Sharp Pause in Market Rally

123jump.com Staff
12 May, 2006
New York City

Two days of decline and market rally came to a sharp halt. Market is still trying to decipher the direction interest rates. Inflation jitters were back on the minds of traders. Import prices rose 2.1% in April and 5.9% from a year ago. Petroleum prices rose 12% in the month. Expedia lost 26% of its value on earnigs decline of 57%. Emerging markets in Asia and Latin America fell. Brazil and Argentina dropped 1.5% and 2.7%.

[R]4:15PM Market rally of the year comes to a halt.[/R]

-Dow closed down 119.74, Nasdaq down 28.91 and S&P down 14.68 points.
-Yield on 10-year bond closed 5.18% at and 30-year bond closed at 5.3%.
-Crude oil price closed down $1.28 to $72.04 per barrel.
-Gold closed down $9.70 to $711.80 and silver closed down 70 cents to $14.24.

-In Asia Taiwan, India, Hong Kong, Indonesia and Philippines closed down 1%.
-Argentina closed down 2.7% and Mexico and Brazil closed lower by more than 1%.

Market averages opened lower and closed even lower. Broader averages such as S&P 500 closed 15 points lower or declined by 1.2%. For the second day stocks declined. Inflation is back on the mind of traders confirmed by a rise in import prices report from the Labor Department. The department reported rise of 2.1% in import prices in April and rose 5.9% from a year ago. Prices of petroleum products rose 11.5% in the month.

Worries of inflation, lack of direction on interest rates and trade and budget deficits have managed to affect trader’s sentiment. Market fell for the second day in a row as Dow fell more than 262 points, Nasdaq fell more than 65 points and S&P fell more than 31 points in two days.

Transocean ((RIG)) reported that it has purchased $600 million of the $3.6 billion of the stock buyback for the year. The board has doubled its buyback program for the year. Threshold Pharmaceuticals ((THLD)) fell 75% after FDA placed its enlarged prostate program on hold. Nvdia ((NVDA)) maker of graphic chip for personal computers and game devices dropped 7.5% after reporting first quarter earnings of 23 cents vs. 18 cents a year ago on revenue growth of 17% to $682 million. Pacific Sunwear of California ((PSUN)) reported earnings of 16 cents vs. 23 cents a year ago on revenue rise of 7.1% to $300 million. Same-store sales fell 1.8% for the quarter. Stock fell 4.5%. Big 5 Sporting Goods ((BGFV)) rose 8% after reporting lower earnings. The company reported first quarter earnings of 26 cents vs. 28 cents a share on 8% rise in revenue to $207 million.

Emerging markets around the world sold-off for the second day in a row. Argentina, Brazil and Mexico fell for the second day after reaching to an all-time high in the last week of trading. Brazil fell on worries that global commodities prices will come under pressure. Large cap companies on Bovespa came under heavy selling pressure. American Receipts of Petrobras ((PBR)), Banco Itau ((ITU)) and Banco Bradesco ((BBD)) fell more than 3% at close in New York trading. Rising interest rates in the U.S. has dampened the enthusiasm for now in the emerging markets. Markets in Asia traded lower across the board caused by a decline of 1.55% in Japan. Emerging markets in Asia closed lower led by a decline of 1.4% in Hong Kong and 1.8% in Indonesia.

[R]2:30PM Expedia earnings fall 57% dragging stock 25% lower.[/R]
Expedia, Inc. ((EXPE)), an online travel services company, reported first quarter earnings fell to 6 cents a share from 14 cents a share a year ago. The company reported a net income of 15 cents a share vs. 27 cents last year. Expedia’s revenue rose to $493.9 million from $485 a year-earlier, an increase of 2%. It’s operating income declined by 60% down to $26 million. Excluding the impact of foreign exchange, international revenue grew 35%, while domestic revenue declined 4%. In the late afternoon Expedia declined 25% or $4.97 to $14.69. The company stock has declined 50% from the peak of $27.10 on January 27, 2006.

Kohl’s Corp ((KSS)), an operator of specialty department stores, reported a net income of 48 cents a share vs. 36 cents a share last year beating the estimates of 46 cents per share. Sales at stores that have been open longer than one year climbed 6.9% in the quarter and total sales at these stores surged 13.4% last month. Total sales were reported at $3.18 billion from $2.74 billion a year earlier.

