Mid-day rally fizzles out as stocks turn volatile after consumer confidence and housing data
Weaker consumer confidence and subprime concerns took a toll on US market today and another rally fizzled out after it was stopped mid-way. A slightly better than expected housing data coupled with deal news failed to offset the nervous sentiment among investors who continued to be affected by interest rates and hedge fund woes.
For the second consecutive day, Dow rallied in the morning hours but gave up all of of its gains in the final hours of trading. Making situations worse, the Securities and Exchange Commission said it has opened 12 investigations into "issues such as" collateralized loans. Crude prices slipping by more than 2% also could not rescue the indices.
Seventeen out of 30 Dow stocks retreated into the red at the day’s close. The Dow Jones Industrials lost 14.39 points to close at 13337.66. Tech heavy Nasdaq shed 2.92 points to close at 2574.16. S&P 500 closed lower by 4.85 points at 1492.89.
Merck, Altria, J&J and Honeywell were the main Dow winners. Du-Pont, Alcoa, United Tech and Boeing were the major Dow laggards today. Google once again hit an all time high today.
The Conference Board's index of consumer confidence fell to 103.9 in June from 108.5 in April. The reading was the lowest since August; economists had been expecting a drop to 105.
New home sales for 1.6% in May
When market opened in the morning, stocks opened higher as investors tried to get back in buying mode following last week's sell-off. Resurgence in M&A activity, another pullback in interest rates and falling oil prices contributed to the market's positive bias.
As per the Commerce Department, U.S. new home sales fell 1.6% in May to a seasonally adjusted annual rate of 915,000 units. Sales have declined in four out of the five months of 2007. The sales pace in February, March and April was revised lower by a total of 84,000 units.
But all the three indices were off their session highs giving up most of their gains around lunch hours. But turnarounds in the S&P 500's two most heavily weighted sectors Financials and Technology helped market to turn around and these two sectors were the biggest contributors to the market's improved stance.
Stocks entered the afternoon session still sporting modest gains but were pulling back from their highs with higher interest rates acting as the biggest hindrance. But just like yesterday's action, late-day sentiment continued to weaken as investors grew increasingly defensive.
Treasury bonds, which had been worrying investors since last week, gave back some of their gains. The benchmark 10-year note finished down 5/32 at 95-12/32, lifting its yield to 5.101%.
Altria helps to support Dow but fails
Altria’s 1.8% helped Dow gain 10 points today though market gave that up also going into close. The stock was up today after the company said it plans to shut down its 2,500 employee Philip Morris cigarette factory in Cabarrus, N.C, by 2010 in a move to cut costs.
Crude oil futures witnessed substantial fall today after traders speculated that tomorrow’s weekly inventory report by Energy Department report will show U.S. oil and fuel inventories have registered substantial rise for the week ended 22 June. Crude oil futures for light sweet crude for August delivery closed at $67.77/barrel (lower by $1.41/barrel or 2.04%) on the New York Mercantile Exchange. Prices are down 5.6% from a year ago.
Also today, OPEC came out with its latest world oil outlook report. The report predicts that global oil demand will rise to 118 million barrels per day by 2030, from 83 million in 2005.
Trading volumes showed 1.7 billion shares trading on the New York Stock Exchange and 2.0 billion on the Nasdaq stock market. Declining shares topped gainers by 20 to 11 on the NYSE and by 16 to 13 on the Nasdaq.
With the two-day FOMC meeting beginning tomorrow, investors will likely look for economic data to help set the tone of trading for tomorrow. Durable Orders will kick come out at 8:30 ET followed by The Energy Dept.'s weekly inventories report at 10:30 ET.