Taking Stock of Wall Street 2008-08-26

Media usually gives only the barest essentials of an FOMC meeting. Also, the minutes of the meeting comes only days later. The minutes of the last meeting on August 5 were just out today. We already know that they left the prime interest rates unchanged.

What is significant is the observation by FOMC members that tightening of fiscal policy will become necessary sooner or later.
They also acknowledge the slowdown in foreign economies and the inflationary threat to them.

We also heard from Richard Fisher of the regional Federal Bank at Dallas that U.S. economic growth may soon approach zero or may even turn negative with persistent inflation adding to the worries.

Today, market indices just made it on very low volumes of 856 million at NYSE and 1.46 billion at the Nasdaq:

Dow just UP by only 26.62 (0.23%) to 11412.87
Nasdaq just DOWN by -3.62 (-0.15%) to 2361.97
S&P 500 just UP by 4.67 (0.37%) to 1274.51

Stocks narrowly advanced over those declined:

NYSE: 1961 v. 1145, Nasdaq: 1520 v. 1296

Crude oil had a roller-coaster ride first down by 2.4% then up by 2.4% before finally settling for a gain of 1% at $116.26 per barrel. Energy sector stocks were upbeat with the announcement by Anadarko Petroleum (APC) that they intend to repurchase $5 billion worth of their own shares.

Market seems to be worried over oil supplies being affected by hurricanes in the Gulf of Mexico. Gold rose by 0.29% to 822.20

Consumer confidence rose 9.6% in July but some economists say that they rarely find consumers following through their dreams with real actions.

New home sales rise for July rose 2.4% to a annualized rate of 515,000. But that rise would have been a fall,if June's figures were not revised down to 503,000!

Construction stocks got a further jolt from another data report. This time, the S&P Case-Shiller 20 city composite. That series showed a 15.9% drop in 12-month's home prices in June.

Fannie Mae (FNM) and Freddie Mac (FRE) seemed to be basking in the new-found twin glory of a positive response to Freddie's debt sales and endorsement regarding unwarranted bail-out worries from both Goldman Sachs and Dow Jones.

Financials stocks started the morning on the wrong foot with three mortgage insurance members of their sector, Old Republic International (ORI), PMI (PMI) and Radian (RDN), getting downgraded by Standard & Poor's.

Financial sector suffered further set-back when FDIC chief announced the increase in number of problem banks to 117 from 90. Assets under watch thus burgeoned to $78 billion from $26 billion.

The slide in the financial stocks halted only when it was made known later that $32 billion of that increase was already accounted for by the failed IndyMac. FDIC considers 90% + of those institutions well capitalized and should be able to tide over the situation.

Companies that beat the analyst forecasts on quarterly earnings:

American Eagle Outfitters (AEO), Big Lots (BIG), Chico's FAS (CHS), Corinthian Colleges (COCO), Rio Tinto (RTP) and Smithfield Foods (SFD).

Companies that didn't make it were:

Bank Of Montreal (BMO) and Sanderson Farms (SAFM).

M&A:

Verizon Wireless (VZ) is getting ready for a merger with Alltel.

Credit Suisse (CS) acquired a majority stake in AMF, a capital provider for fund managers.

ANALYSTS' RATINGS:

The following companies received an upgrade:

Cott (COT), Integra (IART), Parlux Fragrances (PARL) and Salesforce.com (CRM).

Downgrades included:

Broadcom (BRCM), Emerson (EMR), Grey Wolf (GW),Healthways (HWAY), Integrated Device (IDTI), Marvell (MRVL) and Nortel (NT).

GM is not sure whether they want to sell off their popular Hummer brand to either of the two Arab groups who showed buying interest.

When many ETFs are shuttering down, today we saw global shipping ETF being launched, the Claymore/Delta Global's Shipping Index ETF (SEA).

We also saw cost-cutting measures at major banking institutions. UBS (UBS) expects to cut its salary and bonus budget to the tune of $4bln. We also heard that Citibank (C) will be cutting on electronic conveniences like color-copying and Blackberries.

Amazon (AMZN) plans to upgrade its Kindle e-book reader to a thinner model with larger-screen to catch the student segment of the market. Amazon also announced the acquisition of Shelfari, an online social networking site for book lovers.

Today, market survived supported by economic data and ironically, by the oil sector. Lack of investor interest as reflected by low volumes and the persistence of oil above $110 are really worrisome.