Interview: Economic beat
>> let’s get more on the economic reports that helped move the equity markets today. part of the reason was business in the chicago area slowing this month even as consumer confidence unexpectedly rebounded. june grasso on the economic beat, joining us with more. hi, june.
>> hi, ellen. an index of chicago-area business dropped this month to the lowest level in almost two years. it fell 11.5 points from april to 54.1 in may. economists surveyed by bloomberg expected the number to be nine points higher.
>> we had weakness in the manufacturing sector of late. we’ve had a flat showing by industrial production in the past couple of months and we’d like to see growth return to manufacturing to be more convinced that the buildup of inventories relative to business sales earlier this year has tapered off and that companies again have reason to step up orders.
>> orders, production and employment growth slowed in the chicago area. the chicago index followed reports from new york state and the philadelphia region showing a deceleration in manufacturing, as well. today’s reports paint a picture of an economy led by consumer spending while manufactures are slowing production as companies work off inventory. the conference board’s index of consumer sentiment unexpectedly rose to 1 102.2 this month, after being forecast to fall more than a point. incomes rose in april by most this year and gas prices dropped from record highs, leaving consumers with more money to spend.
>> a lot of this is about the labor market .% we had a good labor report, then a lousy one followed by a good one and what we see in terms of consumer confidence over the same period is following that same track. where the labor market is, that’s where consumer confidence is.
>> economists say the rebound in confidence and more job growth may cause people to spend more, generating more strength for the economy. declines in the regional manufacturing report suggest tomorrow’s institute for supply management’s index on nationwide manufacturing will decline for a a sixth month according to a bloomberg news survey.
>> a lot of focus on the bond market because of the comments today from microsoftmicrosoft -- morgan stanley chief economist stephen roach who expects yield it’s 10-year treasury may fall to 3.5%. look at the jump in the 10-year price today, 23/32, yield at 3.98%, falling below 4% for the first time since february. a lot of comments today, the interest rate strategist at merrill lynch saying the market has the ability to grind to lower yields. the two-year yield currently at 3.57%. the last trading day of may and treasuries recorded their second straight gain. investors looking for safety after general motors and ford debt cut to junk status. in other markets today, crude oil prices rebounded, rising for the sixth straight session. refineries increased gas production in anticipation of the peak demand driving month that kicked off with the memorial day holiday. crude at the close, up .2%. $51.97 per barrel. among the other energy movers, gas futures declined almost .5%. heating oil and natural gas futures rose, as well as oil. turning attention to world and national news, it has been one of the great mysteries remaining from the water gate era and now it may have been solved. let’s get details from mark crumpton.
>> thank you. according to “vanity fair” smag xen, former f.b.i. official mark felt reveals he was deep throat, the source used by “washington post” reporters bob woodward and carl bernstein to help uncover the scandal. felt is now 91 and living in santa rosa, california. woodward and bernstien said they wouldn’t reveal the identity of deep throat until after his death but the “washington post” saying that bob woodward now confirming that felt is, in fact, deep throat. felt’s grandson spoke to reporters today in santa rosa.
>> as he recently told my mother, i guess people used to think deep throat was a criminal but now they think he’s a hero
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>> the new c.e.o. of a.i.g. tried to reassure investors and analysts who were listening that there will be no further restatements covering the years 2004 back to 2000, as this one does. and he said that the company took so long to reach this point of being able to restate earnings because they kept uncovering new information about serious issues and material weaknesses in a.i.g.’s controls. he did, also, say, and this is important in terms of how a.i.g.’s stock has been viewed by wall street for years, that the company remains committed to achieving above-average performance but will no longer provide guidance to analysts about how the stock might do. now, the long delayed restatements by a.i.g. sets the stage for the company closing negotiations with new york attorney general eliot spitzer. spitzer said today that there is an overwhelming likelihood that he and the company will be able to reach a settlement soon. the company knocked $2.25 billion off of its net worth as a result of its 14-week internal investigation. the moves to correct improper accounting for five years by a.i.g. comes in the wake of the charges filed last week by spitzer. one investor whose company holds a million shares of a.i.g. still believes in the company’s prospects.
>> i think some people feel that going forward the earnings growth will be slow and the company will be more cyclical. we believe that while the earnings may be slower or cyclical, it will still outperform the rest of the industry.
>> a.i.g. results had been regarded by analysts as far smoother than its competitors were. the new york attorney general’s suit charges that former a.i.g. chairman and c.e.o. maurice greenberg directed or had knowledge of deceptive accounting practices at the company. an analyst with a.g. edwards says the company’s future reports will be different.
>> the reputation for smooth earnings will go away and i think the earnings will be more volatile than they have been in the past. the property-casualty earnings should be more volatile in the future given the changes in the accounting they’re making.
>> martin sullivan said there won’t be further restatements but the company has not restated earnings for 2005. they have not reported them yet, but when they do, there may be further charges and analysts say there could be as much as $1 billion to take into account the settlement with the new york attorney general and other litigation.
