Stock Market News for May 25, 2011

On Tuesday, oil prices gained strength after banks upgraded their crude price forecast; sales of new homes recorded their second consecutive monthly gains, and corporate results came in better than expected. However, markets negated all these positives to drop further down for the third-consecutive day as lingering concerns about slowing growth continued to dampen investor sentiment.

Markets ended at their lowest level since April 19 with the benchmarks dropping modestly. The Dow Jones Industrial dropped 0.2% to close at 12,356.21. The Standard & Poor 500 (S&P 500) was down to 1,316.28, after shedding 0.1% and the Nasdaq closed with a loss of 0.5% at 2,746.16. On the New York Stock Exchange, for every eight declining stocks, one stock moved up.

The markets have been weighed down over the past couple of days by fresh euro-debt worries. While, credit ratings firms Fitch downgraded Greece’s sovereign debt rating by three notches, a heavy defeat suffered by the Socialists in Spain will hasten the disclosure of higher debt than previously known. Italy, which had managed to stay away from the euro-zone situation, also fueled concerns as Standard & Poor’s Ratings Services downgraded its outlook for the country’s sovereign credit rating to ‘negative’ from ‘stable’ citing a potential ‘political gridlock’. China’s slowing manufacturing data also dampened the mood to weigh down the markets. All of these concerns, and the lack of robust economic data over past few days, overshadowed the positives that could have guided the indices upward yesterday.

As The Goldman Sachs Group, Inc. (NYSE:GS - Analyst Report) and Morgan Stanley (NYSE:MS - Analyst Report) raised their crude price forecast, and JPMorgan Chase & Co. (NYSE:JPM - Analyst Report) reiterated its outlook, crude price climbed up and subsequently added strength to the energy sector. Light, sweet crude futures for June delivery pared their previous day losses to edge up $1.89 to $99.59 per barrel. A declining greenback also helped to push up crude prices. Goldman Sachs upped its forecast for 2011 Brent crude from $105 to $120 per barrel. For 2012, they raised the forecast from $120 to $140 per barrel. Morgan Stanley raised the forecast for 2011 to $120 per barrel from its previous forecast of $100 per barrel. For 2012, they now project Brent crude will reach $130 per barrel as compared with a previous estimate of $105 per barrel. JPMorgan reiterated its forecast of Brent crude price at $130 per barrel for the third quarter of this year. As a result, Exxon Mobil Corporation (NYSE:XOM - Analyst Report), ConocoPhillips (NYSE:COP - Analyst Report), BP plc (NYSE:BP - Analyst Report), Transocean Ltd. (NYSE:RIG - Analyst Report), Halliburton Company (NYSE:HAL - Analyst Report) and Schlumberger Limited (NYSE:SLB - Analyst Report) gained 0.8%, 0.8%, 0.8%, 1.6%, 2.9% and 1.5%, respectively.

However, higher crude prices combined with news of an ash cloud disrupting European air travel adversely affected airline stocks. Airline stocks had gained significantly after crude prices declined, but yesterday the airlines stocks had to bear the brunt of a spike in oil prices. Higher crude prices automatically results in higher costs for the airline companies and shares like Delta Air Lines Inc. (NYSE:DAL - Analyst Report), AMR Corporation (NYSE:AMR), United Continental Holdings, Inc. (NYSE:UAL - Analyst Report), US Airways Group, Inc. (NYSE:LCC - Snapshot Report), Southwest Airlines Co. (NYSE:LUV - Analyst Report) and JetBlue Airways Corporation (NASDAQ:JBLU - Analyst Report) dropped 1.3%, 1.1%, 2.1%, 2.6%, 1.4% and 2.1%, respectively.

According to the U.S. Census Bureau and the Department of Housing and Urban Development, “sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000”. This was the second month of gains after New Home Sales rebounded from disappointing figures of a drop to 278,000-units recorded in February 2011. According to the report from the Commerce Department: “This is 7.3 percent above the revised March rate of 301,000, but is 23.1 percent below the April 2010 estimate of 420,000.” Sales jumped in all of the four regions, as sales in West, Northeast, Midwest and South surged 15.1%, 7.7%, 4.9% and 4.3%, respectively. This report goes against the trend of disappointing housing data released through the month.

Corporate results came in better-than expected as companies like GT Solar International, Inc. (NASDAQ:SOLR) and AutoZone Inc. (NYSE:AZO - Analyst Report) reported robust results. The company’s shares gained 3.3% and 6.0%, respectively.

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