Two main stories moved the market today: crude oil rallied to $120/barrel after an attack on a Nigerian oil-pumping station over the weekend and the Microsoft-Yahoo! deal fell threw after Yahoo! turned down a $33/share offer.
Yahoo! traded down to $23 this morning and closed at $24.50. These levels are well above the $19 price level prior to Microsoft’s initial offer because there is speculation that a hostile take-over by the shareholders could occur. Basically, Yahoo!’s investors are upset that Jerry Yang, the company’s CEO, did not accept Microsoft’s offer and there is talk they might vote to replace the current board of directors in order to get a deal done.
Off of the record oil prices, all of the energy names were strong as well as the agriculture and materials names; retailers (RTN) and airlines were laggards. Oil and retailers have an inverse relationship. The thinking is: as oil goes up, gasoline also goes up, so consumers then have less to spend at the stores.
Off of the Yahoo! news, almost all of tech was weaker except for Google and Apple. Google showed strength because the company will not be threatened with additional competition that could have arose from a Microsoft-Yahoo! merger. Apple was stronger off an upgrade. Tech’s litmus test will be tomorrow after the bell when Cisco Systems reports earnings. Tech’s recent rally will need support from a strong earnings report and positive guidance from Cisco tomorrow.
Financials were also weaker on the day because there were talks that Bank of America might walk away from its deal with Countrywide Financial. The analyst that broke this news also lowered his price target on Countrywide to $2 from $7. “He added that Bank of America will likely renegotiate the transaction down to the $0 to $2 level.” Talks of big layoffs at investment banks also weighed on the financials.
Some other news…
- Sprint may sell its Nextel unit to Deutsche Telekom AG.
- Service sector data was better than expected; showed expansion last month
What’s the buzz on the street? Basically, what are people on CNBC saying?
There is talk that this recent run-up is a sucker’s rally. Take a step back and look at the current levels. The major indices are only about 8-11% off their highs from last summer. The stock market is not pricing in a recession but everyone thinks one is coming (or is here). The economic data is not great and indicators point to further deterioration of the economy. It will be interesting to see where we go from here. Somehow, consumer spending is not slowing as much as people thought with gas and food prices at an all-time high. Is the stock market wrong? Only time will tell.
DJIA 12,969.54 -88.66 (-0.68%)
Nasdaq 2,464.12 -12.87 (-0.52%)
S&P 500 1,407.49 -6.41 (-0.45%)
NYSE Volume 3,388,910,000
2-Yr Bond 2.42% -0.05
10-Yr Bond 3.88% -0.01
30-Yr Bond 4.58% +0.01
Crude Oil (June) 119.97 +3.65
Nat Gas (June) 11.178 +0.401
Gold (June) 874.10 +16.10
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