Market Snapshot: U.S. stocks close lower after rate-cut rally falls apart. Sector clinches gains on Fed rate cut, weaker oil prices

Jan.30, 2008 in Market Outlook

U.S. stocks close lower as Fed-fueled rally unravels

Talk of downgrades for bond insurers adds to late-session losses

By Kate Gibson, MarketWatch

Last Update: 4:50 PM ET Jan 30, 2008

NEW YORK (MarketWatch) — U.S. stocks crumbled into the close on Wednesday, after
earlier rallying in reaction to the Federal Reserve’s much-anticipated half-point
rate cut, with speculation that bond insurers Ambac Financial and MBIA Inc. faced
downgrades helping to fuel the late-session losses.

“I think it’s important to recall that when the market gets what it expects it
doesn’t tend to celebrate, at least not in the long run since the market is a
forward pricing mechanism,” said Art Hogan, chief market strategist at Jefferies
& Co.

Down about 30 points ahead of the Fed decision, the Dow Jones Industrial Average
($INDU) rallied nearly 200 points before retrenching as the closing bell neared
to finish 37.5 points lower to 12,442.8.

“Uafter being unable to hang on to its post Fed rally. Fear that U.S. bond
insurers Click for DetailAmbac and MBIA will be downgraded by
ratings agencies was a catalyst,” said Action Economics.

Ambac (ABK) and MBIA (MBI) will lose more money than they are currently
predicting from guarantees sold on complex mortgage-related securities, according
to one longtime critic of the bond insurance industry. Read more
Click for Detail.

Of the Dow’s 30 components, 17 closed with losses.

Another blue chip, Boeing Co. (BA), rose 2.4% in the wake of its fourth-quarter
earnings climb of 4%.

Merck & Co. (MRK) was down the most, 5%, after the pharmaceutical company
reported fourth-quarter losses of $1.63 billion, pegged in part to its Vioxx
lawsuit settlement and restructuring charges.

The S&P 500 ($SPX) dropped 6.49 points, or 0.5%, to 1,355.81, while the
technology-laden Nasdaq Composite (COMP) fell 9.06 points, or 0.4%, to 2,349.00.

The recent spree of Fed action, beginning with the Fed’s emergency 75 basis-point
cut eight days ago, has helped the equities market recover its footing, with the
Dow gaining more than 500 points, or 4.1%, since the three-day weekend that
preceded Tuesday’s unexpected Fed cut.

“If you look at the magnitude of the easing that has happened in the last eight
days — you’d have to go back to 1990 to see as an aggressive move — it shows
just how concerned the Fed is about the pace of the U.S. economy,” said Hogan.

Crude-oil futures climbed for a fifth day, with the contract for March delivery
up 69 cents to close at $92.33. See Futures Movers
Click for Detail.

Elsewhere on the New York Mercantile Exchange, gold for April delivery fell $4.5
to end at $926.3 an ounce. Read Metals Stocks
Click for Detail.

Volume hit 1.8 billion shares on the New York Stock Exchange, and declining
stocks overtook those advancing 9 to 7. On the Nasdaq, nearly 2.6 billion shares
were exchanged, and advancers 3 to 2.

Fed covered?

Early economic indicators mostly bolstered the case for the Fed to cut half a
point, with the government reporting U.S. economic growth slowed sharply in the
fourth quarter. Read Economic Report
Click for Detail.

“For the Fed, the forward-looking aspects of today’s report are mixed and do not
provide full cover for a 50-basis-point cut, although it is a very close call,”
said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.

Conversely, the ADP employment report found the private sector added 130,000 jobs
this month, nearly twice the 70,000 forecast by economists. See full story
Click for Detail.

Richard Hoey, analyst at Dreyfus Corp., had forecast a divided Fed would trim the
benchmark rate another half point. .

Shares of Yahoo were down 8.7% on the heels of its quarterly results and
downgrades by several brokerages. See full story
Click for Detail.

Other fourth-quarter earnings reports included a 6.3% profit decline at Kraft
Foods Inc., (KFT) with the world’s second-largest foods producer attributing the
drop to higher costs. Read more
Click for Detail.

Shares of E-Trade Financial Corp. (ETFC) rallied as several insiders said they
had recently bought shares of the financial-services company. See Financial
Stocks
Click for Detail.

In Europe, two large banks disclosed fresh troubles stemming from the U.S.
housing slump: Swiss giant UBS (UBS) extended its latest write-down to $14
billion and France’s BNP Paribas said its quarterly profit will slide more than
40%. See full story
Click for Detail.

European stocks weakened in the face of the new banking write-downs. Read Europe
Markets
Click for Detail.

In Asia, several markets surrendered gains to end in the red. See Asia Markets
Click for Detail

Sector clinches gains on Fed rate cut, weaker oil prices

Airline shares climb on rate cut, weaker oil prices

By Christopher Hinton, MarketWatch

Last Update: 4:53 PM ET Jan 30, 2008

NEW YORK (MarketWatch) — Airline stocks were markedly higher Wednesday after the
Federal Reserve met market expectations with another interest rate cut, building
on early-session gains from a drop in oil prices linked to rising U.S. fuel
supplies.

Helping was a half-point cut to the Federal interest rate to 3%, giving financial
markets what they hoped for to help cheapen lending and increase liquidity. Most
airlines are considerably leveraged, and the cut could help bring down their
financing expenses. See full story
Click for Detail.

The Amex Airline Index (XAL) rose 0.7% to finish the session at 35.09 points,
backing off a mid-afternoon spike to 35.76 points on the Federal Reserve’s
decision to cut interest rates another half point to 3%.

U.S. crude inventories rose for a third week, up 3.6 million barrels in the week
ended Jan. 25, according to a report from the Energy Information Administration.
The news initially pushed crude prices for March delivery as low as $91.05 a
barrel on the New York Mercantile Exchange. The contract later rebounded, adding
69 cents to finish the day at $92.33. See Futures Movers
Click for Detail.

Leading the sector were gains in US Airways Group (LCC), which added 4.1%, and
Delta Air Lines Inc. (DAL), up 2.6%.

Among low-cost carriers, SkyWest Inc. (SKYW) was up 2.4%. Other low-cost carriers
showing gains were Frontier Airlines Holdings (FRNT), up 3.7%, and Gol Linhas
Areas Inteligentes SA (GOL), up 4.2%.

AirTran Holdings (AAI) was down almost 2.3% to $8.64 after climbing in Tuesday’s
trading when it reported a narrower fourth-quarter loss. JetBlue Airways Corp.
(JBLU) rose 9% to $6.48, building on its prior-day gains when the carrier
reported a narrower loss than expected. See full story
Click for Detail.

On Wednesday, the Bureau of Transportation Statistics said that average airfares
in the third quarter rose 0.7%, but they are still 2.9% below their pre-Sept. 11,
2001, high for any third quarter.

Average fares are based on domestic-itinerary fares, roundtrip or one way for
which no return is purchased.

Of the top 100 airports based on originating passengers, the highest
third-quarter average fares were in Cincinnati, followed by Anchorage, Alaska,
and Greenville/Spartanburg, S.C. The lowest fares were at three Hawaii airports
followed by Dallas Love and Islip in Long Island, N.Y. See full list
Click for Detail.

In related news, Boeing Co. (BA) reported a better fourth quarter than expected
in part from overseas demand for overseas commercial aircraft. So far, major U.S.
carriers haven’t participated in the latest aerospace cycle for new planes, but
that will likely change this year, Boeing executives said on a post-earnings
call. See full story
Click for Detail

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