Traders-Blog.com

Stocks closed with sharp losses after the Philadelphia Federal Reserve reported an unexpected contraction in manufacturing this month, fueling fears that the economic slowdown could be more painful than previously projected. This weak read on regional manufacturing gave investors an incentive to take profits following the recent rally.

Today, the Dow Jones industrial average closed down 79.96 or 0.69% to 11,533.23, the Standard & Poor’s 500 index closed down 0.54% and the Nasdaq composite index closed down 15.14 or 0.67% to 2,237.75.

Market breadth was negative. On the New York Stock Exchange, losers beat winners 19 to 13 on volume of 1.67 billion shares. On the Nasdaq, decliners topped advancers 9 to 5 on volume of 2.03 billion shares.

Investors did not like the first negative reading from the Philadelphia Fed Reserve. The bank’s headline index showed a negative 0.4 reading against the expected positive 14.3. This is the first reading below zero since April 2003, indicating a decline in regional manufacturing. While the report was a concern, investor response appears to be excessive. Its volatility does not show that this is a good indicator. What is more important is the ISM number that comes out at the turn of the month - which is a better indicator.

Additionally, jobless claims rose more than expected last week but remained at a level consistent with recent trends. While the claims rose, they have remained at a level that suggests stable labor market conditions. While weekly numbers rose, the four week moving average remained unchanged at 315,000.

Stock of Hewlett Packard closed down $1.91 or 5.2% to $34.87, after media reports said CEO Mark Hurd had more involvement in the company’s boardroom media leak probe than had previously been stated. The probe includes a review of the practice of “pretexting” to obtain the phone records of directors and journalists.

General Mills Corp. announced fiscal first-quarter income that rose past Wall Street’s view. The company profit advanced to $267 million, from $252 million a year ago. Sales for the quarter increased to $2.86 billion from $2.68 billion, against the expected $2.76 billion. Worldwide unit volume grew 4%. The company has also affirmed its fiscal 2007 outlook for an EPS of $3.03 to $3.08.

Shares of Wal-Mart Stores Inc. closed down $0.41 to $48.46, after stating that it is cutting costs of 300 prescription drugs in Tampa area, with the intention of expanding the program nationally next year. The drugs would be available at $4 per prescription to insured and uninsured consumers. While Wal-Mart shares were pressured as investors worried that the plan could hurt already strained pharmacy margins, other retail drug stores are going to face stiff competition.

Stock of FedEx Corp. closed down $1.53 or 1.9% to $106.00, after reporting a bullish first-quarter earnings but also issuing a forecast for 2007 earnings that set the midpoint below the average forecast of analysts. Its first-quarter net income rose 40% to $475 million, despite poor showing from its Kinko’s segment. Its outlook is in contrast to a gloomier economic growth forecast from rival UPS Inc.

Shares of Tribune Co. surged up $1.36, or 4.4%, at $32.05, on a report that the newspaper company may consider going private. Its board may consider a leveraged buyout as well as several other options to deal with shareholder and employee dissent. Tribune has been feuding with its largest shareholder, the Chandler family trust, in a brawl over planned reductions at the Los Angeles Times.

U.S. light crude oil for November delivery jumped 85 cents to settle at $61.59 a barrel on the New York Mercantile Exchange. October natural-gas futures contract dropped 15 cents, or 3%, at $4.781 per million BTU. New data showed that the nation’s supplies of gas in storage rose in the latest week.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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