Just like you never want to hear a doctor say "oops" in the operating room, you never want to see a going-concern statement in a financial report about a company you own. Accountants throw these in when they've been over the books, talked to customers, and checked the horoscopes and have concluded there is "substantial doubt" about a company's ability to remain in business. In short, don't blame the accountants if the company files for bankruptcy protection.

You¿d reckon that a going-concern statement would be enough to send investors running to the exits, but it's not. True, many large institutions automatically bail when an existing company gets slapped with one of these, but many individuals (often wrongly) take a chance they know more than the bean counters.

During the tech boom of the late 1990s, many companies actually went public even though they had been hit with going-concern statements. Many of those companies subsequently disappeared. Enough said.

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Tuesday, July 01, 2008

Uptick

GM Steers Dow Away From Bear Territory

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Matt Egan

FOXBusiness

On the first trading day of the third quarter the Dow narrowly escaped closing in bear market territory thanks to an afternoon rally led by General Motors.

Today's Market

The Dow Jones Industrial Average rose 32.25 points, or 0.28% to 11382.26, the Standard & Poor’s 500 index gained 4.91 points, or 0.38%, to 1284.91 and the Nasdaq Composite Index picked up 11.99 points, or 0.52%, to 2304.97. The consumer-friendly FOX 50 rose 4.45 points, or 0.50% to 899.76.

Tuesday's wild trading session swung dramatically in the favor of the bulls when General Motors (GM) soared 15% on its June U.S. sales results, which allowed the company to hold onto its status as No. 1 U.S. auto maker. The rally erased a 167-point selloff on the Dow that had been fueled by near-record oil prices and tumbling financial stocks.

In addition to the huge rally by GM, the market cheered a pair of better-than-expected economic reports on construction spending on the nation's manufacturing activity. While both reports signaled weakness in the economy, they were better than the market had been bracing for.

"I'm not yet convinced that we are out of the woods but I think we bought ourselves a reprieve... The question is if we can go much higher," said Paul Nolte, director of investment at Hinsdale Associates. “We’ve gotten to fairly oversold territory over the past three weeks. We were certainly due for a snapback rally.”

The Dow barely avoided ending the day in bear market territory, which would have marked a 20% decline from its highs set in October 2007. The index has flirted with that pivotal threshold over the past few trading days but has not yet closed there.

It wasn't much of a rebound though from a very ugly first half of the year and the worst June for the Dow since 1930. In fact, June was the worst month overall for the blue chips since September 2002, according to Dow Jones.

“You hate to keep looking at the glass and saying it's half empty…It’s just a difficult environment," Ted Weisberg of Seaport Securities told FOXBusiness. “The reality is that we are dealing with the same negative dynamics that we were yesterday.”

American Express (AXP) powered the Dow on Tuesday, soaring 6% after UBS upgraded the company to “neutral” from “sell.” Alcoa (AA) posted the largest percentage declines on the index, losing more than 3%.

United Airlines (UAUA) suffered the worst losses on the Nasdaq 100 on Tuesday, tumbling more than 10% on high fuel costs. On the upside, Celgene (CELG) led the index, benefiting from the failure of competitor SuperGen's (SUPG) bone-marrow cancer drug.

While GM sparked a rally on Tuesday with its sales results, the stock gave up most of its gains during afternoon trading, closing modestly higher. The auto maker posted better-than-expected results, saying its U.S. June sales declined by 18.5% on an unadjusted basis, a number that wasn't as bad as the market had been expecting nor as ugly as Ford's (F) 28% plunge.

The news overshadowed yet another record day for crude oil futures, which ended the day at a new closing high, up 97 cents at $140.97 per barrel. The commodity had been even higher earlier in the day on the weak dollar and geopolitical concerns, nearly breaking the intraday record of more than $143 that was set just a day ago. Oil prices have doubled from nearly a year ago, including a rise of almost 50% in 2008 alone.

Financial stocks recovered from earlier, deep declines, closing slightly higher as a group. Leading the gloom in the sector was Swiss banking giant UBS (UBS), which fell to 52-week lows after The Wall Street Journal reported that the Justice Department is seeking to force the bank to release names of wealthy U.S. clients in a tax evasion probe. Also, UBS announced changes to its corporate governance structure and is reportedly expected to warn of a second-quarter loss.

The day's economic data came in stronger than Wall Street had anticipated.

