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Stocks closed lower for today and mixed for the second quarter on a lackluster note. Markets were pressured by the latest Chicago purchasing managers’ monthly report which suggested a worst-case scenario of economic slowing alongside higher prices. However, shares of General Motors rose 8.5% on news that the investor Kirk Kerkorian is urging the auto maker to consider an alliance with foreign rivals Renault SA and Nissan Motor Co. Wild swings characterized the stock market in the second quarter, as investors worried about inflation, slowing economic growth and the interest rate outlook.

Today, the Dow Jones Industrial average closed down 40.58 or 0.36% to 11,150.22, the broader S&P 500 index closed down 2.67 or 0.21% to 1,270.20, and the Nasdaq composite closed down 2.29 or 0.11% to 2,172.09. During the second quarter, the Dow gained 0.5%, the S&P 500 lost 1.8% and the Nasdaq tumbled 7.1%.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by a margin of two to one on volume of 1.77 billion shares. On the Nasdaq, winners beat losers by a margin of three to two as 2.50 billion shares changed hands.

Investors have been worried that in an effort to ward off inflation, the Fed would raise rates too much and choke off economic growth and corporate profits. Their statement yesterday contained some softer language, saying future decisions will depend on the latest economic numbers. Many took the statement as a sign that an end to the central bank’s two-year old rate-hiking campaign may be in sight.

In data news, the National Association of Purchasing Managers’ Chicago group said its index of regional business activity slowed to 56.5% from 61.5% in May. This is below the expected 59.4%. However, the prices-paid component leapt to 89% from 76.9%, indicating sharply higher costs for manufacturers. Therefore, consumers both earned and spent more last month, but inflation canceled out most of the gains. Consumer prices increased 0.4% in May. Core prices increased 0.2% in May for a second month. These reports indicate that inflationary pressure is persisting even in a weakening economy.

Shares of General Motors Corp. closed up 8.5% to $29.79, after Kirk Kerkorian, one of the company’s largest investors, urged them to consider a three-way partnership with Japan’s Nissan Motor Corp. and France’s Renault SA. GM stated that the suggestion would be “taken under advisement by the board,” but that it “has received no offer or proposal from Renault/Nissan” about a potential linkage.”

Shares of computer maker Apple Computer Inc. closed down $1.70 or 3% to $57.27. The company launched an internal probe of executive stock options granted over a 4-year period, including a grant to Chief Executive Steve Jobs that was later canceled.

Stock of Palm Inc. closed down 13.7% at $16.10, after the maker of the Treo phone issued a weaker-than-expected sales forecast for the current quarter. The company plans to stop European sales June 30 as the product doesn’t meet new environmental requirements on lead content. Sales are expected to be in the range of $380 million to $385 million, against the forecast $413 million.

On news that storage-technology giant EMC would buy RSA for slightly less than $2.1 billion, shares of RSA Security Inc. vaulted 18.5% to $27.11, while that of EMC fell 2.5% to $10.97. The companies expect the acquisition to close late in the third quarter or early in the fourth quarter. In the last three years, EMC has bought 25 companies and feels that acquiring a security company like RSA is a necessity for continued growth.

U.S. light crude oil for August delivery rose 40 cents to settle at $73.92 a barrel on the New York Mercantile Exchange. Traders focused on gasoline supplies heading into the Fourth of July holiday, a time when many Americans take long driving trips. Crude rose 7% during the second quarter.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter