In the Red Again, Dow Loses Triple-Digits

It’s been a dramatic week on Wall Street and the Dow Jones Index took a big hit recording as much as a 500 points slide in one of the worst trading week in the last 3 months. One of the culprits was obviously the surge in oil prices. Losing 4% of it’s total value is no joke especially so for the blue chip index.

Somehow, I get this feeling that a lot of analyst, investors and traders alike aren’t having the best of weekends now. There is already talk of airlines in the USA going bankrupt due to the oil price surge this week. What will happen when the market opens for trading again next week? We will have to wait and see. I do know that my investments have showed a 16% gain till date thanks to the surge in oil prices this week. Which brings my overall gain and loss across my portfolio down to just under -12%.

Friday, May 23, 2008

Uptick

Stocks Dive (Again) as Bears Seize Control

Matt Egan

FOXBusiness

Wall Street ended its worst week in three months with yet another 100-point slide on the Dow on Friday — its third triple-digit decline this week alone.

A combination of surging oil prices and pessimism about a second half economic comeback helped knock more than 500 points off the blue-chip index this week.

Today’s Market

The Dow Jones Industrial Average fell 145.99 points, or 1.16% to 12479.63, the Standard & Poor’s 500 index dropped 18.42 points, or 1.32%, to 1375.93 and the Nasdaq Composite Index slid 19.91 points, or 0.81%, to 2444.67. The consumer-friendly Fox 50 fell 10.72 points, or 1.09%, to 970.00.

The disappointing Friday capped off a week during which the Dow shed nearly 4% of its value. It appears the impact of record oil prices has finally slowed the market down, significantly dampening the mood on Wall Street.

“It’s been a real difficult week. All of the negatives that we had always talked about that the market was ignoring, it clearly is no longer ignoring,” Ted Weisberg of Seaport Securities told FOXBusiness.

General Motors (GM: 17.60, -0.83, -4.50%) led the decliners on the Dow, sliding 4.5% to a level unseen since the Reagan Administration after it revealed the damage that recent labor disputes had on its production and profit. Also, Citigroup (C: 21.12, -0.60, -2.76%) and United Technologies (UTX: 70.01, -1.83, -2.54%) declined more than 2.5% each. On the upside, Coca-Cola (KO: 58.63, +0.36, +0.61%) picked up 0.6%, making the beverage maker one of the only stocks to end the day in the green.

As was expected, trading volume on the New York Stock Exchange was relatively low on Friday as traders escaped early for the extended holiday weekend. The stock and bond markets will not be open on Monday in honor of Memorial Day.

The bears appear to have once again taken control of action on Wall Street as the Dow has fallen well below the psychologically-important level of 13,000 over the span of the week. (Click here to read “Wall Street’s Change of Heart.”)

“If you look what has happened to energy prices, inflation and the possibility of higher interest rates, the problems have just become much more visible recently,” said Steve Neimeth, a portfolio manager with AIG SunAmerica Asset Management. “If the market was a game of cards — we’ve got nothing but twos and threes.”

On Friday, Wall Street did not react favorably to a slightly better-than-expected report on existing home sales. The National Association of Realtors revealed a 1% decline in sales during April to 4.89 million units. Economists surveyed by Dow Jones had expected sales to fall to 4.86 million. Compared to April 2007, median home prices dove 8% to $202,300.

Inventories of unsold homes jumped 10.5% at the end of April to 4.55 million units — the highest level since June 1985. The inventories level represent a supply of just over 11 months at the current sales pace. Shares of home builders like KB Home (KBH: 20.52, -1.00, -4.64%) and Toll Brothers (TOL: 21.07, -0.76, -3.48%) fell more than 3.5% each on the news.

Meanwhile, crude oil prices, the main catalyst for the market’s downturn this week, remained in striking distance of all-time records. After touching $135 a barrel on Thursday, crude prices cooled off and closed more than $2 lower. However, oil prices bounced back on Friday, jumping $1.38 and closing at $132.19 a barrel.

Traders expressed renewed pessimism this week about the potential for the U.S. economy to turn it around during the second half of 2008. Much of the negativity stems from the Federal Reserve, which cut its outlook for GDP this year and also upped its forecasts for inflation and unemployment.

While it was hard to escape the downturn in stock prices this week, two groups took the brunt of the damage: airlines and auto makers. Both sectors can blame their most recent troubles on triple-digit oil prices.

General Motors (GM: 17.60, -0.83, -4.50%) dove to a 26-year low on Friday after it reported that the recently ended American Axle (AXL: 18.44, -0.81, -4.20%) strike caused the loss of 330,000 units in production during the first two quarters of the year. GM will take a hit of $1.8 billion in the second quarter as a result of the production loss.

Ford (F: 6.87, -0.29, -4.05%) didn’t do much better on Friday, falling another 4% just a day after the auto maker broke the news to its shareholders that it won’t post a profit until 2010 at the earliest.

As if they needed anymore bad news, airline stocks were hit with yet another downgrade, this time from UBS (UBS: 29.30, -0.61, -2.03%).

The firm slashed its outlook on American Airlines (AMR: 6.32, -0.24, -3.65%) and cut its price target on United Airlines (UAUA: 7.52, -0.63, -7.73%), Northwest (NWA: 6.02, -0.32, -5.04%) and Continental (CAL: 13.18, -1.16, -8.08%), according to Thomson Reuters. The sector has plunged this week, losing about 10% of its value.

