Energy Stocks Lead the Averages

Elena
31 Aug, 2005
New York City

U.S. market averages rebounded on the back of oil majors and slipping oil prices with Exxon Mobil up 54 cents and Conoco Phillips up 2.8%. Insurers and retailers declined as AIG lost 1.3%, Allstate Corp. fell 2% and Wal-Mart lost 38 cents.

U.S. MARKET AVERAGES

U.S. stock averages have been trading up and down since the beginning of Wednesday session affected mainly by volatile crude-oil prices. Recently stocks have returned into the positive territory, boosted by oil majors which made gains despite retreating oil prices. Oil futures declined 56 cents to $69.25 a barrel after the government announced a decision to release oil from the Strategic Petroleum Reserves to comfort concerns of oil supply, caused by the devastating impact of Hurricane Katrina on the oil-production facilities. Still, concerns about the condition of the refineries could not be removed.
Investors reckon that fears of economic slowdown due to the damages caused could make the Fed Reserve slow its interest-rate hiking.

A piece of economic news which provided some relief to the investors in early trading was the solid GDP report for the second quarter, although it was unexpectedly revised downward to 3.3% growth compared with earlier reported figures of 3.4% and missing expectations of 3.5%.

MOVERS AND SHAKERS

Oil company shares gained ground after the Bush administration decided to release oil from the Strategic Petroleum Reserve to help offset interruptions in crude supplies caused by Katrina. Oil hovered round $70 a barrel. Exxon Mobil Corp. shares rose 54 cents to $59.15, while shares of Conoco Phillips rose 2.8% to $66.20 on the NYSE.

Insurance companies were again among the decliners as estimates indicate insured losses of over $25 billion. AIG down 1.3 % to $58.35 on the NYSE, and Allstate Corp, down almost 2% to $55.53.

Consumer-focused stocks dipped, with Wal-Mart down 38 cents to $44.81 and Target Corp. off 1.7% to $53.22 on the NYSE. Sears Holdings Corrp. fell 1.4% to $133.37 on Nasdaq.

ECONOMIC NEWS

The Commerce Department released the second-quarter GDP report which showed unexpected downward revision of 3.3% growth from previously reported 3.4%, disappointing economists’ expectations of 3.5% increase.
The 2Q GDP growth compares to 3.8% in the first quarter and according to the Commerce Dept. the decline reflects a downturn in private inventory investment as well as increase in consumer spending, exports, equipment and software spending. The downward revision is also attributable to the upward revision of imports and downward revision to consumer spending.
In addition, the report indicated 1.6% rise in the 2Q of the index for prices excluding food and energy compared with 2.4% growth in the first quarter.

IThe National Association of Purchasing Management-Chicago business barometer fell to 49.2 in August from 63.5 in July. Any number below 50 indicates economic contraction. Economists polled by Reuters had expected a reading above 50.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed the trading session mixed, reflecting surging crude-oil prices, boosted by the devastating impact of Hurricane Katrina on U.S. oil facilities, as well as accelerating U.S. inflation data. The Japanese stocks lost 0.3% on sharper-than-expected decrease in July industrial output of 1.1%. Among the decliners were the parts maker TDK and chip maker Advantest. Hong Kong’s Hang Seng fell 0.6%, while South Korea’s Kospi gained 0.4% reversing early losses in oil-sensitive stocks. The dollar was near a three-week high against the yen at 111.35.

European markets finished the trading session with solid gains as oil stocks gained ground after the U.S. government decided to release oil from the Strategic Petroleum Reserves in order to offset losses from the devastating impact of Hurricane Katrina and oil fell below $70 a barrel. Some upbeat earnings reports also provided some boost. The German DAX 30 added 0.79%, the French CAC 40 rose 0.98%, and London’s FTSE gained 0.78%.

