Retail price cuts get deeper

Oil, Retail Stocks Drive Gains

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Stocks picked up some steam on Friday morning, drawing strength from gains in energy and consumer stocks, as some of the pressure on the dollar relented.

At 10:50 a.m., the Dow Jones Industrial Average was up by 61 points. It was supported by gains for Exxon Mobil, up 1.7%, and Chevron, up 1.8%, as oil prices hovered above $60 a barrel. Kraft Foods, Walt Disney and DuPont were also higher.

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The S&P 500-stock index crept up 0.7% as its energy sector gained 1.5% and its consumer-discretionary sector rose 1%. The Nasdaq Composite Index rose 0.5%. The major indexes have moved in a tight range in morning trading.

A smattering of mixed earnings reports helped lure some investors to retailers' shares. Sears Holdings shares rallied 18% after it posted a surprise first-quarter profit amid cost cuts and tighter inventory controls. Gap reported a 14% profit fall, with sales in all four of its divisions falling. Its shares climbed 2%. Teen retailer Aeropostale reported an 81% profit rise as its first-quarter results set a company record; its shares were up about 4%.

The financial sector moved slightly higher after the FDIC seized BankUnited Financial in the 34th -- and largest -- bank failure this year, at an estimated cost of $4.9 billion to the agency's insurance fund.

BankUnited's failure is a reminder of how fragile many banks remain. The U.S.'s 19 biggest banks performed better than expected on government "stress tests" and several large and midsize banks in recent weeks have successfully raised capital through public stock offerings. But officials are still concerned about dozens of banks across the country that made bad bets on real estate, and those troubles will likely continue to ripple through the financial system.

Shares of some smaller regional lenders, including SunTrust Banks, weakend. But many larger banks, including U.S. Bancorp and J.P. Morgan Chase, made modest gains in recent trading.

Investors had stream out of the dollar and Treasurys after Standard & Poor's warning on Thursday that it may cut the credit ratings of the U.K. government raised fears that the U.S. could face a similar threat. But some of that trend was softening by midmorning on Friday

The dollar was down against the euro and the pound but regained some ground on the yen. Like the U.K., the U.S. has borrowed heavily to finance aggressive efforts to turn back the financial crisis.

The benchmark 10-year Treasury yield jumped to 3.43% Friday, a fresh high for the year, as traders geared up for a healthy dose of new Treasurys next week. The 30-year bond touched its high yield for the year, at 4.37%. But in recent trade, Treasurys turned up slightly

Retail, Tech Stocks Climb

Stocks moved higher on Friday as traders settled expiring options bets and digested data confirming that inflation isn't yet picking up.

Many traders and analysts say that remains a risk over the long haul, since the government is essentially printing money to bolster the economy. But for now, though, the more pressing concern for investors is how much more pain may be in store as the market consolidates its sharp rally from its March lows.

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At 10:45 a.m., the Dow Jones Industrial Average was higher by about 57 points. Alcoa was the best performer among the blue chips, jumping by nearly 6%. Hewlett-Packard, up 1.6%, and Home Depot, up 1.4%, also rose.

Markets could be choppy on Friday as traders wind down monthly options bets.

"It would surprise me if things got too out of hand today, since the market is in such good equilibrium," said options trader Richard Sparks, of Schaeffer's Investment Research in Cincinnati. "The mood has changed so much since March, but we also have a lot of skeptical people on the other side of the fence, which is healthy, in a way."

Mr. Sparks said traders seem to have been unwinding options bets the last few days, smoothing the settlement process. Expiration can add market volatility as participants buy or sell shares to deliver against their outstanding options positions.

The S&P 500 rose 0.3%, bolstered by gains in its basic-materials, tech and its consumer-discretionary sectors. The Nasdaq Composite Index was up 0.7%. The Russell 2000, which has outperformed other measures lately as investors have bet that the U.S. is overdue for a recovery that will help small companies, was up 0.6%.

In economic news Friday, the consumer-price index was unchanged in April from March, the Labor Department said, but the core CPI, which excludes food and energy prices, jumped 0.3% last month, the largest increase since June 2008 and well above economists' expectations for a 0.1% increase.

Consumer prices fell 0.7% compared to one year ago, the largest 12-month decline since June 1955. That is also significantly under the 2% annual rate of inflation that most Fed officials think is consistent with their dual mandate of price stability and maximum employment.

Other data suggested some moderation in the deterioration of the factory sector. Industrial production decreased by 0.5% in April compared to the prior month, the Federal Reserve said. Output fell 1.7% in March, revised from a previously estimated 1.5% decline. Capacity utilization shrank to 69.1%, the lowest since records began in 1967.

Also, the Federal Reserve Bank of New York's Empire State manufacturing index climbed 10 points to -4.55 from -14.65 in April and the record low of -38.23 in March. The May reading was the highest since August 2008.

Treasury prices were higher. The benchmark 10-year Treasury note was up by 16/32 in recent trading, pushing its yield down to 3.15%.

Stocks of life insurers were mixed after the Treasury Department said it's prepared to provide the companies with up to $22 billion under the Troubled Asset Relief Program. Hartford Financial Services said that it has preliminary approval to tap $3.4 billion in federal funds. A Treasury spokesman said that the government has agreed to provide funds to Hartford, Prudential Financial, Principal Financial Group and Lincoln National. Allstate also will receive aid.

In credit markets, three-month U.S. dollar Libor dropped to 0.82563% from Thursday's 0.85438%. The three-month BOR/OIS spread, a gauge of stress in the money markets, narrowed to 62.7 basis points from 65.5 on Thursday. The spread has tightened significantly from its widest point of 366 bps, seen on Oct. 10 when interbank market tensions peaked.

