Published May 31, 2011
FOX Business: The Power to Prosper
The markets closed the month with a rally fueled by the prospect European countries would ink a bailout package to stave off a Greek debt restructuring despite fresh data showing a double-dip in housing prices.
The Dow Jones Industrial Average was up 128 points, or 1%, to 12,570, the S&P 500 traded higher by 14.1 points, or 1.1%, to 1,345 and the Nasdaq Composite climbed 38.4 points, or 1.4%, to 2,835. The FOX 50 was higher by 10 points to 939.
Despite having their best day this month, the major market averages had the worst monthly performance since August 2010. The Dow was off 1.9%, the S&P 500 fell 1.4% and the Nasdaq shed 1.3%.
Out of the blue chips, American Express (AXP) was the top performer, climbing 5%, followed by McDonald's (MCD), which was up 4%. Caterpillar (CAT) struggled the most, tumbling 8%, followed by Hewlett-Packard (HPQ), which was off 7%.
Greece has been the subject of much concern for market participants in recent weeks as its struggled to pay back close to half a trillion dollars in public debt. As late as last week, there were concerns the embattled country might have to restructure its debt, which would entail either pushing back the maturity dates on its bonds or having bondholders take a haircut. Such a restructuring, analysts say, could pose a threat to companies that hold Greek bonds and other euro zone countries.
However, a report Tuesday by the Wall Street Journalhelped ease concerns about the chances of such a restructuring. Germany is considering backing off its initial stance that private bondholders should take on some of the cost for a Greek bailout, in the short run, to facilitate an aid package for the country, the Journal said.
The news "has lifted a major shadow from markets," wrote Anthony Grech, head of research at IG Index, in a research note.
While the blue chips have now gained ground the last four days, they are coming off of the first four-week losing streak in a year.
"I remain cautious – at best for this bounce," wrote Peter Kenny, managing director at Knight Capital Group in a research note.
Housing prices fell 3.6% on a year-over-year basis and 0.2% on a seasonally-adjusted month-to-month basis in March, according to the Case Shiller composite index of 20 metropolitan areas. Prices have now fallen back under the April 2009 level hit during the financial crisis, and have, therefore, now double dipped.
The continued high level of supply in the housing markets driven by the elevated rate of foreclosures, combined with still soft demand, has put considerable downward pressure on the home prices.
"Further declines in prices are etched in stone," wrote Patrick Newport, U.S. economist at IHS Global Insight, in a research note, estimating prices could fall another 5%.
The Conference Board's gauge of consumer confidence fell to 60.8 in May from a revised 66 in April. Wall Street was looking for a reading of 65.4 for the month. The reading was the lowest since November, with future expectations dipping to the lowest since October.
Chicago PMI fell sharply to 56.6% in May from 67.6% in April, according to the Institute for Supply Management. The reading indicates manufacturing in the region is still expanding, but at a slower pace.
The widely-watched national manufacturing report from the Institute of Supply Management on May manufacturing activity is on tap for Wednesday.
The Dallas Federal Reserve's gauge of general business conditions in the Texas area slumped to -7.4 in May from 10.5 the prior month, following several other disappointing regional manufacturing reports. However, the overall production index was up to 13 from 8 the prior month.
Currencies and Commodities
The euro got a boost from hopes Greek wouldn't have to restructure its debt, jumping 0.68% against the U.S. dollar. The greenback was off 0.33% against a basket of world currencies.
Energy markets rallied on a slumping dollar and optimism over the improving situation regarding Greek debt.
Light, sweet crude soared $2.11, or 2.1%, to $102.70 a barrel. However, crude had its worst month in a year -- tumbling nearly 10%.
Wholesale RBOB gasoline was up 2 cents, or 0.63%, to $3.05 a gallon -- sliding 9% on the month.
Gasoline prices at the pump continued moderating over the long weekend. A gallon of regular gas cost $3.78 on average nationwide, down from $3.82 last week, but up from $2.73 last year, according to the AAA Fuel Gauge Report.
In metals, gold was down 50 cents, or 0.03%, to $1,537 a troy ounce.
Silver climbed 44 cents, or 1.2%, to $38.31 a troy ounce. The industrial and precious metal struggled in May, plunging 21% -- the biggest percentage decline in nearly three years.
Nokia (NOK) warned its Devices & Services operating margin would be "substantially below its previously expected range of 6% to 9%," sending shares sharply lower.
Wal-Mart's (WMT) bid to obtain a majority stake in Massmart got a nod from South African regulators on Tuesday.
Ashland (ASH) agreed to acquire chemical products supplier International Speciality Products for $3.2 billion in cash in a bid to boost its personal care and pharmaceuticals business.
Level 3 Communications (LVLT) inked a deal with Info Television to support its broadcasting operations.
The English FTSE 100 was up 0.69% to 5,980, the French CAC 40 jumped 1.6% to 4,007 and the German DAX soared 1.9% to 7,293.
In Asia, the Chinese Nikkei 225 rallied 2% to 9,694 and the Chinese Hang Seng spiked 2.2% to 23,684.