ENERGY, METALS AND CURRENCIES MARKETS

Crude-oil prices remained volatile even after the U.S. Energy Secretary announced that the Strategic Petroleum Reserves will lend oil to partially compensate losses, caused by Hurricane Katrina. Gasoline prices surged. Light sweet crude dropped 56 cents to $69.25 a barrel after slipping to $68.91 right after the loan from SPR was announced. Gasoline for October delivery rose 20 cents to $2.67 a gallon.

Gold advanced in European trading as record-high crude-oil prices raised the appeal for the precious metal. In London gold closed at $433.00 per ounce, up from $429.80. In Hong Kong gold fell $3.20 to close at $433.15. Silver closed at $6.77 per ounce, up from $6.68.

The U.S. dollar fell against the other major currencies in European trading. The euro was quoted at $1.2291, up from $1.2205. The dollar bought 111.11 yen, down vs. 111.35. The British pound traded at $1.7974, up from $1.7842.

EARNINGS NEWS

Sigma Designs, digital media processors maker, reported 2Q net profit of 0 cents per share, down vs. a net profit of 5 cents per share for the same period last year on 2% revenue decline for the comparable period . The company posted 25% net revenue growth compared with the previous quarter. The rise in revenue is mainly due to better sales performance with regard to the IP video applications.

VA Software, open-source software and web publisher, posted Q4 net loss of 2 cents per share, down vs. a loss of a penny a share for the same period last year despite 34% revenue growth. The stock gained 12 percent in after-hours trading after the announcement.

Sanofi-Aventis, French drugmaker, lifted its 2005 earnings forecast after announcing that 2Q adjusted net income advanced 26% to 1.55 billion euros. Sales were up 6.5% to 6.69 billion euros. The company also said that higher promotional costs boosted selling and general expenses by 1.2% to 2.03 billion euros. Research and development expenses were down by 1% to 979 million euros. It now envisages at least 20% growth in adjusted earnings for the year.

SWS Group, investment firm, announced that it will delay releasing 4Q financial results to review accounting for certain adjustable ratio securities. The company plans to wait until it files its annual report with the Securities and Exchange Commission to release the financial reports, as its fiscal year ended on June 24. The securities in question are 5-year notes issued in fiscal 1999 as a hedge on appreciated stock of Knight Trading Group. The securities matured in June 2004. SWS shares declined 20 cents to $16.35 in afternoon trading on the NYSE.

United Natural Foods, distributor and retailer of natural and organic foods, posted 4Q net income of 28 cents per share, up vs.23 cents per share for the same period last year on a 21.6% increase in net sales, totaling $543.0 million. Wholesale revenue growth rose 19.3% for the current quarter compared to the previous year. The acquisition of Select Nutrition Distributors and higher fuel costs both had a negative impact on earnings per share. The Company has suffered higher than expected external costs associated with its compliance efforts under Section 404 of Sarbanes-Oxley.

CORPORATE NEWS

The Mortgage Bankers Association unveiled a 4.5% decline of its market composite index of mortgage application volume on a seasonally adjusted basis for the week ended August 26. The MBA reported that its purchase index fell 3.6% for the week, while its refinancing index decreased 5.4%.

Goldman Sachs, Allianz, and American Express have signed a memorandum of understanding to invest $3 billion for a 10% stake in Industrial & Commercial Bank of China. The investment would be made after the bank is set up as a stockholding company in mid-October.

After three-week-long negotiations Boeing submitted its final offer for another three-year contract with the mechanics who assemble its jetliners, but will most probably fail to meet the workers’ requirements as according to the unions the offer which includes an increase in pension benefits has little improvement compared with the previous ones.

MCI is near a $315 million settlement with 15 states and the District of Columbia, which have claimed the company owes them a total of about $750 million in back taxes from when it operated as WorldCom. Resolution of the claims will remove a lingering risk for MCI, which has agreed to sell itself to Verizon Communications for $8.4 billion. Under the companies' agreement, Verizon could cut its payment for MCI by as much as 21 cents a share, or about $68 million, if MCI's liabilities top $1.78 billion.