Higher interest rate and hedge fund worries lead to a triple digit fall for Dow even as crude falls
US Market, today (Wednesday, June 20, 2007) witnessed a huge fall as stocks stumbled mainly in the final hour of trading. Morgan Stanley’s stupendous earnings report, lower crude prices and a buy back news from Home Depot failed to check the sliding stocks as investors once again became worried about the rising interest rate. News of Bear Sterns shutting two of its big hedge funds just made the situation further worse.
Twenty four of the 30 Dow stocks retreated back into red in the final hour of trading while going into close. The Dow Jones Industrial Average closed lower by a huge 146 points to close at 13489.42. Nasdaq slipped by 26.8 points to close at 2599.96. S&P 500 ended the day shedding 20.96 points to close at 1512.84.
Home-Depot, P&G and GM were the major Dow winners today. Exxon Mobil, Mc Donalds and JP Morgan Chase were the main Dow laggards. Without any sectoral leadership, all ten economic sectors ended lower with energy leading the way.
Rising bond yields have pressured the stock market over the past couple of weeks. Investors started worrying today after yield on the 10-year Treasury note started moving higher just after lunch hours and the yield hit as high as 5.142% before slipping back to 5.12%.
Home-Depot shares today surged 4.6% after the home-improvement announced it would buy back up to $22.5 billion of its own shares. The news comes a day after the company decided to sell its supply business for $10.3 billion.
Morgan Stanley announces blowing earnings report - drops 0.5% after rising 4%
When market opened in the morning, all the three indices were in green with Dow getting a major boost from Home-Depot.
The financial sector and the broad market also got a boost after Morgan Stanley said second-quarter earnings were up 40% from the year earlier, widely beating analysts estimates. Its shares rose by almost 4% at first, but ultimately closed down 0.5%.
But the strength from Home-Depot was not strong enough to lift the broader market which was down by a weak energy sector and the underperformance of the financial and health care sectors. REITs are the main pocket of weakness in the financial sector.
Among other earnings news, both FedEx and Circuit City had disappointing reports.
But after a brief period of time, the indices started paring their gains. Meanwhile, The Wall Street Journal reported that two big hedge funds run by Bear Stearns were close to being shut down as a rescue plan fell apart. Shares of Bear Stearns dropped 2.5%. This fuelled the selling activity further and indices just plummeted in the final couple of hours of trading.
Home Depot’s boost not sufficient enough to keep Dow in green
Crude oil futures slipped today and fell to almost $68/bbl after Energy Department was out with its weekly inventory report where it showed unexpected surge in crude inventories for the week ended 15 June. The expiration of the July contract at the trading session's close also likely exaggerated the moves in crude prices today.
Crude-oil futures for light sweet crude for July delivery closed at $68.19/barrel (lower by $0.91/barrel or 1.3%) on the New York Mercantile Exchange. The contract retreated from an earlier peak of $69 to trade as low as $67.35. As per today’s weekly inventory report, crude supplies climbed 6.9 million barrels for the week ended 15 June and stood at 349.3 million barrels. This was much above expectations (unchanged to 1 million barrel surge was expected).
Trading volumes showed 1.672 billion shares exchanging hands on the New York Stock Exchange and 2.034 billion on the Nasdaq stock market. Declining issues topped gainers by more than 3 to 1 on the NYSE and by 21 to 8 on the Nasdaq.
For tomorrow, investors will look for economic data to help set the tone of trading. The weekly Initial Claims report is expected to hit the wires at 8:30 ET. It will be followed by Leading Indicators and the Philadelphia Fed index after market opens in the morning.