Analog Devices, Inc. ((ADI)) a manufacturer of high-performance analog, mixed-signal and digital signal processing (DSP) integrated circuits, reported second quarter earnings rose to 39 cents per share from 31 cents a year-earlier. Analysts had been expecting 36 cents per share. Reducing net income by 2 cents per share in the second quarter was a $13 million gain on the sale of the product line, $6 million of restructuring costs, and $17 million of employee stock-option expenses.

[R]12:30PM European markets dropped to two-year lows.[/R]
European markets dropped to their lowest levels in two years. Stocks moved steeply down on concerns over inflation and interest rates as the latest U.S. data on import prices and the nation's trade deficit did little to ease them down. Negative sentiment was also generated by shares of steelmakers as three top steel companies reported lower quarterly profit. Mittal Steel dropped 2.4% on 30% net income drop for Q1and Arcelor fell 2.3%, on 20% profit decline. The German DAX 30 tumbled 2.3%, the French CAC 40 slid 2.1%.

Crude oil prices slipped over $1 after IEA cut its global oil demand forecast. Light sweet crude June delivery fell $1.02 to $72.30 a barrel. London Brent lost 87 cents to $72.56. European gold traded mixed. In London the precious metal rose to $719.80 per troy ounce, up from $719.20. In Zurich gold fell to $715.80, down from $719.20. Silver closed at $14.50, up from $14.30. The U.S. dollar traded mixed in European trading. The euro traded at $1.2874, up from $1.2844. The dollar bought 110.50 yen, up from 110.40. The British pound was quoted at $1.8887, up from $1.8835.


[R]11:30AM Stocks traded in the negative.[/R]
Stocks moved further lower in late morning trading with the three major averages extending recent losses. The Nasdaq stood out as the most notable decliner after falling to a two-month intraday low. Stock markets traded weak, despite a decrease in commodities price compared to yesterday’s higher levels when investors grew worried that surging commodities will accelerate the pace of inflation and dragged sentiment down. On Friday, commodity stocks were some of the markets' worst performances. Gold stocks posted a sharp decline on profit taking, with the Amex Gold Bugs Index down 3.4%. The price of the precious metal dropped $3.00 to $718.50 an ounce. Similarly, a retreat in the price of oil below $73 contributed to weakness among energy stocks, with the Philadelphia Oil Service Index down 2.4%. The price decline followed a lowered forecast on oil demand released by the International Energy Agency. Significant weakness was visible among tech stocks, with some disk drive and networking stocks are posting notable losses.

Various other stocks came under pressure. The housing, transportation, and biotechnology sectors showed significant declines. The retail sector also moved to the downside, reflecting a significant decline in consumer sentiment in May. Shares of online financial-services firms traded lower, despite better-than-expected April volumes for several companies. Charles Schwab Corp. ((SCHW)) fell 1.4% after saying that April daily average revenue trades, or DARTs, rose 44% to 293,000. April client assets rose 22% to $1.3 trillion. TD Ameritrade Holding Corp.((AMTD)) reported that it handled an average of 278,000 trades a day in April. The stock was down 0.5%. Shares of OptionsExpress Holdings Inc. ((OXPS)) fell 0.7%. On Wednesday the company reported that daily average revenue trades for April rose 89% from the year-ago period. The Dow Jones lost 48.28, or 0.42%. The S&P 500 index was down 7.92, or 0.61%, and the Nasdaq dropped 22.67, or 1%. Bonds fell, with the yield on the 10-year Treasury note rising to 5.17% from 5.16% late Thursday.


[R]10:30 AM Cement shares and heavyweight Reliance sink Indian Sensex.[/R]
Sensex in India was down 150 points, or 12% to close at 12,285. The benchmark swung 700 points in intra-day amidst high volatility. BSE recorded a turnover of $1 billion or Rs 4,429 crore, sharply down from Thursday’s $1.2 billion or Rs 5,044 crore. Political issues have also impacted the market, with concerns raised about left parties’ victory in assembly elections in Kerala and West Bengal. Cement shares led the decliners, becoming prey to a sell-off after the government decision to consider measures, limiting the increase of cement prices. ACC dived 7.5% to Rs 893, Gujarat Ambuja Cements lost 6.6% to Rs 107, UltraTech Cement was down 3.7% to Rs 729 and Grasim shed 2.3% to Rs 2,250.