>> other shares declining in extended hours are hovnanian. the company is falling despite the fact that it reported second-quarter profit beating expectations, $1.62, a penny better than analysts’ estimates. here’s what seems to be the story. the company reporting revenue of $1 didn’t 22 -- $1.22 billion, light compared to analysts’ forecasts for sales that second quarter. the company saying that for the third quarter, it sees earnings per share at $1.70 compared to the analysts’ estimates consensus of $1.80. the company is boosting its forecast for fiscal year 2005, saying the full-year earnings per share, expectingt earn greater than $7 per share. the current analysts’ estimates at $6.94. the company sees continued strong earnings per share growth in fiscal year 2006. so, again, those hovnanian shares down 4.3% in extended trade. the shares had been up 76% over the past 12 months of trading. that has happened as we’ve seen housing stocks in general surge with record home sales in the u.s. those shares currently trading at 7.7 times 2006 profit estimates. what we want to do right now is wrap in what happened in the market today. declines for each of the major indexes. stocks fell after a measure of chicago area business dropped to% -the lowest level seen in almost two years. it raised concern about the manufacturing sector. one day ahead of the national report on manufacturing that we get tomorrow. in terms of what helped lead the decline, raw material producers such as alcoa and nucor. again, in relation to that report on manufacturing, concerns that perhaps demand will slow in terms of what these companies have seen. interesting and important to note, it was the last trading day of the month. you have the indexes gain for the month. the nasdaq up 7.7% for the month. for example. and you do see the monthly gains the biggest seen so far in 2005. returning to the day. we want to get more details on exactly what happened in the intraday of trading. deirdre bolton joins us with details.
>> that weaker-than-forecast manufacturing report trumped a better-than-expected consumer% -confidence number. investors’ pessimism pushed markets lower. 21 out of the 24 groups tracked on the s&p 500 declined. investors returned from the holiday weekend to mixed economic indicators, calling into question just how much the economy is growing. may’s chicago purchasing index report fell to its lowest level in almost two years while a measure of consumer confidence unexpectedly rebounded.
>> we’ve received over these past six, eight, 10 months, conflicting information that makes it problematic for us to know whether we’re having an inflation problem or not, whether we’re having a slowdown that is just a tip typical mid cycle slowdown which has occurred in each of the last several decades, really, after world war ii, or are we heading into recession.
>> recessionary concerns pushed raw material stocks including nucor, dow chemical and newmont mining down. these companies earnings are most sensitive to changes in the pace of economic growth. another materials company, alcoa, traded lower. the aluminum producer received a subpoena from the justice department about its aluminum flouride business. not all investors are pessimistic. google rose to a record high. piper jaffray says google’s stock may reach $300 in the next year as the company expands advertising sales. semiconductor equipment maker novellus systems also gained as the company said second-quarter earnings may come in 10% higher than forecast. some investors say technology stocks, another group that has not kept up with the market , remain attractive investments.
>> technology along with many parts of healthcare are the only two parts of the market that are still in neglect, that no investor cares about, and that is probably your best chance for a run if good news occurs.
>> healthcare and semiconductor stocks, along with auto stocks, are the three worst performing groups this past year. ellen, back to you.
>> deirdre, thanks so much. declines today but for the month we saw gains. for more, here’s a report from deborah kostroun.
>> even with today’s decline, the dow and s&p 500 had their biggest monthly advance this year. the s&p 500 was up 3% for the month of may and dow was up 2.7%. looking at today’s session, that national association of purchasing management for chicago report dropping to its lowest level in almost two years, causing material stocks to be the worst performer in the 10 industry groups in the s&p 500. of course, tomorrow we get the institute for supply management report tomorrow. see how that goes. material stocks, the biggest drag, not only today but also the worst performing group this quarter and in fact what they’re looking at, biggest quarterly decline in two years. alcoa, a big part of that. that, of course, not only is it a material stock, but they received that subpoena from the justice department relating to that grand jury probe of the aluminum flouride industry. other material stocks lower on the day. you also saw many of the gold stocks lower. gold prices dropping after france’s rejection of the european union constitution. that drove the euro lower against the dollar. a.i.g. also lower on the day. along with other insurance companies. a.i.g., lowered five years of profit by $3.9 billion to correct improper accounting and increased reserves for asbestos and environmental claims. the airline group actually has been a good performer over the past month. in today’s session, news on united airlines and its biggest union, the international association of machinists, reached an agreement on give-backs from bag handlers, reservation agents and customer service workers so by coming to agreement, they avoided a strike by those workers. dreamworks lower after the company’s latest film, “madagascar” missed opening weekend box office sales estimates by two analysts. many analysts estimated $85 million in receipts so coming in less than expected. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> we also just had a headline cross that a seat on the new york stock exchange is selling for $2.25 million. that is up $30,000 from the previous sale. keep in mind, the new york stock exchange, of course, set to take over archipelago, currently valuing each of the new york stock exchange seats at $2.44 million in stock. also, the exchange planning to pay $300,000 in cash for each seat. a quick break and look ahead at what stocks are set to outperform.
