BROAD MARKET SUMMARY:
More and more signs are giving pundits reason to use the term “recession”, while the Fed Chairman is busy using the term “inflation”. Working and living in the U.S. just isn’t all it’s cracked up to be these days. This week the domestic unemployment rate spiked up more than it has in over 20 years and the price of oil rose by more on Friday than it ever has before in one day. So as a recap: jobs are evaporating, gas prices are through the roof, credit markets are in turmoil, home values are deteriorating, and many well-respected corporations are posting multi-billion dollar losses. Given this entire landscape, informed & savvy investors can’t be surprised to learn Wal-Mart same store sales continue to rise. Considering the situation in aggregate that data point seems quite logical, as does the fact the domestic broad markets were clobbered this week. We expect volatility to remain a key central aspect of trading until notable progress or deterioration occurs in fundamental economic considerations.
INDEX
6/06 Close
5/30 Close
% Chg
DJIA
12,209.81
12,638.32
-3.39%
S&P 500
1,360.68
1,400.38
-2.83%
NASDAQ
2,474.56
2,522.66
-1.91%
West Texas Intermediate Crude closed at $138.54/bbl. Gold Futures closed at $899.00/oz.
Next FOMC Meeting:June 24 & 25, 2008 - Tuesday/Wednesday
Notable Economic Data This Week:
• The Unemployment Rate for May came in at 5.5%, up from 5.0% last month and higher than the expected 5.1%.
• May’s ISM reading was 49.6, still below the critical “50” mark but better than last month and higher than projections.
• Construction Spending in April was adjusted to the positive side from -1.1% to -0.4%.
THE ECONOMIC BEAT: The reading of 49.6 for the overall index from the Institute for Supply Management was up from 48.6 percent in April. It beat economists' expectations of 47.9, according to the consensus estimate of Wall Street economists surveyed by Thomson Financial/IFR, but it was still below a reading of 50, signaling contraction. The manufacturing sector has failed to grow for the last four months, as the index has hovered near its lowest level in five years.
Construction spending fell 0.4 percent in April on continued deterioration in the residential sector, but outside of home building private spending rose for the third straight month, government data on Monday showed, pointing to some healthy spots in the building sector. Economists polled by Reuters ahead of the report were expecting a 0.6 percent decrease in construction spending after a 0.6 percent decrease in March that was first reported by the Commerce Department as a much bigger 1.1 percent decline. Spending in the private sector on a range of structures from factories, lodging, offices, and power plants, rose 1.6 percent to a record annual rate. That was offset by private residential construction spending, which fell 2.3 percent for the 26th consecutive monthly decrease to an annual rate not seen since 2002.
Federal Reserve Chairman Ben Bernanke said policy-makers were concerned by signs of rising long-term inflation expectations but did not see a dangerous wage-price inflation spiral developing. "Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve," Bernanke said in a speech to graduating students at Harvard University. "We will need to monitor that situation closely," he said, but added there was little sign a "1970s-style wage-price spiral, in which wages and prices chased each other ever upward," might be starting. Over the past four quarters, overall inflation has averaged about 3-1/2 percent, "significantly higher than we would like but much less than the double-digit rates that inflation reached in the 1970s and then again in 1980," Bernanke said. Analysts said the tone of Bernanke's remarks indicated the Fed was likely to keep rates on hold as its attention has shifted to keeping inflation in check.
The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday. Economists construed the weak monthly jobs report as an indication of the pain assailing tens of millions of Americans amid an economic downturn that most experts assume is a recession. The labor market is continuing to deteriorate, eroding the size of paychecks, just as gasoline and food prices surge, and as the declining value of real estate erodes the wealth and credit of many households.
NOTES FROM CORPORATE AMERICA: General Motors Corp. officially blew up its old business model Tuesday, closing four pickup truck and sport utility vehicle factories, announcing a new small car that could get 45 miles per gallon and shedding 8,350 jobs in the process. Now the world's largest automaker by sales needs to figure out how it can sell enough cars to make money in a shrinking U.S. market and stay ahead of the bill collectors. GM also took aim at the Hummer, one off the largest vehicles on U.S. highways, saying it would either be sold or get a remake. The automaker now will have to parlay its strong overseas sales and the lower North American costs into a profit by selling cars in the $15,000 to $20,000 range, half the price of its high-profit SUVs and pickup trucks.
