PortfolioCrafter - Market Commentary 2/21/06
February 22nd, 2006 / 12:58 am / by portfoliocrafter
A sharp rise in oil prices and a disappointing profit forecast from Wal-Mart put investors in a bearish mood and lead the markets southwards. Investors backed out of equities amid worries about rising interest rates, falling tech stocks and slower corporate earnings growth.
Today, the Dow Jones industrial average closed down 46.26 to 11,069.06, the Standard & Poor’s 500 index closed down 4.20 to 1,283.04, and the Nasdaq composite index closed down 19.40 or 0.9% to 2,262.96.
Market breadth was negative. On the New York Stock Exchange, losers topped winners 17 to 15 on volume of 1.54 billion shares. On the Nasdaq, decliners topped advancers 19 to 11 on volume of 1.77 billion shares.
The over 2% rebound in oil prices amidst militant attacks in Nigeria raised concerns about inflation and higher interest rates. Such worries increased following the release of leading economic indicators as well as the minutes from the last Federal Reserve monetary policy meeting. The minutes indicated that central bankers believed that they are near the end of the rate-hiking campaign, but that future hikes will depend on data and inflation expectations. This was taken to be slightly more hawkish than the recent Fed speak. What they are basically saying is that we will have another 25 basis point hike in March and maybe one in May.
Tomorrow the CPI would be released and is expected to have risen 0.5% after having fallen 0.1% in December. The “core” CPI is expected to have risen 0.2% after rising 0.2% in December. A hefty rise at the core rate would upset stocks investors, especially after last week’s jump in the producer price index (PPI).
In another important news, President Bush strongly defended a deal that would let a United Arab Emirates-based company run six key U.S. seaports. While critics cite a potential security threat arguing the UAE was a finance center for 9/11 terrorists, the State Department said the deal has nothing to do “with the responsibility for security in American ports.
Today was the day of chip stocks slump. They slid and dragged the Philadelphia Semiconductor index down 11.64 or 2.2% to 523.77. Losers included Micron Technology down $0.57 to $16.08, KLA-Tencor down $1.53 to $51.00, Linear Technology down $0.60 to $36.44, Hewlett Packard down $1.56 to $32.51, and Microsoft closed down $0.16 to $26.54.
Wal-Mart Stores closed down $0.36 to $45.74, after the leading retailer issued new fiscal year earnings guidance that was short of forecasts.
U.S. light crude oil jumped $1.22 to settle at $61.10 a barrel on the New York Mercantile Exchange. This gain of 2% set the commodity above $60 a barrel, a relevant psychological level. Oil stocks benefited from the jump in oil prices and the Philadelphia Oil Service sector index gained 3.8 percent.
All the best,
Manuel Jesus-Backus
The Portfolio Crafter