A private research group said manufacturing activity improved and unexpectedly expanded in June. The Institute for Supply Management's manufacturing index improved to 50.2 last month from 49.6 in May. Economists surveyed by Dow Jones had been looking for a deterioration to a reading of 48, which would indicate contraction.

Also, the government reported construction spending declined by 0.4% in May as private residential construction declined to its lowest level in six years. While that Commerce Department report showed more evidence of the ongoing housing slump, it came in better than the market had been expecting. The government also upwardly revised the April spending report to reflect a more modest 0.1% decline from -0.4%.

Corporate Movers

General Motors (GM) declared that "Asian auto makers do not have a monopoly on fuel efficient vehicles" in its June sales release on Tuesday. GM's stock soared as its sales numbers weren't as bad as shareholders had been bracing for. The company said its total truck sales declined by 16.6%. Even with Tuesday's gains, GM's stock has plunged 70% over the past 52 weeks, making the stock the worst performer on the Dow.

Ford (F) closed lower after it said its June U.S. auto sales plunged 28% on an unadjusted basis, highlighted by a 54.7% dive in SUV sales and a 37.8% decline in truck and van sales. The company said consumer car-buying sentiment was the worst since 1980.

Toyota (TM) reported an 11.5% decline in U.S. June auto sales on an adjusted basis. Its luxury Lexus vehicles suffered a 21.1% decline in sales and its Toyota brand sales fell by 10.3%. President Jim Lentz acknowledged that the pendulum is swinging to smaller, higher-mileage vehicles but said the auto maker is well positioned to react to that shift.

CIT Group (CIT) soared almost 30% and led the S&P 500 after the commercial lender sold its home lending business to private equity firm Lone Star Funds for $1.5 billion. Also, CIT Group signed off on a pair of deals to unload its manufactured housing portfolio. The company said the moves complete its exit from the home lending business and will result in a second-quarter charge of $2 billion.

Lehman Brothers (LEH) rebounded following a double-digit percentage loss on Monday surrounding a series of market rumors swirling over the investment bank. The rebound came as Morgan Stanley began coverage of the firm with an "overweight” rating and a target price of $31 a share, according to Dow Jones. Morgan cited "solid liquidity and capital footing" and "the firm's ability to weather the near-term market headwinds," according to the news agency.

Moody's Investors Service (MCO) fell after the credit ratings agency said it disciplined employees over European ratings missteps. The company said the employees considered inappropriate factors when rating European debt securities. In response, Moody's said it has "accelerated measures to strengthen its rating and monitoring processes."

Bank of America (BAC) completed its $4 billion purchase of Countrywide Financial (CFC), the nation's largest home mortgage originator. The deal closed on Tuesday but regulators and Countrywide shareholders had already gave the transaction a green light. Based on the decline in BofA's stock price, the deal is now worth approximately $2.5 billion.

InBev won't be dissuaded in its $46 billion bid to acquire iconic American brewer Anheuser Busch (BUD). The Belgian-Brazilian brewing giant said it will pursue "all available avenues" to get the deal done even after Anheuser rejected the initial offer last week. InBev could now up its $65-a-share offer price or take the case directly to shareholders in a hostile takeover.

Celgene (CELG) benefited from the failure of SuperGen's (SUPG) bone-marrow cancer drug in a late-stage trial. Celgene, a New Jersey-based biotech firm, rose as the drug failure is a potentially positive development for its own Vidaza drug, which had sales of $13.8 million in the first quarter. SuperGen's stock plunged to six-year lows on the news.

Sherwin-Williams (SHW) rose sharply after the Rhode Island Supreme Court overturned a verdict against the company and NL Industries (NL) and Millennium Holdings, two other lead paint companies. The decision is a negative development for the municipalities hoping the companies to decontaminate hundreds of thousands of homes, the Associated Press reported.

World Markets

European Markets sold off sharply Tuesday on weakness in the banks and concerns over oil. Asian markets closed flat.

The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, fell 59.95 points, or 1.79%, to 3292.86. The FTSE 100, London's benchmark index, dropped 146.00 points, or 2.60%, to 5479.90.

On the continent, Paris's CAC 40 Index fell 93.64 points, or 2.11%, to 4341.21 while Germany's DAX fell 102.38 points, or 1.60%, to 6315.94.

In Asia, Japan's benchmark Nikkei 225 Index fell 18.18 points, or 0.13%, to 13462.20. Hong Kong's Stock Exchange was closed.