Major U.S. stock indexes finished lower Wednesday as investors booked profits from the recent rally. Investors were disappointed by declines in durable goods orders for March and new home sales for February. A fresh rise in crude-oil prices weighed on sentiment, as did press reports that the $19-billion private equity buyout of Clear Channel Communications (CCU) was near collapse. An influential Wall Street analyst cut her earnings estimates for large U.S. banks, pressuring financial stocks.
Bonds lost ground in a mixed Treasury market. Gold futures were higher as the dollar index sank.
On Wednesday, the Dow Jones industrial average finished lower by 109.74 points, or 0.88%, at 12,422.86. The S&P 500 index declined 11.86 points, or 0.88%, to close at 1,341.13. The tech-heavy Nasdaq composite index shed 16.69 points, or 0.71%, to end the session at 2,324.36.
Activity in the broader market was negative, with 18 stocks declining in price for every 13 that rose on the New York Stock Exchange. The ratio on the Nasdaq was 16-12 negative.
According to Standard & Poor’s MarketScope, some market players were nervous ahead of Thursday’s reports on final fourth-quarter gross domestic product and weekly initial jobless claims, as well as the Treasury Dept.’s Term Securities Lending Facility (TSLF) auction.
A high-profile earnings release after the close of trading Wednesday may spell trouble for the tech sector on Thursday. Software giant Oracle (ORCL) reported a 30% increase in third-quarter profit – in line with analysts' forecasts -- but its sales came in short of expectations. The shares dropped 8% in after-hours trading Wednesday after edging 0.7% lower during the regular session.
In economic news Wednesday, U.S. durable goods orders fell 1.7% in February after falling 4.7% in January. Orders are up 4.3% from a year ago, compared to 3% previously. However, the headline data are weaker than expected, Action Economics says, which "rattled investors hoping for a rebound from the weak data the month prior."
"The data confirm that the economy is still heading downward," said David Wyss of Standard & Poor's.
U.S. new home sales fell 1.8% to a 590,000 annual rate in February, from a revised 601,000 in January (from 588,000). The January pace was the slowest in over a decade, reports Action Economics. Sales were down in the Northeast and Midwest, and higher in the South and West. Homes for sale dipped to 471,000 from 481,000. “[I]t looks like we're working through some inventory” says Action Economics. The median sales price rose to $244,100 from a revised $225,600 (from $216,000 previously), down 2.7% year-over-year (compared to -11.3% in January).
In a speech to the U.S. Chamber of Commerce Wednesday, Treasury Secretary Henry Paulson said the troubles that brought down Bear Stearns underscore the government's need to strengthen and clarify the rules governing an array of financial players from commercial banks to investment houses.
Paulson said the Bush administration will soon release such a blueprint aimed at promoting the smooth functioning of financial markets. He said most of the new ideas circulating on Capitol Hill, which would generally provide taxpayer money to help reduce loan amounts and refinance mortgages at lower rates to keep homeowners from foreclosing, "are not ready for the starting gate."
Paulson said the Bush administration did not want to support any measure that might slow the necessary correction in the housing market. He said homeowners experiencing negative equity do not need "a system-wide" solution. Only people who want to keep their homes but can't afford the monthly payment because of an interest-rate reset and can't refinance because of negative equity need government assistance, and officials at the Housing and Urban Development have been tasked with examining what government programs can be a solution, said Paulson.
Chicago Fed president Don Evans said in a speech Wednesday that the Fed funds rate is accommodative and should support stronger growth, which he expects to improve in the second half of 2008, though his branch's national activity index suggests "little or no" growth over the past few months. He expects inflation to moderate over the next 2-years, but is mindful of total inflation and recent rises in food and energy costs.
Also speaking Wednesday was Dallas Fed president Richard Fisher, who said the economy is suffering a temporary dent in confidence, going through an economic slowdown and facing inflationary pressures.
The Senate is scrutinizing the Bear Stearns (BSC) rescue package and has sent letters to the chief executives of Bear and JPMorgan (JPM), along with Paulson, Fed chairman Ben Bernanke, and New York Fed president Timothy Geithner, inquiring about the details of the deal and the $29 billion in tax payer dollars fronted by the Fed to seal it, reports Action Economics. A Bloomberg story on the topic earlier suggested that there is resistance to the deal on Capital Hill and Senate Finance Committed Chairman Baucus along with Senator Grassley want a detailed response on the mortgage assets secured by the Fed by the end of the week on Mar 28.
May WTI crude oil futures were up $4.61 to $105.83 per barrel Wednesday following the weekly Energy Dept. report that showed stocks were unchanged at 311.8 million barrels. That left stocks in the middle of the average range for this time of year.
Shares of Clear Channel sank Wednesday after The Wall Street Journal reported after the close of trading Tuesday that that the private-equity firms behind the company's $19 billion privatization deal and the banks financing it have failed to resolve their differences over the terms of the credit agreement. The New York Times reports that Clear Channel and the private equity firms that want to buy it may go to court to force lenders to complete the leveraged buyout.
Also Wednesday, Ford Motor Co. (F) announced it will sell its Jaguar and Land Rover operations to Tata Motors for $2.3 billion in cash. Ford will also contribute about $600 million to Jaguar and Land Rover pension plans.
Among other stocks in the news, Comcast Corp. (CMCSA) and Time Warner Cable (TWC) are discussing jointly funding a new wireless company to be operated by Sprint Nextel (S) and Clearwire (CLWR), the Wall Street Journal reports. Under the plan, Comcast would contribute $1 billion to the venture, while Time Warner Cable would pitch in $500 million. Bright House Networks, the sixth-largest cable operator, is also involved in the talks and could contribute $100 to $200 million.
Take-Two Interactive Software (TTWO) rejected Electronic Arts' (ERTS) $26-per-share offer to buy out the video game developer, saying the offer was "inadequate in multiple respects and contrary to the best interests of Take-Two's stockholders." The company's board recommended shareholders not sell shares to Electronic Arts.
Profit estimates were cut for Citigroup (C), Bank of America (BAC), Wachovia (WB), and JPMorgan Chase (JPM) by influential Oppenheimer analyst Meredith Whitney.
Jabil Circuit (JBL) reported second-quarter core EPS of 20 cents, vs. 14 cents one year earlier, on a 4% revenue rise. On a GAAP (generally accepted accounting principles) basis, Jabil posted a 12-cent loss, principally due to restructuring charges. The company said fiscal 2008 would be a year of modest growth, but below its previous expectations.
AMR Corp.'s (AMR) American Airlines voluntarily cancelled less than 10% of its flights to check plane wiring on Wednesday.
Motorola (MOT) began the process of spinning off two independent companies, separating its Mobile Devices business from its Broadband & Mobility Solutions unit.
European markets finished lower on Wednesday. In London, the FTSE 100 index fell 0.35% to 5,669.30, while Germany's DAX index declined 0.47% to 6,493.91, and France's CAC 40 index was 0.33% lower to 4,676.68.
In Asia, stocks were mixed. Japan's Nikkei 225 fell 0.3% to 12,706.63, while Hong Kong's Hang Seng index gained 0.68% to 22,617.01.
Treasuries traded mixed Wednesday. The 10-year note rose 05/32 in price to 100-04/32 for a yield of 3.49%. The 30-year bond fell 13/32 to 100-24/32 for a yield of 4.33%.