Friday, September 11, 2009

Stocks Slip After 5-Day Rally

. Friday, September 11, 2009

By stockOzone team

Stocks slipped Friday, as falling oil prices dragged on the influential commodities sector and investors took a step back after pushing the major indexes to 11-month highs in the previous session.

The Dow Jones industrial average (INDU) lost 21 points, or 0.2%. The S&P 500 (SPX) index lost 1 point, or 0.1%. Both the Dow and S&P 500 ended the previous session at their highest points since Oct. 6.

The Nasdaq composite (COMP) fell 3 points, or 0.2%, after ending the previous session at its highest point since Sept. 26.

The three major indexes rose for the week.

Stocks managed slim gains through midday as investors welcomed FedEx's upbeat profit forecast and a jump in consumer sentiment, but the gains were shaky on the heels of a five-session advance.

On Thursday, stocks rallied as a well-received debt auction and Procter & Gamble's improved forecast added to recovery hopes.

The weak dollar, higher commodity prices and investor fears of missing out on a rally have all contributed to the rally's most recent leg. However, this week's advance has been fueled by light trading volume, suggesting investors are reluctant to commit.

Investors have also been pulling money out of stocks and funds and putting it into cash or bonds. Tracker Trim Tabs said equity mutual funds and ETFs are on track to post the first monthly outflows since March.

Since bottoming March 9 at a more than 12-year low, the S&P 500 has risen 54% as investors have gone from pricing in a depression to a recession to a recovery.

The pace of the advance, combined with the seasonal tendency for September and October to be weak for stocks, led many to predict a fall selloff. But that hasn't happened and doesn't seem to be brewing as of yet.

The CBOE Volatility index, the VIX, Wall Street's fear gauge, closed Friday at the lowest point since Sept. 8 of last year. Typically, the VIX moves inversely to the direction of stocks.

Tuesday marks the first anniversary of the collapse of Lehman Brothers, an event seen as exacerbating the recession and pushing the economy into crisis mode.

Ahead of that, President Obama will speak Monday about the steps his administration has taken to "bring the economy back from the brink" and make sure a collapse at that level doesn't happen again.

Oil prices and stocks: Dollar-traded commodity prices have been rising on the weak greenback and on bets of a global economic recovery. But oil prices reversed course Friday, despite the still-weak dollar, dragging oil stocks down in tandem.

U.S. light crude oil for October delivery fell $2.65 to settle at $69.29 a barrel on the New York Mercantile Exchange.

That battered Dow components Exxon Mobil (XOM, Fortune 500) and Chevron (CVX, Fortune 500).

However, stock declines were broad based, with 21 of 30 Dow issues falling. In addition to the oil components, other big losers included IBM (IBM, Fortune 500), Hewlett-Packard (HPQ, Fortune 500) and Procter & Gamble (PG, Fortune 500).

FedEx: The package delivery firm, often seen as a proxy for the economy, lifted its fiscal first- and second-quarter earnings forecasts due to cost cutting and stronger international shipments.

FedEx said it expects to earn 58 cents per share in the first quarter versus its earlier forecast for a profit of 44 cents per share. The company expects to earn between 65 cents and 95 cents per share in the second quarter versus its earlier prediction of 70 cents.

FedEx (FDX, Fortune 500) shares gained 6.4%.

Consumers feeling better: The University of Michigan's initial reading on consumer sentiment rose to 70.2 in September from 65.7 in late August. That topped the 67.5 reading economists surveyed by were expecting and is the highest reading since June.

"The improvement reflects the fact that stocks have risen more than 50% since March, home prices are stabilizing and the economy is starting to recover," said John Canally, economist at LPL Financial.

But for sentiment to make more substantial gains, investors will need to see a recovery in the labor market, Canally said.

"The last piece of the puzzle will come in when people have confidence that they are going to have a job," he said. "That's going to help boost consumer spending."

The report showed that only 16% of consumers said their finances had improved, the smallest percentage on record since the university first asked the question in 1946. Only 25% of consumers said they expected income gains over the next year.

Economy: In other economic news, the Commerce Department reported that wholesale inventories fell 1.4% in July after falling a revised 2.1% in June. Economists surveyed by thought inventories would fall by 1%. It was the 11th consecutive month investors dropped.

Additionally, the Bureau of Labor Statistics said August import prices rose 2% versus forecasts for a rise of 1%. Import prices excluding oil rose 0.4% after falling 0.2% in July. Export prices rose 0.7%.

The August Treasury budget was released in the afternoon. The deficit grew by $111.4 billion in August versus forecasts for a deficit of $139.5 billion. The deficit for the first 11 months of the fiscal year stood at $1.38 trillion.

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Currency: The dollar continued its slide against other major currencies, falling to multi-month lows versus the euro and the Japanese yen.

Gold: COMEX gold for December delivery rose $9.60 to settle at a record $1,006.40 an ounce, after topping the key $1,000 level during the day for the past three sessions.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.31% from 3.35% late Thursday. Treasury saw strong demand for its auction of $32 billion in long-term bonds earlier this week.

World markets: Global markets were mostly higher, with many indexes hitting 11-month highs. In Europe, London's FTSE 100, France's CAC 40 and Germany's DAX all gained. Asian markets ended higher, with the exception of the Japanese Nikkei.

Market breadth was mixed. On the New York Stock Exchange, winners beat losers eight to seven on volume of 1.29 billion shares. On the Nasdaq, decliners topped advancers three to two on volume of 2.34 billion shares.

In other news, the New York Stock Exchange commemorated the 8th anniversary of the 9/11 terrorist attacks on New York and Washington D.C. at the ringing of the opening bell and closing bell.

Disclosure: Author does not own any of the stocks discussed here.

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