Reliance Industries was the other big player on the loser board, its stock down 3.5% to Rs 1,069.55, being intensively traded as 3 million (30.2 lakh) shares were exchanged. Its subsidiary, Reliance Petroleum, lost 1.5% to Rs 84.10. Bank shares also lost, with ICICI Bank shedding 3.4% to Rs 637, State Bank of India losing 1.8% to Rs 958, and Bank of India diving 3.8% to Rs 146. Oriental Bank of Commerce joined in coming off 2.4% to Rs 246. ONGC shed 1.4% to Rs 1,436, as uncertainty about possible domestic oil peaks impacts refineries. Other losers included Indian Oil Corporation, falling off 2.3% to Rs 563.75 and HPCL down almost 1% to Rs 348.

Engineering companies and automotive stocks led the gainers, with L&T adding 2% to Rs 2,833 and Tata Motors edging 1% up to Rs 965 on strong quarterly expectations. Dishman Pharma soared 6% to Rs 243, following reports that the company is finalizing an acquisition deal in Switzerland. Mahindra Gesco Developer, also soared 15% to Rs 1,032.


[R]10:15AM March U.S. trade deficit declines to $62 billion.[/R]
March trade deficit came in at $62 billion lower than forecasted deficit of $67 billion. U.S. trade deficit declined on the account of lower imported oil price, higher exports of electric generators and farm products. Imported oil was priced at average price of $52.26 per barrel. Since then oil price has risen as high as $75 in the recent days.

Deficit with China, Canada, European Union nations, Japan and Mexico rose. U.S. registered trade deficit with most major trading partners. Deficit with China rose 12.5% to $15.5 billion and that with Canada declined on the account of lower U.S. dollar to $10.8 billion but with Mexico rose to $5.4 billion. Deficit with Japan rose 6.5% to $7.6 billion.

Import for the month fell to $176.6 billion, a decline of 0.8% on the account of 8.5% decline in imported petroleum volume. Annual trade deficit for the first three months of the year is running at a rate of $785 up 8.4% from a year ago.

[R]9:40AM Market trades lower at the opening.[/R]
Market opened with the averages in red. Dow opened 30 points lower, Nasdaq opened 13 points lower and S&P declined 4 points in the first five minutes of trading. Metals and mining stocks came under pressure. The Netherlands based Mittal Steel ((MT)) and Luxembourg based Arcelor reported weaker than expected earnings.

Southern Copper Peru ((PCU)), RTI International Metals ((RTI)), New Market Corporation ((NEU)) led decliners on the New York Exchange. On Nasdaq trading H E Equipment ((HEES)) and 51 Jobs ((JOBS)) led the gainers. Expedia ((EXPE)) fell 25% on lower earnings. After-the-close the company reported earnings of 6 cents vs. 14 cents a year ago.


[R]8:30AM Weak dollar and oil point weak opening.[/R]
Futures for this morning point more losses on the last trading day of this week. Market analysts have been looking for a correction in the broader averages in the U.S. market for the last two months that never arrived. With the elevated crude oil prices, weakening dollar and general interest rate concerns together took market averages down between 1% and 2% yesterday. This morning opening indicates that weakness will persist in the day’s trading. Dow futures point 30 points lower at the opening and 5 points lower in Nasdaq opening.


[R]7:00AM European shares down on falling dollar.[/R]
European shares logged initial losses to more than 1.5 % in morning trade, tailing off bank shares and worried by concerns over inflation and interest rates. Mining companies dropped on worries that the sector might be overheating. The high commodity prices added up to the fears over their possible impact on consumers and interest rates. By 09:50 GMT the U.K.’s FTSE 100 index lost 92.6 points to 5,949.4, having hit a trading session low of 5,936.8, its lowest since late March. Germany's DAX 30 lost 1.6 % and France's CAC 40 shed 1.7 %.

Crude oil pulled back on Friday after putting up more than $3 in the past three days on worries about gasoline supply in the U.S. U.S. light crude dropped 47 cents to $72.85 a barrel as the crisis with the hostages in Nigeria was settled successfully. London Brent crude shed 41 cents to $73.02 a barrel, after jumping more than $1 on Thursday. The dollar fell to a one-year low of $1.2907 per euro. It also reached a one-year low of 1.2040 Swiss francs and $1.8916 per British pound. The dollar bought 110.15 Japanese yen from 110.63 in New York.