Stock Market News for May 12, 2011

A sharp drop in energy and commodity prices pulled the benchmarks down as markets ended their three-day winning streak on Wednesday. Additionally, the trade deficit widened while inflation cooled only partially in China to prompt speculation of a possible hike in interest rates.

The Dow Jones Industrial Average inched down a percent to settle at 12,630.03. The Standard & Poor 500 lost 1.1% and closed at 1,342.08. The S&P 500 also broke below the technical level of 1,340 and the Nasdaq ended the day at 2,845.06, after losing 0.9%. On the New York Stock Exchange, Amex and Nasdaq, consolidated volumes were at 7.75 billion shares. On the NYSE, only one stock managed to move up against five stocks that were on the declining side.

In other news, the Energy Information Administration (EIA) reported a larger-than-expected crude inventory build-up. This development, combined with concerns about Greece’s sovereign debt and the prospect of an interest rate hike in China led to the decline in the crude prices. On the New York Mercantile, light crude oil for June delivery fell 5.5% to settle at $98.21 per barrel. For the week ended April 6, the EIA reported a 3.8 million jump in crude oil inventories. Analysts had been expecting inventories of just 1.1 million.

Shares of oil and energy companies were subsequently led lower. Exxon Mobil Corporation (NYSE:XOM - Analyst Report) and Chevron Corp. (NYSE:CVX - Analyst Report) were among the biggest laggards for the Dow components and shed 2.1% and 2.0%, respectively. Additionally, shares of Marathon Oil Corporation (NYSE:MRO - Analyst Report), ConocoPhillips (NYSE:COP - Analyst Report), Valero Energy Corp. (NYSE:VLO - Analyst Report), Chesapeake Energy Corporation (NYSE:CHK - Analyst Report), Anadarko Petroleum Corporation (NYSE:APC - Analyst Report), Hess Corporation (NYSE:HES - Analyst Report) and Transocean Ltd. (NYSE:RIG - Analyst Report) plunged 3.1%, 2.8%, 5.0%, 2.2%, 3.2%, 3.3% and 3.1%, respectively.

Meanwhile, China's National Bureau of Statistics reported that the country’s inflation rate has fallen to 5.3% last month. This is just a marginal decline compared with the 5.4% increase in the consumer price index in March. Food prices jumped 11.5% on a year-over-year basis in April. This also signaled a slowdown as food prices had risen 11.7% on a yearly basis in March. Though the economy showed signs of inflationary pressures easing, price indexes are still lingering on the higher side. The world’s second-largest economy has raised interest rates four times since October last year and it is likely that the People’s Bank of China is once again close to taking a similar decision in a bid to fight inflation.

While a plunge in crude prices took the energy index lower and also dragged down the broader market, surging crude prices have been a cause for concern over the last quarter. Surging crude prices had added to inflationary concerns and investors, manufacturers and consumers had all been mostly adversely affected. Rising oil prices also led to a widening of the US trade deficit, according to the Commerce Department. According to the report, the trade deficit widened to $48.2 billion in March against economists’ expectations of $47.7 billion. This is also significantly higher than the $45.4 billion recorded in February this year. Total exports came in at $172.7 billion while imports were recorded at $220.8 billion in March.

On the earnings front, as we approach the end of the earnings season with few major companies left to report their quarterly earnings, investors’ waited eagerly for results from Cisco Systems, Inc. (NASDAQ:CSCO - Analyst Report). Reporting after the closing bell, the company managed to surpass estimates but posted lower profits. The company’s shares traded 3.3% lower after the markets closed, settling at $17.19. 

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Read the full analyst report on CHK

Read the full analyst report on APC

Read the full analyst report on HES

Read the full analyst report on RIG

Read the full analyst report on CSCO