By Tomi Kilgore, MarketWatch
Dec 29, 2005
U.S. stocks closed in negative territory Thursday, as an inversion in the
Treasury yield curve and weak housing sector data unnerved investors, and
overshadowed a better-than-expected reading of manufacturing activity in the
Chicago region and a sharp bounce in General Motors.
The Dow Jones Industrials Average dropped 11.44 points to 10,784.82, as 17
of 30 components contributed to losses. The blue chip barometer, which was up
as much as 29 points at its intraday high, had spent most of the session in
positive territory, only to turn lower in the final hour of trading.
Among Dow industrials components, Intel shed 1.5%, United Technologies
lost 1% and Home Depot lost 0.9% to lead the losers.
General Motors rose 2.2% to pace the gainers, reversing earlier losses of
as much as 1.5% to its lowest price since October 1982. CS First Boston had
helped trigger the early sell-off by saying it expected the automaker to
report December light vehicle sales that are 12% to 14% below year-earlier
levels, vs. an expected industry decline of 6% to 8%.
The Nasdaq Composite slumped 10.78 points to 2,218.16, after being up as
much as 4 points early in the session. The S&P 500 Index shed 3.75 points to
1,254.42.
Oil service, networking and semiconductor sectors were among the biggest
losers, while airline and gold sectors led the winners.
The Treasury yield curve -- the spread in the interest rates paid by
shorter-term and longer-term maturities -- which was virtually flat for most
of the session, inverted in the final hour of trading to spook investors.
By the session's close, the yield on the 10-year Treasury note fell to
4.368% vs. the 2-year yield of 4.381%.
The yield had inverted on Tuesday for the first time in five years,
triggering the biggest one-day drop in the Dow in two months. In the past,
inverted curves have usually preceded economic recessions.
In the broad market, decliners outnumbered advancers by a 17 to 16 margin
on the NYSE and by an 8 to 7 score on the Nasdaq stock market.
"So far, Santa has been stingy," said Miller Tabak chief technical analyst
Phil Roth, referencing the so-called "Santa Claus effect," or the tendency for
stocks to rise over the last five trading days and the first two days of each
year.
"Next, we worry about the 'January effect,' or lack of it," Roth said. He
refers to the tendency for smaller capitalization stocks to outperform the
broad market.
Volume was minimal, as many Wall Street traders remained on holiday and
due to the lack of corporate news. About 1.03 billion shares changed hands on
the Big Board, and 641.1 million shares turned over on the Nasdaq.
On the data front, U.S. existing home sales fell 1.7% in November to a
seasonally adjusted annual rate of 6.97 million, the lowest since March, the
National Association of Realtors said Thursday. Inventories of homes on the
market rose 1.2% to 2.90 million, the most in nearly 20 years.
"The recent declines in existing home sales corroborate the slowing in
other housing-related data," said UBS economist Maury Harris. "We expect
additional slowing in the housing market, including prices, in 2006. In turn,
the cooling will probably result in a moderation in overall growth."
Meanwhile, the Chicago purchasing managers index read 61.5 this month,
near November's 61.7, but well above expectations of a decline to 60.4.
Readings above 50 indicate expansion.
The employment component increased to 51.7 from 50.3, while the prices
paid measure, an indication of inflation, declined to 83.3 from 94.1.
In addition, new claims for U.S. state unemployment benefits edged higher
by 3,000 to a seasonally adjusted 322,000 in the week ending Dec. 24, the
Labor Department said, matching expectations.
Within commodities, February crude futures rallied 50 cents to $60.32, and
reached a 2-week high of $60.85 in intraday trading on the New York Mercantile
Exchange. The front-month contract how now gained $2.16 a barrel in two
sessions.
February natural gas futures fell 41.4 cents to $11.223 per million
British thermal units.
The U.S. Energy Department said natural gas in storage fell by 162 billion
cubic feet to 2.64 trillion cubic feet in the latest week, but remained
33 billion cubic feet above the five-year average. Inventories of crude oil
rose by 100,000 barrels in the latest week, while gasoline stocks fell by
1.2 million barrels.
February gold futures pared earlier gains to close up $1.20 at $517.50 an
ounce on NYMEX. March palladium dropped $8.20, or 3.1%, to $256.80 an ounce.
The U.S. dollar seesawed around unchanged territory vs. its major
counterparts. At last look, the buck was 0.1% better vs. the euro at $1.1834
fractionally higher against the yen at 117.79.
Companies in focus
Hilton Hotels Corp. agreed to acquire the assets of Hilton Group PLC for
about $5.7 billion in cash, reuniting the brands after a 40-year separation.
Hilton shares closed up 7.6%.
Dow component Merck rose 1.4% to pace the gainers after Morgan Stanley
raised its price target on the stock to reflect recent cost cutting moves by
management and improved clarity on the outlook for its new products.
Quidel Corp. surged 24% after the company said the U.S. Food and Drug
Administration cleared it to promote its new ten-minute flue test kit as being
useful in detecting avian influenza.
Flyi Inc., the parent of Independent Air, told its employees that it would
close on Jan. 7 if it can't find a major investor or buyer, according to a
report in the Washington Post.
This MarketWatch news update is provided to you courtesy of Thomson
Financial.
This is Thomson Financial's Market Commentary, which is issued three times
daily; Pre-Open (9:00 a.m.), Post-Open (10:15 a.m.), and Close (5:00 p.m.).
The information herein is believed to be true and accurate. We take no
responsibility for inaccurate information and reserve the right to update our
reports. If you have any questions please e-mail James Sang at
james.sang@tfn.com or call 646.822.6233. For more information about Thomson
Financial visit us on-line at http://www.thomsonfinancial.com. For more
financial information at your fingertips, please visit
http://www.irchannel.com.
SOURCE Thomson Financial Corporate Group
back to top
