Plunging Oil Prices Send Stocks Surging - U.S. Commentary
(RTTNews) - Investors are buying up stocks in morning trading on Tuesday, as the price of oil drops sharply. The positive sentiment has prompted investors to look for bargains after seeing notable declines in the previous session.
Crude oil is plunging in morning trading as Hurricane Gustav weakened without causing the damage many had feared. Light sweet crude is currently down $6.89 at $108.57 a barrel. Oil fell to a fresh multi-month low of $105.46 a barrel earlier in the day.
Surface observations over Louisiana indicate that Gustav has weakened below tropical storm strength, according a statement released Tuesday morning by the National Weather Service Hurricane Center. New Orleans was spared a direct hit as the storm arrived on Monday, and the oil region also escaped with minimal damage.
On the economic front, activity in the manufacturing sector showed a slight contraction in the month of August, according to a report released by the Institute for Supply Management on Tuesday, although the report also showed a slowdown in the pace of price growth.
The ISM said its index of activity in the sector edged down to 49.9 in August from 50.0 in July, with a reading below 50 indicating a contraction in the sector. Economists had been expecting the index to slip to a reading of about 49.5.
At the same time, the Department of Commerce released its report on construction spending in the month of July, showing that spending decreased by a little more than economists had been expecting due in part to a continued weakness in spending on residential construction.
In other news, Sciele Pharm (SCRX) said it entered into a definitive agreement to be acquired by Japanese pharmaceutical manufacturer Shionogi & Co., Ltd. (SGIOF.PK) for a total equity price of about $1.1 billion. Under the agreement terms, Shionogi will buy shares of Atlanta, Georgia-based pharmaceutical company Sciele through a cash tender offer at a price of $31 per share. Shares of Sciele Pharm are currently up nearly 60 percent.
The major averages have moved well off of their intraday highs in recent trading, although they remain sharply higher. The Dow is currently up 193.21 at 11,736.76, the Nasdaq is up 27.34 at 2,394.86 and the S&P 500 is up 14.28 at 1,297.11.
Sector News
With oil prices falling more than $6 a barrel, airline stocks are turning in some of the best performances. The Amex Airline Index is currently up 8.5 percent, extending gains seen in the previous two sessions. With the gain, the index has reached a two-week intraday high. AirTran Holdings (AAI) and UAL Corp. (UAUA) are two of the best performers in the airline sector.
Bank stocks are also seeing significant buying interest, with the S&P Bank Index climbing 2.5 percent. Regions Financial (RF) is among the biggest gainers in the sector. The stock is up 12.2 percent, setting a monthly intraday high.
On Friday, Regions Financial announced that it has assumed approximately $900 million in total deposits from the Federal Deposit Insurance Corporation, including all uninsured deposits of failed Alpharetta-based Integrity Bank.
Retail stocks are sharply higher as well. The S&P Retail Index is climbing 3.6 percent after setting a three-month intraday high. The index has been in an uptrend for the past six weeks.
Other stocks that are showing notable gains include housing, disk drive and defense stocks. The Philadelphia Housing Index is up 3.2 percent, the Amex Disk Drive Index is up 1.3 percent and the Philadelphia Defense Index is up 2 percent.
On the other hand, gold stocks are seeing considerable selling pressure, hurt by a more than $33 an ounce decline in the price of the precious metal. The Amex Gold Bugs Index is falling 6 percent.
Other commodity stocks are sharply lower as well, including oil, oil service and steel stocks. The Amex Oil Index is down 3.7 percent, the Philadelphia Oil Service Index is down 3.8 percent and the Amex Steel Index is down 2.5 percent.
Stocks Driven By Analysts Comments
Among individual stocks, Lowe's (LOW) is showing considerable strength in morning trading after being upgraded by an analyst at Goldman Sachs. The analyst upgraded the stock to a Buy rating from a Neutral rating due to a stabilizing housing market. The analyst also raised Lowe's price target to $28 from $27.
Shares of the home improvement retailer are currently trading 6.6 percent higher, extending a recent uptrend. Earlier in the session, the stock set a four-month intraday high.
Pepsi Bottling (PBG) is also seeing significant buying interest after a Morgan Stanley analyst upgraded the stock to an Overweight rating while also raising the company's quarterly estimates. The upgrade was based on moderating commodity costs that should benefit the company. The stock is up 6.6 percent after setting a two-month intraday high.
On the other hand, a JP Morgan analyst downgraded Ensco International (ESV) to an Underweight rating, sending the stock sharply lower. The analyst stated that there are few positive catalysts in the near term. The stock is down 6.6 percent, adding to losses posted in the previous two sessions.
Other Markets
Most Asian markets retreated on Tuesday amid a lack of a lead from the U.S. markets, which remained closed on Monday. After opening lower, Japan's Nikkei 225 index traded with a modest gain for most of the session before receding sharply in late afternoon. The index closed down 1.8 percent.
On the other hand, the major European markets are trading higher on Tuesday, with the French CAC 40 Index and the German DAX Index gaining 1.5 percent and 1.7 percent, respectively, while the U.K.'s FTSE 100 Index is trading up 0.4 percent
The European Commission's statistical arm, Eurostat reported that the industrial producer price index of the euro area rose 1.1 percent in July from the previous month compared to 1 percent growth in June. On a year-over-year basis, producer prices jumped 9 percent in July.
Meanwhile, treasuries have pared some of their losses, although the benchmark ten-year note continues to show notable weakness. Subsequently, the benchmark ten-year note is currently up 4 basis points at 3.853 percent.
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