Verizon Wireless said on Thursday it would buy rural mobile service provider Alltel Corp for $28.1 billion including debt, which would vault it to first place in the U.S. market ahead of AT&T Inc. Under terms of the deal, Verizon Wireless would acquire the equity of Alltel for $5.9 billion and assume an estimated $22.2 billion in debt, incurred primarily when Alltel was taken private in a leveraged buyout last November by TPG Capital and Goldman Sachs Group Inc's GS Capital Partners.
Wal-Mart Stores Inc's shares jumped to a four-year high after the world's largest retailer reported a stronger-than-expected increase in sales at U.S. stores open at least a year. It said some of the gains resulted from rebates consumers began receiving in late April under the government's $152 billion economic stimulus package.
THESE TIMES IN FINANCE: Shares of Lehman Brothers, Morgan Stanley and Merrill Lynchfell sharply after S&P cut its credit ratings of the three banks and said its outlook on large U.S. financial institutions is predominantly negative. In announcing its credit actions, S&P said in a statement: "The negative actions reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters."
Wachovia, one of America's biggest banks, said Monday that its chief executive Ken Thompson is leaving the bank as its board of directors seeks to stem hefty losses tied to troubled mortgage loans. The Charlotte, North Carolina-based, bank said Thompson was departing with immediate effect after eight years as CEO at the request of the company's board. It said new leadership was needed to revitalize the bank. The bank has formed a special committee to recruit a permanent successor to Thompson who spent over three decades climbing the corporate ladder at Wachovia. Washington Mutual also announced a management overhaul Monday, saying it was splitting the roles of its chairman of the board and CEO after posting a first quarter loss of 1.14 billion dollars. WaMu said Kerry Killinger would continue to serve as CEO, but would no longer be board chairman, a post which will be assumed by independent director Stephen Frank.
Lehman Brothers Holdings Inc. on Tuesday denied that it was forced to tap the Federal Reserve's discount window to stave off cash problems, and maintains that its books remain liquid. The nation's fourth-biggest investment bank was battered Tuesday amid reports it needs to raise up to $4 billion of capital because of steep losses linked to the ongoing credit crisis. The securities firm is set to report its first loss later this month since splitting off from American Express Co. in 1994. Shares of the company tumbled 15 percent Tuesday after market rumors surfaced that it was forced to borrow from the Federal Reserve's discount window to maintain operations. After the company's denial of approaching the Fed, shares slipped $3.22, or 9.5 percent, to close at $30.61. "We did not access the primary broker-dealer facility," said Paolo Tonucci, Lehman's Treasurer. "The last time we accessed the facility was on April 16 for testing purposes. We ended the first quarter with liquidity of $34 billion and finished the second quarter with well over $40 billion."
Credit ratings agency Standard & Poor's said Thursday it cut the financial strength rating on bond insurers MBIA and Ambac Financial Group to "AA" from "AAA" a day after Moody's said it was considering doing the same thing. S&P said it cut the crucial ratings because the pair face a decline in new business and financial flexibility. Fitch Ratings has already downgraded both MBIA and Ambac to "AA." Some analysts suspect that without a "AAA" rating from at least two of the ratings agencies, the bond insurers will go into a status known as run-off -- collecting payments and making claims on existing policies but writing no new business. Insurers in run-off can remain in business for many years, depending on the size of their book of business.
awm15
StockwireAdmin
The reading of 49.6 for the overall index from the Institute for Supply Management was up from 48.6 percent in April. It beat economists' expectations of 47.9, according to the consensus estimate of Wall Street economists surveyed by Thomson Financial/IFR, but it was still below a reading of 50, signaling contraction. The manufacturing sector has failed to grow for the last four months, as the index has hovered near its lowest level in five years. 
Construction spending fell 0.4 percent in April on continued deterioration in the residential sector, but outside of home building private spending rose for the third straight month, government data on Monday showed, pointing to some healthy spots in the building sector. Economists polled by Reuters ahead of the report were expecting a 0.6 percent decrease in construction spending after a 0.6 percent decrease in March that was first reported by the Commerce Department as a much bigger 1.1 percent decline. Spending in the private sector on a range of structures from factories, lodging, offices, and power plants, rose 1.6 percent to a record annual rate. That was offset by private residential construction spending, which fell 2.3 percent for the 26th consecutive monthly decrease to an annual rate not seen since 2002.
