Stocks Close Higher On Lower Oil - U.S. Commentary

Wed. July 23, 2008; Posted: 04:32 PM

(RTTNews) - Stocks ended Wednesday's session with moderate gains after oil fell for a second day. Nonetheless, a slew of mixed corporate data kept buying interest muted.

Investors seemed encouraged that oil remained lower during the day as traders generally ignored another decline in weekly inventories. Light sweet crude for September delivery closed at $124.44 a barrel, down $3.98 for the session.

The recent drop in oil prices has been a relief for the markets after they had been pressured for the past months as oil hit record highs. The recent easing in oil prices could provide a significant boost to the economy if it is sustained.

On the economic front, economic activity has slowed somewhat over the past month, according to the Federal Reserve's Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.

The report, released Wednesday afternoon, said that consumer spending was sluggish or slowing in nearly all of the Fed districts, although it noted that the tax rebate checks issued as part of the government's economic stimulus plan boosted sales for some items, especially electronics.

The Beige Book, generally released about two weeks before the next Federal Open Market Committee meeting, is closely watched for indications of the committee's upcoming decision on interest rates.

After halting its string of interest rate cuts at its June meeting, the committee's upcoming meeting on August 5th is likely to attract a lot of attention. Analysts currently seem mixed over whether the FOMC will raise interest rates or leave them unchanged at 2 percent.

The major averages traded in a range for most of the afternoon, ending the day with modest gains. The Dow closed up 29.88 points or 0.3 percent at 11,632.38, the Nasdaq closed up 21.92 points or 1 percent at 2,325.88 and the S&P 500 closed up 5.18 points or 0.4 percent at 1,282.18.

Sector News

Airlines stocks turned in some of the best performances, boosted by the drop in the price of oil. The Amex Airline Index climbed 8.5 percent, extending a weeklong uptrend. With the gain, the index has set a two-month closing high.

Northwest Airlines (NWA | Quote | Chart | News | PowerRating) contributed to the strength within the airline sector. The stock closed up 15.2 percent, setting a three-month closing high. Earlier in the day, the airline released its second quarter results, reporting a loss due to a non-cash impairment charge.

Health insurance stocks also ended the day sharply higher, with the Morgan Stanley Healthcare Payor Index climbing 7.5 percent. Adding to a gain posted in the previous session, the index set a monthly closing high.

Following news that President Bush withdrew his opposition to legislation designed to ease the lingering housing crisis by helping beleaguered homeowners get cheaper loans, housing stocks closed sharply higher as well. The Philadelphia Housing Index closed up 4.3 percent, extending its recent upward move.

On the other hand, most resource stocks closed sharply lower, as commodity prices dropped. Gold stocks saw some of the biggest declines, at the price of the precious metal fell $25.70 to close at $922.80 an ounce. The Amex Gold Bugs Index closed down 5.4 percent. Oil, natural gas and steel stocks closed sharply lower as well.

Dow Components

A majority of the Dow components traded on the upside, contributing to the modest gain by the blue chip index. Nonetheless, several of the decliners ended the day with sharp losses, limiting the upside for the Dow.

AIG (AIG | Quote | Chart | News | PowerRating) was one of the biggest gainers on the Dow, boosted by positive quarterly results from one of its rivals. Shares of the insurer closed up 7 percent, extending a recent uptrend. With the gain, the stock set a monthly closing high.

After a Goldman Sachs analyst issued positive comments on home improvement retailers, Home Depot (HD | Quote | Chart | News | PowerRating) showed considerable strength as well. The stock moved 4.5 percent higher, closing at its best level in nearly a month.

The analyst maintained his Buy rating on the home improvement retailer, stating that the competitive dynamics for the sector has been stable with minimal threats. Nonetheless, the analyst also lowered his 2008 earnings per share estimate to $1.65 from $1.70 as well as his estimates for 2009 and 2001.

Telecom giant AT&T also saw significant buying interest after the company reported second quarter results that came in line with Wall Street estimates. On an adjusted basis, the company reported net income for the quarter of $0.76 per share compared to $0.70 per share in the year-ago quarter. Shares of AT&T saw a gain of 3.9 percent, reversing the losses posted in the previous two sessions.

On the other hand, Boeing (BA | Quote | Chart | News | PowerRating) saw significant selling pressure after the company reported a drop in its quarterly profit due to a charge on a delayed military plane contract. Shares of the airline manufacturer closed down 3.7 percent, ending its recent uptrend.

Caterpillar (CAT | Quote | Chart | News | PowerRating) also closed sharply lower after the heavy machinery manufacturer issued full year guidance that was less than anticipated despite reporting better than expected second quarter results. The stock saw a decline of 3.4 percent.

Other Markets

Meanwhile, treasuries extended their losses on Wednesday. After the benchmark ten-year note dropped at the start of trading, it moved in a loose range for the rest of the day, closing at a monthly low. Subsequently, the yield on the ten-year note closed up 5.1 basis points at 4.148 percent.

Stock markets across the Asia-Pacific region rallied on Wednesday after Wall Street rebounded overnight following a drop in crude oil prices. The Japanese market closed higher, adding to Tuesday's 3 percent gain.

The major European markets ended the day higher as well. The French CAC 40 Index and the German DAX Index rose 1.9 percent and 1.5 percent, respectively, while the U.K.'s FTSE 100 Index advanced 1.6 percent.

Looking Ahead

Looking ahead to Thursday, investors will weigh in on the National Association of Realtors' existing home sales data for the month of June. In May, existing home sales increased 2.0 percent to a 4.990 million annual rate. Analysts expect the number do edge down to a 4.940 annual rate.

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