Market Snapshot

Stocks Hit by Late Selling


Major U.S. stock indexes closed lower Wednesday as late profit taking bit into earlier gains won by banks, techs and many other types of issues. But commodities-related stocks rose, bolstered by sizable gains in crude oil and gold futures prices.

The Federal Reserve, in the minutes to its Apr. 27-28 policy meeting, delivered some mixed comments to the markets, indicating it expects the economy to improve in coming months, but cutting its outlook for the 2009 year.

Timothy Geithner told the Senate Banking Committee the economy is healing itself, and that $124 billion of TARP money was still available. Geithner acknowledged that many Americans don't feel credit markets are improving.

Bank of America (BAC) shares moved higher Wednesday after the company raised $13.5 billion in a common share sale.

On Wednesday, the 30-stock Dow Jones industrial average finished lower by 52.81 points, or 0.62%, at 8,422.04, weighed down by weakness in Hewlett-Packard Co. (HPQ) . The broader S&P 500 index fell 4.66 points, or 0.51%, to 903.47. The tech-heavy Nasdaq composite index shed 6.70 points, or 0.39%, to 1,727.84. On the New York Stock Exchange, 16 stocks were higher in price for every 15 that declined. Nasdaq breadth was 15-12 positive.

Treasuries rallied as stocks faded. The dollar index moved lower.

Energy stocks were strong as July NYMEX crude oil futures rallied to near $62 per barrel, levels last seen in mid-November. The jump in crude followed weekly Energy Dept. inventory data that showed a 2.1 million barrel fall in crude-oil stocks. Wall Street had been expecting about a flat outcome. Meanwhile, gasoline supplies, seen down 1.0 million barrels, actually fell 4.3 million barrels.

The FOMC minutes to the Apr. 28-29 policy meeting weren't quite as optimistic last month as some subsequent Fedspeak might have suggested, says Action Economics. The economic forecasts released in conjunction with the minutes also reflected a more dour outlook as the estimates showed slower growth in 2009 and less of a rebound in 2010. Committee members did say that the information since the March meeting provided some "tentative evidence that the pace of contraction in real economic activity was starting to diminish...and that financial market conditions had generally strengthened."

Meanwhile, some members noted "further increase in the total amount of purchase [of Treasury securities] might well be warranted at some point to spur a more rapid pace of recovery." There were no indications of the timing of when the Fed might be exiting its quantitative easing program.

As for the forecasts, the Fed's central tendency forecasts now show a -2.0% to -1.3% range for 2009 GDP, vs. -1.3% to -0.5% previously, with growth in 2010 now seen at 2.0% to 3.0%, compared to 2.5% to 3.3% previously.

Geithner's prepared remarks to the Senate were cautiously optimistic, reports Action Economics. He said stress tests helped boost confidence in banks, as the "vast majority" of banks are well capitalized. Banks are also funding themselves more conservatively. But "forceful" and "sustained" action is still needed to ease the crisis. He said there was $124 billion left in TARP, including an anticipated $25 billion in repayments over the next year. In March the Treasury estimated it had some $135 billion in remaining funds. The toxic asset plan, PPIP, will become operational over the next six weeks. It's expected to use between $75 billion and $100 billion in Treasury funds to finance the sale of distressed mortgage-backed securities (MBS).

In a Q&A with lawmakers, Geithner defended the Obama administration's firing of General Motors Corp. (GM) leaders.

Bloomberg News reports the Obama administration may call for stripping the SEC of some of its powers under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said. The proposal, still being drafted, is likely to give the Fed more authority to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said. Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers are leading the administration's effort to redraw the lines of authority for policing the financial system.

A White House task force charged with helping to revive the economy will focus on the creation of a comprehensive energy plan that will generate millions of clean energy jobs when its meets today, according to an administration official cited in a Reuters report. The board, headed by former Federal Reserve Chairman Paul Volcker, 'will provide recommendations on how to enhance the strength and competitiveness of the nation's economy through the creation of a comprehensive energy plan that will generate millions of clean energy jobs,' the official said.

The Treasury plans to invest $7.5 billion more in GMAC LLC, allowing the government to acquire a majority stake in the auto-finance company, the Detroit News reported. GMAC has been in talks for several weeks to obtain added capital, the newspaper said. The Treasury invested $5 billion in GMAC by purchasing preferred stock without voting rights and with a 9 percent dividend in December, and loaned General Motors Corp. $900 million to acquire GMAC stock, the newspaper said. By exercising its options from earlier investment, the Treasury could own about 35% of the company, and providing the additional capital would allow it to hold majority ownership if it chooses to, the Detroit News said, citing a person familiar with the matter.

Bank of America raised about $13.5 billion by selling stock after U.S. regulators determined it needed more cash to weather an extended recession. Bank of America issued 1.25 billion shares at an average price of $10.77 each. The bank plans to boost common equity capital by $17 billion through the sale of stock and by converting preferred shares mostly held by institutional investors, Chief Executive Officer Kenneth Lewis said May 7.

Hewlett-Packard shares were lower Wednesday. After the close of trading Tuesday, HP reported second-quarter non-GAAP earnings per share (EPS) of $0.86, vs. 0.87 one year earlier, on a 3% revenue decline (+3% in local currency). EPS was in line with the Wall Street consensus estimate. The commpany forecasts third-quarter revenue to be about flat to down 2% sequentially, with non-GAAP EPS of $0.88-$0.90. It sees a fiscal 2009 revenue decline of 4%-5%, with non-GAAP EPS of $3.76-$3.88. HP will cut 2% of its workforce (6,400 employees).

Deere & Co. (DE) shares moved higher after the company posted second-quarter EPS of $1.11, vs. $1.74, on a 17% revenue drop. Deere sees third-quarter company equipment sales down 26%, and down 19% for fiscal 2009, which includes negative forex impact of 6% for the third quarter and 5% for fiscal 2009. It sees fiscal 2009 net income of $1.1 billion, with more risk on the downside.

Target Corp. (TGT) shares moved higher after the retailer reported first-quarter EPS of $0.69, vs. $0.74, on a 3.7% same-store sales drop and flat total revenues. Wall Street was looking for EPS of $0.59-$0.60.

In economic news Wednesday, the Mortgage Bankers Association said the volume of mortgage applications filed last week rose a seasonally adjusted 2.3% compared with the week before as mortgage rates fell. A Dow Jones report said applications were up 4.2% for the week ended May 15, compared with the same week a year ago. Refinance applications rose an unadjusted 4.5% last week, compared with the previous week. Applications for mortgages to purchase a home fell a seasonally adjusted 4.4%.

The ABC News/Washington Post consumer comfort index fell three points to -45 in the week ended May 17 from -42 a week earlier. The survey said 8% of the respondents expressed confidence in the economy, down from 10% the week before. Also, 48% of those polled said their own finances were in good standing, down from 52% in the prior week. In assessing the buying climate, 26% of respondents said it was good, up from 25% a week earlier

Japanese first-quarter gross domestic product contracted at a record pace but by slightly less than expected (-15.2% on an annualized basis vs. the -16.1% expected by economists) and despite a downward revision to fourth-quarter GDP.


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