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Dow Ekes Out Gain; Homebuilders Rise

Published: Wednesday, 23 Jun 2010 | 5:26 PM ET

Text Size

By: Cindy Perman, JeeYeon Park

The Dow squeaked out a gain Wednesday after the Fed renewed its pledge to keep rates low and offered a statement with no surprises.

Stocks had spent much of the day in negative territory after another disappointing housing report but bobbed in and out of positive territory in the final two hours of trading.

Major U.S. Indexes

.DJIA

.NCOMP

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The Dow Jones Industrial Average ended up about 5 points or less than a tenth of one percent, led by Boeing [BA Loading... () ] and JPMorgan [JPM Loading... () ], after losing 1.4 percent in the previous session.

Boeing got a boost from news that the aerospace giant received a $216 million contract from the Air Force.

The S&P 500 and the Nasdaq, however, finished lower. The CBOE volatility index, widely considered the best gauge of fear in the market, climbed above 27.

After a two-day meeting, the Fed left interest rates unchanged, as expected, and delivered a slightly less rosy assessment of the economy in this statement compared to the last. Policy makers acknowledged the European debt crisis, saying that "financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad." Policy makers were also less rosy on housing: In its last statement, the Fed said "Housing starts have edged up but remain at a depressed level" — this time, they just said," "Housing starts remain at a depressed level." They also gave a nod to deflation: "Prices of energy and other commodities have declined somewhat in recent months and underlying inflation has remained lower."

Still, this wasn't anything traders didn't know, so it didn't have much of an impact on stocks.

"I think the Fed has to be more than descriptive. It's nice to recognize the situation in terms of the current economy but let's talk about what they can do," said bond guru Bill Gross of Pimco. "They've done quanititative easing, they've bought a trillion and a half dollars worth of mortgages and bonds and basically abandoned that particular effort. They've lowered rates close to zero percent. We've talked about an 'extended time' and so, at this point, market observers basically think that there's nothing left in their arsenal. ... They must at some point recognize that there are other tools in their arsenal."

The energy sector was one of the biggest drags on the market. Chevron [PFE Loading... () ] and ExxonMobil [XOM Loading... () ] were among the biggest Dow laggards, as oil fell $1.50 and settled at $76.35 a barrel following a report that showed an unexpected jump in U.S. crude supplies, suggesting that global demand remains jagged. The Philadelphia Oil Service Index fell to around 174.

The oil sector has been very volatile as investors brace for uncertainty amid the court battle over offshore drilling. On Tuesday, a U.S. judge ruled against a six-month moratorium imposed by the White House on deepwater drilling, but the administration vowed to appeal.

Meanwhile, BP shares [BP Loading... () ] fell after CEO Tony Hayward relinquished his role managing the firm's response to the spill to Robert Dudley, a former Mississippi resident who has plenty of experience repairing acrimonious relationships.

Microsoft [MSFT Loading... () ] was also at the bottom of the Dow pack despite comments from the software giant that it sees strong online advertising growth over the next four to five years.

Homebuilders including KBHome [KBH Loading... () ], Pulte [PHM Loading... () ] and D.R. Horton [DHI Loading... () ] advanced despite another dismal housing report for the sector as some traders threw in the towel, betting that the sector can only go up from here.

Several analysts corroborated that view, sounding an optimistic tone for the second half.

New home sales dropped a whopping 32.7 percent to a record low 300,000 annual pace in May, the Commerce Department reported. This came after a report Tuesday showed existing-home sales fell 2.2 percent in May from April.

Investors backed off one safe-haven trade: Gold fell more than $5 and settled at $1,234.10 an ounce.

Meanwhile, the dollar fell against the euro and Treasurys trimmed earlier gains after the latest round of five-year note auctions. The $38 billion sale fetched a high yield of 1.995 percent and the bid-to-cover ratio was 2.58.

Auctions of 7-year notes are expected on Thursday.

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Bank stocks finished mixed after another brokerage lowered its forecast for second-quarter bank earnings.

Wells Fargo cut its quarter and full-year earnings forecast for Bank of America [BAC Loading... () ], Goldman Sachs [GS Loading... () ], JPMorgan [JPM Loading... () ] and Morgan Stanley [MS Loading... () ] on an expectation of weaker investment banking volumes in the second quarter.

This comes after brokerage William Blair cut its second-quarter earnings forecast on Goldman Sachs and Morgan Stanley on Tuesday.

The telecom sector rose after Credit Suisse raised its rating on the sector to "market weight" from "underweight," keeping Sprint [S Loading... () ] as its top pick.

Tech was in focus as Apple’s [AAPL Loading... () ] iPhone 4, the fourth iPhone model in as many years, hits store shelves tomorrow.

And, Verizon [VZ Loading... () ] said it will start selling Droid X, the latest phone from Motorola [MOT Loading... () ] based on the Google [GOOG Loading... () ] Android software, starting July 15. The phone will go on sale for $199.99 after a $100 mail-in-rebate to customers who sign a two-year contract.

The FCC also approved Verizon's $2.35 billion wireless spectrum license sale to AT&T [T Loading... () ] on Tuesday.

On the earnings front, Rite Aid [RAD Loading... () ] shares gained 6 percent after the company chain reported a smaller-than-expected loss and affirmed its full-year outlook.

Shares of Jabil Circuit [JBL Loading... () ] surged more than 10 percent after the electronics-parts maker provided a strong fourth quarter outlook on Tuesday afternoon.

However, shares of Adobe [ADBE Loading... () ] dropped more than 7 percent after the computer software company said profits failed to grow as quickly as sales. Analysts were mixed: Bank of America Merrill raises its price target on the firm to $40 from $38.50 while Credit Suisse cuts its target price to $39 from $43.

Earnings are due out after the bell from Nike [NKE Loading... () ] and Bed, Bath & Beyond [BBBY Loading... () ].

Meanwhile, Lennar [LEN Loading... () ], Oracle [ORCL Loading... () ] and Research In Motion [RIMM Loading... () ] are scheduled to report earnings on Thursday.

Volume was light, with about 1.1 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 8 to 7.

Still to Come:
THURSDAY: Durable goods orders; weekly jobless claims; 7-yr note auction; iPhone 4 on sale; Yahoo shareholders meeting; Earnings from Lennar, Oracle and Research In Motion
FRIDAY: Final read on Q1 GDP; corporate profits; consumer sentiment; XTO shareholders meeting on Exxon buyout; Earnings from KB Home

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