Not everyone sold their airline stocks, though.

“Clearly everyone is so gung-ho on oil going higher but I happen to think the airlines are a good [contrarian] play because I think oil is going to come back $10 to $15,” Jeff Frankel of Stuart Frankel & Co. told FOX Business. “I don’t think the entire world is going to go back to taking trains and busses.”

Corporate Movers

Anheuser-Busch (BUD: 56.61, +4.03, +7.66%) jumped 7.7% on reports it may be taken over by Belgian brewer InBev. The Wall Street Journal reporte

d the story Friday afternoon, citing two sources. According to a separate Financial Times report, InBev is weighing a $46 billion deal worth $65 per share and is willing to appeal directly to shareholders. A possible deal, which would be financed through JPMorgan and Santander, was discussed by InBev as recently as Thursday, the Times reported.

Lehman Brothers (LEH: 36.11, -2.39, -6.20%) took a 6.2% dive as anxiety over the investment bank’s already reported first-quarter earnings persists. The stock had fallen nearly 12% coming into Friday’s action after Richard Bove of Ladenburg Thalmann cut the firm to “sell” from “hold.” The worries about Lehman’s first-quarter results stemmed from David Einhorn, president of Greenlight Capital, who claimed the firm inflated its earnings to quell fears at the time.

Time Warner (TWX: 15.91, -0.61, -3.69%) and a partnership between General Electric’s (GE: 30.43, -0.58, -1.87%) NBC Universal and Blackstone Group (BX: 18.54, -0.62, -3.23%) are seen as the two favorites to acquire the Weather Channel, The Wall Street Journal reported. A second round of bids for the Weather Channel, which is owned by privately-held Landmark Communications, are due on Friday. It appears the Weather Channel will fetch an offer of between $3 billion and $4 billion, lower than the $5 billion Landmark had been hoping for, the newspaper reported.

Apple (AAPL: 181.17, +4.12, +2.32%) rose 2.3% as it benefited from analyst notes at Goldman Sachs (GS: 172.64, -4.56, -2.57%) and Merrill Lynch (MER: 43.36, -1.14, -2.56%). Goldman added the tech giant to its Conviction Buy List and upped its price target to $220 from $185, citing the expected launch of a new iPhone and strong Mac sales, according to Dow Jones. Similarly, Merrill upped its price target to $215 from $186 on Apple, according to Thomson Reuters.

Yahoo! (YHOO: 27.72, +0.19, +0.69%) is putting off its annual meeting to give it more time to plan for its war with activist investor Carl Icahn, who earlier this month launched a proxy battle to take control of the company. Yahoo could also use the time to reach a deal with Microsoft (MSFT: 28.05, -0.42, -1.47%), who abandoned its bid to acquire the Internet giant, much to the dismay of Yahoo shareholders. The company’s annual meeting will be pushed to late July instead of its previously scheduled July 3.

Gap (GPS: 17.94, -0.35, -1.91%) fell 1.9% after it reported a 40% rise in first-quarter profit to $249 million. The retailer earned 34 cents per share, 3 cents higher than analysts had expected. However, sales tumbled 11% and missed estimates.

JPMorgan Chase (JPM: 42.32, -0.73, -1.69%) plans to layoff a number of investment bankers due to the market downturn and its merger with Bear Stearns (BSC: 9.29, -0.18, -1.90%). While the firm didn’t say how many bankers would be let go, a person familiar with the matter told FOXBusiness: “The numbers are basically in line with the rest of Wall Street.”

Pacific Sunwear (PSUN: 8.95, -1.16, -11.47%) slid 11.5% on a first-quarter loss of $37.1 million and its gloomy outlook for 2008. The clothing retailer’s loss was in line with expectations, as were its sales of $266.9 million. However, Pacific Sunwear now sees 2008 earnings of 67 cents per share, compared to earlier guidance of 73 cents to 77 cents.

Southwest Airlines (LUV: 12.26, -0.25, -1.99%) said Thursday it has no plans to begin charging passengers a fee to carry their first bag on board. This comes after American Airlines (AMR: 6.32, -0.24, -3.65%) said Wednesday it will begin charging passengers on discounted fares $15 to check their first bag on a one-way flight, or $30 round trip.

CA Incorporated (CA: 25.10, +0.93, +3.84%) rose 2.7% on its 2008 earnings outlook and fiscal fourth-quarter profit. The information technology management software company said it sees full-year earnings of $1.45 to $1.52 per share, above estimates of $1.32. However, CA’s adjusted-earnings of 22 cents per share missed mean estimates of 28 cents.

Bear Stearns (BSC: 9.29, -0.18, -1.90%) was sued by the owner of the land it built its headquarters on, saying the bank breached an agreement giving the landowner the right to make the first offer for the building. JPMorgan Chase (JPM: 42.32, -0.73, -1.69%), which is buying Bear Stearns, is also a defendant in the lawsuit

World Market

The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, fell 67.21 points, or 1.77%, to 3725.82. The FTSE 100, London’s benchmark index, lost 94.30 points, or 1.53%, to 6087.30.

On the continent, Paris’s CAC 40 Index dropped 94.97 points, or 1.89%, to 4933.77 while Germany’s DAX fell 126.28 points, or 1.79%, to 6944.05.

In Asia, Tokyo’s Nikkei 225 Index gained 33.74 points to 14012.20. Hong Kong’s Hang Seng Index fell 329.05 points to 24714.07.