Hurricane Katrina continues to weigh
GM tumbles on Delphi bail-out talks, car-sale concerns
By Mark Cotton, MarketWatch
Last Update: 10:53 AM ET Sept. 1, 2005
NEW YORK (MarketWatch) - U.S. stocks lost ground Thursday as uncertainty over the full impact of the damage caused by Hurricane Katrina continued to weigh even as the price of oil held steady under $69 a barrel.
The Dow Jones Industrial Average ($INDU: news, chart, profile) fell 55 points to 10,427.
The Nasdaq Composite Index ($COMPQ: news, chart, profile) was down 8 points at 2,144 while the S&P 500 Index ($SPX: news, chart, profile) dropped 3 points to 1,217.
"The market doesn't really know what the full impact of the storm is and there is maybe a lurking suspicion that a lot of the oil price movement is strictly speculative," said Ed Peters, chief investment officer at Pan Agora, in explanation for the modest pullback being seen on the stock market. "It's not as fundamental as everyone would like to believe."
Within the Dow industrials, General Motors Corp. (GM: news, chart, profile) was the biggest percentage decliner, down 3.1% at $33.12 as the car maker continued to hammer out a bailout deal for Delphi, its former autoparts spin-off. The GM spinoff, slammed by rising costs and lower production, has said it would consider filing for bankruptcy if it can't reach an agreement to cut wages and benefits. Delphi (DPH: news, chart, profile) shares tumbled nearly 10%. General Motors is also slated to release August vehicle sales later in the session.
McDonald's Corp (MCD: news, chart, profile) was down 2.5% at $31.63 on fears higher oil prices will curb Americans' appetite for eating out as they rein in expenses to pay for more expensive gasoline.
Exxon Mobil Corp (XOM: news, chart, profile) was the biggest percentage gainer, up 2% at $61.13 as the oil giant continues to benefit from the high price of oil and gasoline.
On the broader market for equities, advancers outpaced decliners by 15 to 13 on the New York Stock Exchange, while losers held a 15 to 11 advance over winners on the Nasdaq.
Volume was 413 million on the Big Board and 461 million on the Nasdaq.
Crude-oil futures traded just under $69 a barrel in New York trading as traders viewed a White House decision to release oil from strategic reserves as only a short-term fix to the nation's oil supply constraints. The contract touched a record $70.85 on Tuesday.
Unleaded-gasoline futures for October delivery were last up 17 cents, or 7.7%, at $2.4285 a gallon. See Futures Movers
Full plate of data
Initial U.S. jobless claims for the week ending Aug. 27 rose by 3,000 to 320,000, the Labor Department said Thursday. The number was higher than economists expected. See full story.
U.S consumers, meanwhile, spent more than they earned in July for just the second time in the last 46 years, the Commerce Department said. Personal incomes increased 0.3% in July, while spending soared ahead by 1%. As a result, the personal savings rate tumbled to negative 0.6%, the lowest since monthly records began in 1959. See full story.
Confirming weakness in the nation's manufacturing sector, the Institute for Supply Management reported a bigger-than-expected decline in its factory index for August.
The reading on the index came in at 53.6% versus 56.6% in July. Although a reading above 50% indicates expansion, it was below the average estimate of economists polled by MarketWatch of 57.2%. On Wednesday, a regional factory survey of the Chicago region came in much weaker than expected. See full story.
Also, U.S. construction spending in July was unchanged from June's seasonally adjusted annual rate of $1.1 trillion, the Commerce Department said. Economists surveyed by MarketWatch had been expecting construction spending to rise 0.6%.
Dollar, gold, bonds
Rising oil prices continue to hobble the dollar as uncertainty for the U.S. economy and its oil-refining Gulf region persisted in the wake of Hurricane Katrina. At last check, the euro was up 0.5% at $1.2403. Against the Japanese yen, the greenback eased 0.2% to 110.43. See currencies
Gold futures rallied, extending the prior day's sharp advance, continuing to benefit from the recent bout of dollar weakness. The benchmark December contract was last up $10.20 at $448.30 an ounce. See Metals Stocks
On the bond market, prices on the 10-year benchmark note turned higher, sending yields lower after the ISM data showing a slowdown in factory growth fueled speculation the Fed may mark a pause in its cycle of interest rate hikes. The note was last trading up 2/32 at 100 00/32 with its yield at 4.01%. See Bond Report
Chiron soars on Novartis bid
Shares of Chiron Corp. (CHIR: news, chart, profile) soared 18% to $43.11 after Swiss drugmaker Novartis AG said it was bidding $4.5 billion in cash for the 57.8% stake in the biotech company it doesn't already own.