MarketWatch Hot Stocks: Retail

U.S. Stocks Fall on Retail, Prices Data, Goldman Share Sale

U.S. Stocks Fall on Retail, Prices Data, Goldman Share Sale

April 14 (Bloomberg) -- U.S. stocks retreated, halting a three-day advance, after the government reported unexpected declines in retail sales and producer prices and Goldman Sachs Group Inc. sold shares to boost capital.

Goldman Sachs Group Inc. plunged 12 percent, the most in almost three months, after raising $5 billion to help repay bailout funds. JPMorgan Chase & Co. tumbled 8.9 percent and American Express Co. lost 9.9 percent as financial shares posted the steepest decline among 10 groups. Best Buy Co. and Macy’s Inc. dropped more than 6.8 percent after economic data showed job losses forced consumers to cut back spending last month.

The Standard & Poor’s 500 Index decreased 2 percent to 841.5. The index closed at the highest level since Feb. 9 yesterday amid optimism that bank profits rebounded in the first quarter. The Dow Jones Industrial Average slid 137.63 points, or 1.7 percent, to 7,920.18. About four stocks fell for each that rose on the New York Stock Exchange.

“The problem with the market is that we’ve had such a big move and the excitement may have gotten ahead of itself,” said Eric Green, director of research at Penn Capital Management, which oversees $3 billion in Cherry Hill, New Jersey. “The economy is certainly not in good shape.”

Today’s drop trimmed the S&P 500’s advance from a 12-year low on March 9 to 24 percent. The surge was spurred by lenders from Citigroup Inc. to JPMorgan Chase & Co. saying they made money at the beginning of 2009 and Treasury Secretary Timothy Geithner’s plan to finance as much as $1 trillion in purchases of illiquid real-estate assets from banks.

Europe’s Dow Jones Stoxx 600 Index increased 1.6 percent as bank shares rallied. The MSCI Asia Pacific Index climbed 1.3 percent, advancing for a fourth day.

‘A Difficult Year’

President Barack Obama said today that his economic- stimulus package and plans to rescue banks and bolster housing are starting to “generate signs of economic progress.” Local and state governments along with construction companies are beginning to rehire workers, and credit markets are starting to thaw, Obama said in a speech at Georgetown University in Washington.

“This is all welcome and encouraging news,” he said. “It does not mean that hard times are over; 2009 will continue to be a difficult year for America’s economy.”

Goldman Sachs fell 12 percent, the most since Jan. 20, to $115.11. The sixth-largest U.S. financial institution said it sold 40.65 million shares at $123 each, 5.5 percent less than yesterday’s closing price. It also reported first-quarter profit of $3.39 a share, beating the average analyst estimate by $1.64.

Losses in Goldman Sachs shares accelerated in the afternoon after S&P said the bank’s better-than-estimated earnings may not be sustainable.

Financials Slide

Morgan Stanley, scheduled to give quarterly results next week, slid 12 percent to $23.67. A measure of financial stocks in the S&P 500 slumped 7.7 percent, the steepest loss among 10 industries, and trimmed its rebound from a March 6 low to less than 70 percent.

Discover Financial Services retreated 10 percent to $7.57. The credit-card lender that got $1.2 billion from the Treasury said it will cut 4.2 percent of its workforce next month amid rising loan losses and lower consumer spending.

Citigroup, JPMorgan and General Electric Co. are among the 31 companies in the S&P 500 scheduled to announce results this week. Profits probably decreased for a seventh straight quarter in the January-to-March period, the longest stretch of declines since at least the Great Depression.

‘Materially Lower’

“The outlook for corporate earnings growth for the next five years or so is going to be materially lower than it has been in the past five years,” Andrew Milligan, the head of global strategy at Standard Life Investments, which oversees $181 billion in Edinburgh, said on Bloomberg Radio.

Best Buy, the largest U.S. electronics seller, fell 6.9 percent to $38.10. Macy’s, the second-biggest U.S. department- store chain, tumbled 7.3 percent to $11.99.

U.S. retail sales fell 1.1 percent in March, the Commerce Department said. Economists forecast a 0.3 percent increase, according to the median estimate in a Bloomberg survey. Auto dealers, electronics stores and restaurants led the decline.

Prices paid to U.S. producers dropped 1.2 percent after two months of gains, indicating the recession is keeping inflation under control, according to the Labor Department. Economists projected no change.

Talbots Scraps Dividend

Talbots Inc. had the biggest decline since December, plunging 25 percent to $3.43. The U.S. apparel chain scrapped its quarterly dividend and said it expects a loss of at least 47 cents a share from continuing operations in the first quarter.

Johnson & Johnson added 0.4 percent to $51.37. The world’s largest maker of health-care products announced first-quarter profit that beat analysts’ estimates with the help of job cuts and sales of consumer products, led by Listerine mouthwash and Neutrogena skin cleansers.

Tenet Healthcare Corp., a hospital chain, rallied 18 percent to $1.36 for the S&P 500’s steepest gain. HCA Inc., a hospital operator owned by private equity investors, said revenue between January and March this year may be as much as $7.45 billion, compared with $7.13 billion last year.

“HCA pre-reported first-quarter numbers that were much better than anticipated so that’s why the whole group is up,” said Sheryl Skolnick, an analyst at CRT Capital Group in Stamford, Connecticut.

Dendreon Corp. more than doubled to $16.99. The company said its experimental prostate cancer drug “significantly” prolonged survival in a study designed to satisfy criteria for U.S. marketing approval.