Federal Reserve Chairman Ben Bernanke said policy-makers were concerned by signs of rising long-term inflation expectations but did not see a dangerous wage-price inflation spiral developing. "Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve," Bernanke said in a speech to graduating students at Harvard University. "We will need to monitor that situation closely," he said, but added there was little sign a "1970s-style wage-price spiral, in which wages and prices chased each other ever upward," might be starting. Over the past four quarters, overall inflation has averaged about 3-1/2 percent, "significantly higher than we would like but much less than the double-digit rates that inflation reached in the 1970s and then again in 1980," Bernanke said. Analysts said the tone of Bernanke's remarks indicated the Fed was likely to keep rates on hold as its attention has shifted to keeping inflation in check.
The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday. Economists construed the weak monthly jobs report as an indication of the pain assailing tens of millions of Americans amid an economic downturn that most experts assume is a recession. The labor market is continuing to deteriorate, eroding the size of paychecks, just as gasoline and food prices surge, and as the declining value of real estate erodes the wealth and credit of many households.
General Motors Corp. officially blew up its old business model Tuesday, closing four pickup truck and sport utility vehicle factories, announcing a new small car that could get 45 miles per gallon and shedding 8,350 jobs in the process. Now the world's largest automaker by sales needs to figure out how it can sell enough cars to make money in a shrinking U.S. market and stay ahead of the bill collectors. GM also took aim at the Hummer, one off the largest vehicles on U.S. highways, saying it would either be sold or get a remake. The automaker now will have to parlay its strong overseas sales and the lower North American costs into a profit by selling cars in the $15,000 to $20,000 range, half the price of its high-profit SUVs and pickup trucks. 
Verizon Wireless said on Thursday it would buy rural mobile service provider Alltel Corp for $28.1 billion including debt, which would vault it to first place in the U.S. market ahead of AT&T Inc. Under terms of the deal, Verizon Wireless would acquire the equity of Alltel for $5.9 billion and assume an estimated $22.2 billion in debt, incurred primarily when Alltel was taken private in a leveraged buyout last November by TPG Capital and Goldman Sachs Group Inc's GS Capital Partners.
Wal-Mart Stores Inc's shares jumped to a four-year high after the world's largest retailer reported a stronger-than-expected increase in sales at U.S. stores open at least a year. It said some of the gains resulted from rebates consumers began receiving in late April under the government's $152 billion economic stimulus package.
Shares of Lehman Brothers, Morgan Stanley and Merrill Lynch fell sharply after S&P cut its credit ratings of the three banks and said its outlook on large U.S. financial institutions is predominantly negative. In announcing its credit actions, S&P said in a statement: "The negative actions reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters."
Wachovia, one of America's biggest banks, said Monday that its chief executive Ken Thompson is leaving the bank as its board of directors seeks to stem hefty losses tied to troubled mortgage loans. The Charlotte, North Carolina-based, bank said Thompson was departing with immediate effect after eight years as CEO at the request of the company's board. It said new leadership was needed to revitalize the bank. The bank has formed a special committee to recruit a permanent successor to Thompson who spent over three decades climbing the corporate ladder at Wachovia. Washington Mutual also announced a management overhaul Monday, saying it was splitting the roles of its chairman of the board and CEO after posting a first quarter loss of 1.14 billion dollars. WaMu said Kerry Killinger would continue to serve as CEO, but would no longer be board chairman, a post which will be assumed by independent director Stephen Frank.
Lehman Brothers Holdings Inc. on Tuesday denied that it was forced to tap the Federal Reserve's discount window to stave off cash problems, and maintains that its books remain liquid. The nation's fourth-biggest investment bank was battered Tuesday amid reports it needs to raise up to $4 billion of capital because of steep losses linked to the ongoing credit crisis. The securities firm is set to report its first loss later this month since splitting off from American Express Co. in 1994. Shares of the company tumbled 15 percent Tuesday after market rumors surfaced that it was forced to borrow from the Federal Reserve's discount window to maintain operations. After the company's denial of approaching the Fed, shares slipped $3.22, or 9.5 percent, to close at $30.61. "We did not access the primary broker-dealer facility," said Paolo Tonucci, Lehman's Treasurer. "The last time we accessed the facility was on April 16 for testing purposes. We ended the first quarter with liquidity of $34 billion and finished the second quarter with well over $40 billion."