The major averages opened modestly higher Wednesday, despite the ADP Employment Change report that showed a loss of 79,000 jobs in June, compared with an expected loss of 20,000 jobs, greatly exceeding many analysts’ forecasts.
Shortly after the opening bell the Commerce Department released its May figures for factory orders. A reading of 0.6% was mostly in line with economists’ forecasts but was the weakest number over the last three months.
The increase follows a gain of 1.3 percent for April and showed weakening demand for autos, heavy machinery and steel. The data offered further evidence that higher energy prices are causing some businesses and consumers to pare their spending.
The Dow and S&P 500 managed to hold in positive territory for the first ninety minutes of the session. However, another rally in crude prices after a report that U.S. stockpiles of crude fell more than expected last week (crude oil inventories had a draw of 1.98 million barrels versus a consensus build of 500K barrels) combined with aggressive corrections in the coal and steel sectors, prompted the market to give up its brief rally and resume the selling seen in recent weeks.
Banks also erased most of an earlier rally they had after Treasury Secretary Henry Paulson proposed regulatory changes that would require the president’s approval to use taxpayer money to bail out a failing financial firm. Paulson also said the housing slump may worsen and that high oil prices are likely to prolong the current economic slump in the U.S.
Investors also squared positions ahead of the widely anticipated June Nonfarm payrolls data due Thursday.
Stocks later in the session climbed to their best levels of the afternoon. The Dow Jones Industrial Average hovered for a little while into green territory, while the S&P 500 traded just below the neutral line. Not for long however. The stock market fell precipitously to a new session low following a strong advance by oil prices spiking to new all-time high of $143.91 just before the close of pit trading.
In other news
According to The Wall Street Journal, Deutsche Bank (DB) expects to post a profit for its coming quarter and does not believe it will need fresh capital. Starbucks (SBUX) meanwhile, announced plans to increase store closures and limit the number of newly opened stores.
Yahoo Inc. (YHOO) rose $0.93 cents to $21.13 following a WSJ report that Microsoft is again looking for a way to buy the company. Microsoft Corp. has approached other media companies about a bid to acquire Yahoo.
General Motors (GM) fell $1.66 to $10.09 and subtracted several points from the Dow. A brokerage firm recommended selling the stock and said bankruptcy is a possibility. GM was the weakest of the 30 stocks that comprise the Dow industrials.
Blockbuster (BBI) withdrew its offer to acquire Circuit City (CC). Blockbuster said the proposed deal, at a price of more than $1 billion, didn’t make sense because of market conditions.