PortfolioCrafter - Market Commentary 8/27/07
August 27th, 2007 / 10:47 pm / by portfoliocrafter
Stocks closed lower amid data indicating the count of unsold homes hit a 16-year high in July and word that Dow component Home Depot cut the price of its wholesale-supply unit, signaling a harsher financing climate. The disappointing existing home sales report revived worries about the mortgage and credit markets.
Today, the Dow Jones industrial average closed down 56.74 or 0.42% to 13,322.13, the broader S&P 500 closed down 12.58 or 0.85% to 1,466.79, and the tech-fueled Nasdaq Composite closed down 15.44 or 0.60% to 2,561.25.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by 3 to 1 on volume of 1.1 billion shares. On the Nasdaq, decliners topped advancers 9 to 5 as 1.33 billion shares changed hands.
A report showed that existing home sales dropped in July, and the number of homes on the market rose to a 16-year high. This report countered last Friday’s new home sales reading, which showed some recovery for the sector. However, the underlying economic conditions still look pretty robust outside the housing market. The investors are still hesitant to believe that the worst is over.
The reassurance provided by the Federal Reserve and central banks around the world, that have infused billions into their banking systems to keep money flowing, have failed to keep investors interested. Investors are now hoping that the Federal Reserve will cut a key short-term interest rate at its policy meeting next month.
Shares of Home Depot closed up $0.62 to $35.30, after slashing the price for the sale of its supply business to private equity firms to $8.5 billion from $10.3 billion. This shortfall reflects the credit market jitters that have weighed on investors this summer. The deal is a turning point for the private equity industry, as the banks and the buyers have endured a long and ugly renegotiation that is likely to have wide repercussions.
It is reported that Altria Group will meet on Wednesday to consider spinning off the overseas division of its cigarette business in a bid to boost the stock price. This would help Philip Morris International be more aggressive and allow Philip Morris USA to develop other products like smokeless tobacco, and also to make acquisitions.
In M&A news, Taiwan’s Acer Inc. has agreed to buy Gateway Inc. for $710 million, or $1.90 a share - a 57% premium to Friday’s closing price. On this news, share of Gateway rose more than 50%.
U.S. light crude oil for October delivery rose 88 cents to $71.97 a barrel on the New York Mercantile Exchange.
All the best,
Manuel Jesus-Backus
The Portfolio Crafter
