack their bags and evacuate the shore.
Offshore drilling services company Noble Corp. is bulking up its operations while signaling that business as usual won't return to the Gulf of Mexico for some time.
The Swiss company said Monday it will buy privately held Frontier Drilling for $2.16 billion in cash and also struck $4 billion worth of new contracts with Royal Dutch Shell.
Noble is also giving Shell the right to suspend any contracts the two have for rigs operating in the Gulf because of the proposed U.S. moratorium on drilling in deep water.
The agreements with Shell cover two ultra deepwater projects and are subject to closing the deal with Frontier.
Shell will pay reduced fees for leasing Noble's rigs in the Gulf. The Obama administration in May ordered a six-month halt on exploratory drilling in waters more than 500 feet deep. The ban is being disputed in the courts. Noble was stung earlier this month when Anadarko Petroleum said it planned to excuse itself from drilling contracts because of the moratorium.
Noble spokesman John Breed said the Shell deal is aimed at keeping oil companies from trying to abandon agreements altogether in the Gulf.
"We're working with our customers to find a resolution that would allow them to keep rigs under contract," Breed said.
Argus Research analyst Phil Weiss said the decision suggests that oil companies are digging in for an extended delay in drilling projects in the Gulf. Even if the moratorium ends, many companies are reluctant to expand in the area until they see how the government will regulate business there, he said.
"If this was going to be a short moratorium, they wouldn't have had to come up with these kinds of solutions," Weiss said. The Frontier deal is expected to close by the end of July. It would add six floating drilling units to Noble's fleet.
Noble said it should take on loans from existing lines of credit to complete the deal for Frontier, also known as FDR Holdings Limited.
Noble shares added $1.71, or 5.8 percent, to $30.99 in morning trading.
Investors grew concerned that a pledge by G-20 nations to halve their deficits by 2013 and stabilize their debt by 2016 sends an important symbolic message that the days of endless stimulus are over. The move comes as investors have gotten worried that the pace of the economic recovery may be slowing, exacerbated by debt issues in Europe and China's efforts to put the brakes on its growth.
"We still don't have any housing recovery to speak of and we have very little employment recovery to speak of and that's not typical of a recovering economy 15 months in," said Terry Morris, co-portfolio manager at National Penn Investors Trust.
"Investors are taking a wait-and-see attitude. They want to see it before they'll believe it anymore."
In currencies, the euro slumped 0.78% to $1.2274. Wall Street was also weighed down by this weaker euro, which has a tendency to influence U.S. market sentiment and reinforce worries about the European sovereign debt crisis. The currency fluctuation also dragged the basic materials sector 1% lower, hurting stocks like U.S. Steel (X).
The dollar was higher against the euro, but was flat versus the British pound and Japanese yen.
European Markets rallied. Britain's FTSE 100 rose 0.5 percent, Germany's DAX index gained 1.4 percent, and France's CAC-40 rose 1.6 percent.
Asian Markets ended mixed on Monday. Japan's Nikkei index lost 0.4%, while Hong Kong's Hang Seng index rose 0.2%.
Company Earnings Reports
There have been some positive notes today, particularly from the earnings arena. Several companies have presented earnings reports that exceeded analysts’ expectations. These are:-
• Standard Microsystems Corp (SMSC)
• Micron Technology (MU)
** Zep Inc (ZEP) presented an earnings report that met analysts’ expectations.
** Barnes & Noble Inc. (BKS) presented an earnings reports that did not meet analysts’ expectations.
Company News and Movements:
• Apple (AAPL) said it sold 1.7 million iPhone 4's in its first three days alone, making it Apple's "most successful" product launch ever.
• Aflac (AFL) said it sold $270 million of Greek debt as the insurer became the latest investor to shy away from European sovereign debt. Aflac said it will incur an after-tax investment loss of $67 million in the second quarter. It also exchanged a risky hybrid European security for a higher-rated debt instrument with a fixed maturity date and reduced its holdings in another European hybrid, resulting in a gain of $80 million.
• Kraft (KFT) inked a deal to unload Cadbury’s E. Wedel-branded chocolate and sugar confectionery operations in Poland to Japan’s Lotte Group for an undisclosed price. The sale had been mandated by the European Commission as part of its conditional approval of Kraft's Cadbury takeover.
• After the closing bell, 3M Co (MMM) gained 1 percent to $79.75 as the diversified manufacturer announced a second-quarter sales forecast in the range of $6.6 billion to $6.75 billion.
• Bristol-Myers Squibb Co. and AstraZeneca PLC said a late-stage clinical trial showed its diabetes drug candidate dapagliflozin was more effective than placebo at reducing blood sugar levels.
The companies ran a trial involving 800 patients with type 2 diabetes, comparing three doses of dapagliflozin and insulin to a combination of insulin and a placebo. Some of the patients in the 24-week study also took oral anti-diabetes drugs.
The drugmakers said patients who took dapagliflozin saw a bigger reduction in blood sugar levels than those who took the placebo. Patients on dapagliflozin also had a larger reduction in body weight over the course of the study, a greater reduction in the size of the insulin dose they needed, and a bigger change in fasting blood sugar levels.
• General Mills (GIS ) said late Monday its board authorized the repurchase of up to 100 million common shares. The new program replaces the previous authorization approved in December 2006, and has no expiration date. The board also approved a quarterly dividend of 28 cents a share, bringing the annualized dividend rate to $1.12, up 17% from fiscal 2010. The quarterly dividend will be paid Aug. 2.
The following companies had some impressive options movements:-
• Home Depot (HD)
• Trina Solar (TSL)
• Ciena (CIEN)
Investors are growing anxious ahead of the release of the government's June employment report on Friday. The May report was troubling because it showed that private employers are hiring few workers. That hurts the economy since consumers aren't likely to spend if they aren't working or are worried about losing their jobs.
Burt White, chief investment officer at LPL Financial in Boston, said the coming weeks will be important for investors because of the jobs report on Friday and the announcement of earnings for the April-June quarter. White said stronger profits could convince businesses to start investing more. That, economists hope, will lead to more hiring.
"Businesses have to commit to this recovery," White said. Traders said the tone of Monday's session was cautious as the market remains nervous about the debt crisis in Europe and the possibility of a so-called double dip recession in the United States.
"The market is hungry for direction in terms of the labor market and industrial sector," said Nick Kalivas, vice president of financial research at MF Global. "We're in wait-and-see mode on those issues today."
Tuesday brings reports on home prices in 20 major U.S. cities and a key measure of consumer confidence. Manufacturing reports are due later in the week and the government's closely-watched monthly jobs report comes out Friday.
While the markets had been solidly higher early in the day, the flat finish shows the bulls were unable to bounce back from a week that saw the Dow lose more than 300 points last week amid persistent economic worries. However, Wall Street may receive a boost this week from the calendar as portfolio managers positions themselves for the end of the second quarter.
“We’re heading into the quarter end. That should give the market a bid condition," said Peter Kenny, managing director at Knight Capital Group. "Institutional investors aren’t willing to liquidate positions that may have a dire impact on performance when they could just as well hold onto them.”
So make the most of what the market has to offer, start trading options.
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