Stocks were mixed Wednesday amid falling oil prices and evidence that Wall Street was shaking off its worst fears about major investment bank Lehman Brothers (LEH).
Shares of Lehman bounced back 2.6% Wednesday, after falling 9.5% on Tuesday even as the firm denied it is facing serious financial trouble. Merrill Lynch (MER) analysts upgraded Lehman's rating Wednesday, saying the stock had over-corrected and concerns were not justified. Earlier on Wednesday, the Wall Street Journal reported that Lehman Brothers may be seeking to raise extra capital overseas, and has approached an investor in South Korea.
Also Wednesday, MBIA (MBI) and Ambac (ABK) shares fell after Moody's Investors Service warned it had placed the bond insurance firms' credit rating on review for possible downgrade. Also, as of June 10, Ambac will be removed from the S&P 500 and replaced by Lorillard.
J.M. Smucker Co. (SJM) agreed to buy the Folgers coffee business from Procter & Gamble (PG) for $2.95 billion and the assumption of $350 million in debt. The deal gives Procter shareholders a 53.5% stake in Smucker, and Smucker will pay out a one-time $5-per-share dividend to its shareholders before the deal.
The ADP measure of U.S. private payrolls rose 40,000 in May, following a 13,000 increase in April. Manufacturing jobs fell 26,000, but service-producing jobs were up 77,000. The report is a preview to Friday's much-anticipated May employment report, though the ADP figures have a mixed record of predicting the government's labor figures.
A report from Challenger, Gray & Christmas says firing announcements rose to 103,522 last month, the most since December 2005, from 71,115 a year before. "There is no end in sight for the crisis in the financial sector," said John A. Challenger, chief executive of the placement firm. "Every time it looks as though banks will turn the corner back toward prosperity, we hear about another major loss, which is often followed by a job-cut announcement."
On Wednesday, the blue-chip Dow Jones industrial average was down 12.37 points, or 0.1%, to 12,390.48. The broader S&P 500 index edged down 0.45 points, or 0.03%, to 1,377.20. The tech-heavy Nasdaq composite index rose 22.66 points, or 0.91%, to 2,503.14.
Oil prices continue to back away from last month's record levels. On the NYMEX Wednesday, crude oil for July delivery fell $2.22 to $122.09 per barrel. Action Economics says traders are spotting signs that demand for oil is falling, both in the U.S. and globally, "as emerging economies cut back consumer fuel subsidies."
The U.S. Department of Energy reported U.S. fuel demand is down 3% in the past year, while demand fore jet fuel is off 3.5%.
In other economic data Wednesday, U.S. productivity increased at a 2.6% pace in the first quarter, revised up from 2.2% previously.
The U.S. ISM services composite index dropped to 51.7 in May from 52.0 in April. However, the business activity index moved from 50.9 to 53.6.
Federal Reserve Chairman Ben Bernanke, in a speech at Harvard University, said inflation is higher than the Fed would like. "Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve," he said.
Among stocks in the news Wednesday, homebuilder Hovnanian Enterprises (HOV) posted a loss of $5.29 per share, vs. a 49 cents loss a year ago, as sales dropped 30%. The firm took a charge of $251 million as the slow housing market took its toll.
UAL Corp. (UAUA), the owner of United Airlines, says it will remove a total of 100 aircraft from its fleet and reduce its mainline domestic capacity by 14% in the fourth quarter of 2008 from the year before.
American Express (AXP) expects its full-year profits to rise 4% to 6%, chief executive Kenneth Chenault said Wednesday, despite mounting credit losses. U.S. consumer credit behavior has turned "somewhat softer" in the past quarter, he added.
First Horizon National Corp. (FHN) agreed to sell its mortgage origination business and $20 billion of mortgage servicing assets to MetLife Inc. (MET). Financial terms were not disclosed.
Guess? (GES) posted earnings of 51 cents per share, vs. 38 cents a year ago, as revenue rose 30%. The firm raised its earnings guidance.
Williams-Sonoma (WSM) posted earnings of 5 cents per share, vs. 16 cents a year ago, as same-store sales fell 9% and total sales dropped 4.2%. The retailer expects second quarter same-store sales to fall 8 % to 10%.
Major European stock indexes lost ground Wednesday. In London, the FTSE 100 index fell 1.45% to 5,970.10. In Paris, the CAC 40 index fell 1.38% to 4,915.07. Germany's DAX index lost 0.77% to 6,965.43.
Major Asian indexes were mixed. Japan's Nikkei 225 index rose 1.59% to 14,435.57. In Hong Kong, the Hang Seng index dropped 1.04% to 24,123.25.
Treasury prices fell Wednesday. The ten-year note was down 22/32 to 99-06/32 for a yield of 3.98% and 30-year bond dropped 1-09/32 to 94-26/32 for a yield of 4.71%.