Chiron made headlines last fall after British regulatory authorities abruptly yanked its license to manufacture at its Liverpool, England, plant over concerns that batches of the flu vaccine were contaminated. The move resulted in Chiron's inability to ship almost 48 million doses to the U.S. market, roughly half the nation's flu shot supply. See full story.
Retailers in focus
In a monthly ritual for the retail sector, the country's leading stores offered up their latest same-store sales data. Same-store sales numbers are a leading measure of performance for investors and track sales from stores open for more than a year.
Possibly the most anticipated number, Wal-Mart Stores Inc. (WMT: news, chart, profile) reported a 3.3% rise in same-stores sales for August, but warned Hurricane Katrina and higher oil prices could pressure September sales. Shares of Wal-Mart dipped 0.3%. See full story.
Rival Target Corp (TGT: news, chart, profile) posted a 6.3% rise in August same-store sales, slightly ahead of the company's forecast of a 4% to 6% gain. The discount retailer's stock saw early gains to trade down 2.3% in line with a broad pullback of the retail sector. ($RLX: news, chart, profile)
Other retailers to post a rise in same-store sales include Costco (COST: news, chart, profile) , Neiman Marcus (NMGA: news, chart, profile) (NMGB: news, chart, profile) and JC Penney Stores Co. (JCP: news, chart, profile) .
The Gap Inc. (GPS: news, chart, profile) put in a notably lousy performance in August. The clothing retailer said same-store sales fell 9% in August.
"The negative trends that we discussed on our second quarter earnings call continued and as such, August sales results were disappointing and merchandise margins were slightly below last year," said Sabrina Simmons, the company's senior vice president, treasury and investor relations. The stock was last down 1.8%.
Limited Brands (LTD: news, chart, profile) , Jo-Ann Stores Inc. (JAS: news, chart, profile) and Bon-Ton Stores Inc. (BONT: news, chart, profile) were some of the other companies to post a decline.
Chip sector's cloudy outlook
Semiconductor stocks ($SOX: news, chart, profile) were under pressure in morning trade after a mixed report on the industry from one of its leading trade organizations and a broker downgrade for the sector.
The Semiconductor Industry Association said that worldwide sales of semiconductors rose to $18.01 billion in July, up 0.3% from June but down 0.03% from the same point a year ago. "Strong competition contributed to declining prices for semiconductors," said SIA President George Scalise. He also said that there is some concern that high energy costs will impact sales of electronic consumer products, if they continue to rise.
Prudential Equity Group cut its rating on the semiconductor sector to neutral from favorable, citing its belief that industry utilization rates will reach peak levels during the December quarter, and with that so will momentum on gross margin leverage and pricing for the sector.
Among the sector's key players, Intel (INTC: news, chart, profile) was down 1.1%, Texas Instruments (TSN: news, chart, profile) fell 0.1% while Applied Materials Inc. (AMAT: news, chart, profile) dropped 1.9%.
A slew of energy refiners rallied in morning trading on an upgrade from Lehman Bros.
The brokerage lifted its rating on Sunoco Inc. (SUN: news, chart, profile) to overweight and increased its price target for the stock to $91. The target on Tesoro Petroleum Corp. (TSO: news, chart, profile) was increased to $76, while Frontiler Oil Corp. (FTO: news, chart, profile) was upgraded to equal weight and its target lifted to $33. ConocoPhillips (COP: news, chart, profile) was upgraded to overweight and its target was increased to $73.
Shares of XM Satellite Radio Holdings (XMSR: news, chart, profile) and Sirius Satellite Radio Inc. (SIRI: news, chart, profile) gained after both satellite radio companies were upgraded to outperform from market perform by Wachovia Securities.
Wachovia sees continued strong relative growth, better than expected third quarter subscription results, additional programming announcements, new equipment and new products in January. It prefers XM to Sirius, but both are likely to trade in similar fashion through the balance of the year. At last check, XM Satellite was up 0.2% at $35.32 while Sirius climbed 1% to $6.95.
Mark Cotton is a reporter for MarketWatch in New York.
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