Stocks Fall Despite Oil-Price Drop

(page 2 of 2)

If they have a divided committee and as long as there are enough dissenters who are more hawkish, they can maintain credibility on inflation and it buys them more time to not do anything," he says.

HSBC Holdings (HBC) shares fell after the bank reported a pretax profit of $10.25 billion, down 28% from a year ago. HSBC's Tier 1 capital ratio was 8.8%. The latest results include loan impairment charges and credit risk provisions of $10.06 billion.

Citigroup (C) confirmed plans to close a $400 million convertible arbitrage fund that is the final piece of its TriBeCa hedge fund.

In other economic news Monday, U.S. factory orders surged 1.7% in June, well above the median estimate of a 0.9% gain, after rising a revised 0.9% in May. Excluding transports, orders were up 2.3% in June.

Oil prices dropped sharply as weather-related concerns faded after Tropical Storm Edouard wasn't upgraded to a hurricane. A report that Iran's chief nuclear negotiator Saeed Jalili and the European Union's foreign policy chief, Javier Solana, had called on Monday for a "positive air" over Iran's nuclear issue and would continue to keep communication open was also weighing on oil prices.

September WTI crude oil futures fell more than $4 a barrel before bouncing from the lows to settle $3.69 lower at $121.41 a barrel on Monday.

David Joy, chief market strategist at RiverSource Investments in Boston, sees the drop in oil prices as only a correction, "not a fundamental breakdown in the overall uptrend" since demand will be sustained by the industrialization efforts in emerging economies, especially in Asia.

But he thinks the price could drop as far as $90 to $100 a barrel, which is where supply-and-demand analyses suggest it should be trading now, he says.

The Reuters/CRB index, the most widely followed commodity index, fell below 402.0 on Monday, within striking distance of the 400.0 psychological area, the lowest point since the index broke that level back on May 1. That's a big drop from session highs above 416 and keeps the downtrend intact from record highs near 474 set back on July 3, Action Economics said. Energy prices came down as on reduced fears about the likely path Tropical Storm Edouard will cut on the Gulf Coast and on Barack Obama's comments about releasing oil from the U.S. Strategic Petroleum Reserve, but natural gas prices were down even more sharply.

Agricultural prices are all substantially lower, too, as are copper prices after an inventory build. Precious metals have taken a cue from energy as well, with gold probing below $900 per ounce for the second time in a week. A decisive technical break and close below $117 per barrel on NYMEX crude would prompt a re-test of the low of 377.45 on the CRB reached on Mar. 20, Action Economics said.

The drop across the commodities complex, while showing that the runup in prices was probably overdone in part by the speculation element, factor, suggests widening anticipation of weaker economic conditions worldwide ahead, says Joy.

Among other stocks in the news on Monday, shares of Charlotte Russe Holding (CHIC) tumbled after the mail-based specialty fashion retailer said that Patti Johnson had resigned as chief financial officer. Len Mogil, currently interim CEO, will assume the additional position of interim CFO. Roth Capital downgraded the stock to sell from hold.

InterContinentalExchange (ICE) shares fell after the company posted a second-quarter profit of $1.19 a share, vs. 75 cents a share a year ago, on a 44% gain in revenue. Quarterly trading volume exceeded 126 million futures and over-the-counter contracts were up 44%. The exchange set a $500 million stock buyback. S&P maintained its buy rating.

Nicor Inc. (GAS) shares rose after the company posted 64 cents a share in second-quarter earnings vs. a 40-cent preliminary forecast on a 26% rise in revenue. The company affirmed its 2008 earnings outlook of $2.20 to $2.40 a share. Standard & Poor's maintained its buy rating on the stock.

Freightcar America (RAIL) shares plunged after the company reported a second-quarter loss of eight cents a share, vs. earnings of 93 cents a year ago, on a 28% drop in sales. The manufacturer, repairer and leaser of freight cars noted that a combination of a sharp increase in input costs, specifically steel and aluminum, and pricing pressures had reduced margins. Due to increases in raw material costs on certain fixed price railcar contracts in backlog, the company's current estimated cost to complete some contracts is expected to exceed contractual sales price.

Major European indexes were trading lower Monday. In London, the FTSE 100 index slid 0.64% to 5,320.20. In Paris, the CAC 40 fell 0.78% to 4,280.63, while Germany's DAX index dropped 0.73% to 6,349.81.

In Asia, Japan's Nikkei 225 shed 1.23% to close at 12,933.18, while Hong Kong's Hang Seng index fell 1.52% to 22,514.92.

Treasury market

Treasuries reversed course to trade lower as commodity prices came off, undercutting inflation fears. The 10-year note moved down to 99-08/32 for a yield of 3.96% and the 30-year bond was down 14/32 at 96-17/32 for a yield of 4.59%.