Taking Stock of Wall Street 2008-09-02

Overnight we had some news about the housing crises abroad, in Australia and Britain.

Australia reduced interest rates by quarter point to 7%, paving the way for cheaper housing loans to ease the housing market.

In UK, money allocated to social-housing schemes are being diverted to reverse the worst housing crisis in almost two decades.

Gustav's downgrade to scale 3 meant oil production would be affected to a lesser degree than anticipated. Oil fell as low as $105.46 per barrel before settling at $110.

But market couldn't take advantage of that: Oil sector stocks fell with the oil.

To add to the woes of the market, a stronger dollar also meant faltering commodity prices and a fall in CRB Index by 3.4%. Then, commodity-dependent stocks had no choice but to fall with commodities.

Thus, morning saw stocks pushing Dow past 11700. Afternoon saw a steady decline back.

Market Indices fell:
Dow down by -26.63 (-0.23%) to 11516.92
Nasdaq down by -18.28 (-0.78%) 2349.24
S&P 500 down by -5.25 (-0.41%) 1277.58

Advance-Decline ratio of the stocks were almost equal.
NYSE: 1521 v. 1450
Nasdaq: 1367 v. 1510

Volumes were lackadaisical.
NYSE: 967 mln
Nasdaq: 1.95 bln

Morning saw the release of two government data reports:

July Construction Spending fell 0.6% from that of June contrary to forecasts of -0.3% to -4%. Non-residential construction was slightly up by 0.2%. Residential construction fell by -2.1%. However, these readings should be read against the backdrop of a drastic revision of June construction spending from 0.3% to -4%!

ISM Manufacturing Index for August went down a little by -0.1 to 49.9 conforming to forecasts. Usually, ISM index falling below a reading of 50.0 indicates a contraction in manufacturing activity. But the small difference of 0.1 may point to the fact that it is still at a pivotal point. Prices Paid Index fell to 77 from 88.5. May be we have to wait for next month's data to make sure those low prices are significant enough in the fight against inflation.

Today financials made some decent gains.

Regions Financial (RF) will assume Integrity Bank's $974 mln in deposits.

Lehman (LEH) was back in news today with Korean Development Bank announcing their renewed interest, now in taking up a 25% ($6bln) stake as part of a consortium.

Google (GOOG) entered the browser wars by introducing their Chrome to rival Microsoft's (MSFT) Internet Explorer. While it may make dents in IE's 70% monopoly, it is less likely to affect Firefox. Firefox's following are fanatically libertarian and highly security conscious. It remains to be seen whether GOOG's "AdSens"ical approach to revenues can sway Firefox adherents.

BP (BP) will pay $1.9bln for a 25% stake in Chesapeake Energy's (CHK) Arkansas shale field. This in addition to the $1.75 agreement signed with CHK in July for Oklahoma-based shale properties.

Aluminum Corp of China (ACH), the largest shareholder of Rio Tinto (RTP) will vote in favor of BHP Billiton's (BHP) bid to buy into RTP.

Merck (MRK) and Schering-Plough (SGP) fell due to the controversy surrounding cancer risks of the anti-cholesterol drug, Vytorin.

There was a change at the top of Alcatel-Lucent (ALU). Ben Verwaayen, former chief of BT Group (BT) will be the new CEO, and Philippe Camus, an aerospace executive, the new Chairman.

Swiss regulators have stipulated higher reserves for UBS (UBS) and Credit Suisse (CS) to cover subprime losses. That may mean reduced returns to the shareholders for some time.

The following companies were upgraded by various analysts:

Amylin Pharma (AMLN), JAKKS Pacific (JAKK), Leap Wireless (LEAP), Priceline.com (PCLN), Sciele Pharma (SCRX) and Time Warner Tcom (TWTC)

Downgrades included:

Intersil Corp (ISIL), Marinemax (HZO), Mediacom Communications (MCCC), Norfolk Southern (NSC), Pacific Sunwear (PSUN), Scotiabank (BNS) and Taiwan Semiconductor Mfg Ltd(TSM)

In short, the quick reversal midway took the steam out of the market despite the support from a stronger greenback and retreating oil and commodities.

ISM Manufacturing Index did not change much from previous month, indicating a plateau in manufacturing activity. July construction spending fell. Both these government reports offered no support to the market.

Today saw bulls charging ahead in the morning only to lose their breath and overpowered by the bears. Only lack of convincing volume still helps Dow to hover around 11500 without slipping down.

Remember, Gustav is almost gone but Hanna, Ike and Josephine are already on the way. And on September 9, a tumultuous OPEC meeting will convene to discuss oil production cut. May be Saudis will have to agree to other members' demand not to let oil go below $100.