Oil and Inflation Pressure Stocks

Elena
05 Dec, 2005
New York City

Stocks have been weak in Monday morning session, pressured by profit-taking from November rally, oil prices over $60 a barrel and news on slowing growth in the service sector. The Institute for Supply Management said its non-manufacturing index slid to 58.5 in November from an October reading of 60, slightly below expectations of a reading of 59.

U.S. MARKET AVERAGES

One-month jump in oil prices over $60 a barrel sent stock averages in the negative territory, raising investors’ concerns about holiday spending. The downside trend was limited by an increase in merger-and-acquisition activity with Guidant and Verizon major players, but news of slowing growth in the service sector spoiled momentum. Recently the selling pressure has subsided but stocks remain pressured by higher oil prices and continued profit taking from the October-November rally.

Stocks weakened when the Institute for Supply Management said its non-manufacturing index slid to 58.5 in November from an October reading of 60. Economists thought service sector activity would fall back to 59.

Acquisitions dominated the day's headlines with a $25 billion bid for Guidant Corp. and Verizon Communications Inc.'s plan to shed its phone directory business, but the news failed to ease inflation and interest rate concerns.

The gaming sector declined steadily with Isle of Capri Casinos ((ISLE)) being the worst performer in the group, falling by 6.5% on an analyst downgrade. Semiconductor and transportation stocks remained noteworthy movers to the downside as well.

Energy stocks gained on rising oil prices. The oil sector climbed 1.3%, moving to the high end of a recent trading.

CheckFree ((CKFR)) extended its 52-week high. Dynamic Materials ((BOOM)) broke to a fresh peak on news that its AMK welding unit has signed a 5-year supply agreement with a major customer.Monsanto ((MON)) reached a new high on raised quarterly earnings guidance.

American Axle & Manufacturing ((AXL)) extended its 52-week low. Patterson Companies ((PDCO)) added to its low as well.

In late morning trading, the Dow Jones industrial average lost 46.75, or 0.43%. The Standard & Poor''s 500 index was down 5.17, or 0.41%, and the Nasdaq composite index dropped 19.75, or 0.87%.

Bond prices slipped, with the yield on the 10-year Treasury note rising to 4.55% from 4.52%late Friday

MOVERS AND SHAKERS

Noven Pharmaceuticals ((NOVN)) advanced after an FDA panel supported the approval of an ADHD skin patch. The stock rose 32%.

Boston Scientific ((BSX)) bid $25 billion in cash and stock for Guidant ((GDT)). Under the deal, Boston Scientific would buy each Guidant share for $36 in cash and $36 in stock, which is 14% over Johnson & Johnson’s offer of $22 billion. Boston Scientific’s shares fell 5.7%, while Guidant’s rose 10%.

RSA Security ((RSAS)) agreed to acquire privately-held online security firm Cyota, Inc. for about $145 million. RSA Security announced a restructuring of its engineering resources into 4 core locations around the world. The company also said it started a search for a new CFO after its CFO Jeff Glidden resigned. The stock slid 12%.

Copart ((CPRT)), vehicle auctioneer, posted Q1 earnings of $22.8 million, or 25 cents a share, compared with $22.7 million, or 24 cents a share last year, missing analyst estimates of 27 cents per share. Company’s quarterly revenue was $119 million, matching estimates. The stock dropped 11%.

ECONOMIC NEWS

Monday morning, the Institute for Supply Management released its report on business activity in the service sector in the month of November, showing that the pace of growth in the sector slowed from the previous month.

The report showed that the ISM''s business activity index for the non-manufacturing sector fell to 58.5 in November from 60.0 in October. Economists had been expecting the index to fall to 59.0. A reading above 50 still indicates growth in the sector.

The slowdown in the pace of growth in the sector came in spite of some improvement in new orders growth, with the new orders index rising to 59.5 in November from 58.2 in October.

The report also showed an increase in the pace of expansion of employment in the service sector, as the employment index rose to 57.0 in November from 52.9 in October.

Additionally, the ISM said prices continued to increase, although at a slightly slower pace, with the prices index slipping to 74.2 in November from 78.0 in October.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished mixed with the Nikkei ending up 0.8% at 15,551,31, boosted by strong domestic capital-spending data which raised hopes for higher GDP and robust corporate results. Across the region, Taipei’s Weighted Index surged 1.9%, while Hong Kong’s Hang Seng fell 0.3%. The yen dropped 0.6% against the dollar.

European markets finished in the red, dragged by mining and telecom shares with BHP Billiton and. Virgin Mobile being the leading decliners. The German DAX 30 dropped 0.8%, the French CAC 40 ended down 0.3%, and London’s FTSE 100 also fell 0.3%.

OIL, METALS, CURRENCIES

Crude oil prices jumped back to $60 a barrel on U.S. winter storm forecast. Light sweet crude for January delivery rose 91 cents to $60.23 a barrel on the Nymex. Heating oil gained 3 cents to $1.7020 a gallon, followed by gasoline, rising to $1.6240. Natural gas climbed 45 cents to $14.380 per 1,000 cubic feet. London Brent jumped $1 to $58.05.

European gold advanced, hovering near a 23-year high on inflation worries and strong interest in commodity investment. In London the precious metal closed at $505.05 per troy ounce, up from $503.50. In Zurich gold traded at $505.45, up from $502.05. In Hong Kong gold fell 30 cents to close at $506.25. Silver traded at $8.55, up from $8.53.

The U.S. dollar lost ground against most major counterparts. The euro was quoted at $1.1763, up from $1.1714. The dollar bought 120.77 yen, up from 120.42. The British pound traded at $1.7392, up from $1.7340.