Bulls see good news in small loss

By Charley Blaine and Elizabeth Strott

The news was crummy today: a big rescue of Washington Mutual (WM, news, msgs), weak earnings from Alcoa (AA, news, msgs), disappointing sales and more job cuts at Advanced Micro Devices (AMD, news, msgs) and soft guidance from chip-equipment maker Novellus (NVLS, news, msgs).

And the minutes from the Federal Reserve's March 18 meeting suggested some Fed policymakers were far more deeply worried about the health of the economy than had been thought.

So, given all that bad news, what was interesting was what the stock market didn't do: It didn't fall apart.

Instead, stocks fell modestly, with the Dow Jones industrials off 36 points, or 0.3%, to 12,576. The Standard & Poor's 500 Index fell 7 points, or 0.5%, to 1,366. And the Nasdaq Composite Index was down 16 points, or 0.7%, to 2,349.

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Bulls were thrilled because today adds evidence to the argument that the stock market has bottomed. Volatility has declined, and the market has continued to hold on to the big gains from the April 1 rally, when the Dow jumped 391 points.

And the major indexes remained above their 50-day moving averages. That suggested that powerful levels support have been put in place.

The bears will argue back: Just you wait. For proof, they'll point to United Parcel Service (UPS, news, msgs), whose shares fell 4.2% in after-hours trading to $70.25 after warning that first-quarter earnings would be 86 cents to 87 cents. That's down from the consensus Wall Street estimate of 92 cents. UPS cited reduced package volume.

Still, it's possible that the bears may be doing more waiting.

The odds are pretty good that the market will remain at current levels for the rest of the week. There aren't a lot of big earnings or economic reports this week except General Electric (GE, news, msgs) on Friday. GE was off 0.8% to $36.95 today. The stock is up 17% since hitting a bottom on March 10.

Next week will bring some more excitement, including earnings reports from Intel (INTC, news, msgs) on Tuesday and Google (GOOG, news, msgs) on April 17.

Watch out for oil prices

Wednesday could see a new bid to push oil prices to record levels.

Crude oil closed at $108.50 a barrel in New York today, down 59 cents from Monday. But the Energy Department will report on crude oil and gasoline inventories on Wednesday. If supplies are lower than expected, prices should jump and may challenge $111.80, the record set in mid-March.

The Energy Information Agency predicted today that gasoline prices would average $3.60 a gallon this year but could hit $4 a gallon this summer. Crude oil will average $101 a barrel, the agency predicted.

ExxonMobil (XOM, news, msgs) was up 0.8% to $89.61 today. Oil-and-gas producer Apache (APA, news, msgs) hit a 52-week high of $131.59 before falling back to $130, up 1.1% on the day.

WaMu gets a $7 billion investment

Washington Mutual (WM, news, msgs) said it will receive a $7 billion investment from a consortium led by private-equity company TPG Capital.

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WaMu shares had jumped 29% on talk Monday that it would receive a $5 billion investment from TPG Capital (formerly known as Texas Pacific Group). But the investment contained some painful news for existing shareholders and employees, and the stock fell 10.2% to $11.81, the worst performance of any S&P 500 stock.

• The deal with TPG will dilute the holdings of existing WaMu shareholders by 100%. First, TPG will buy 176 million WaMu shares at $8.75 each, a 33% discount from WaMu's Monday close. Then, when TPG converts 55,000 shares of preferred stock, bought at $100,000 each, into common shares, the result will double the common shares outstanding.

• WaMu's dividend will be slashed from 15 cents a quarter to a penny, saving $490 million.

• WaMu will report a first-quarter loss of about $1.1 billion, or $1.40 a share, taking a loan loss of $3.5 billion, more than double what it had projected in January. Analysts had expected a loss of 51 cents per share.

• It will close all stand-alone loan origination offices and stop buying mortgages from brokers. The office closures and the shutdown of the mortgage purchase business will result in 3,000 job cuts.

The good news of the deal is this: It does prevent a failure.

Still, WaMu joins a long list of companies that have raised capital in the wake of problems in the mortgage market, including Countrywide Financial (CFC, news, msgs) and Thornburg Mortgage (TMA, news, msgs). Countrywide is merging with Bank of America (BAC, news, msgs).

The WaMU uncertainty pushed financial stocks lower. Citigroup (C, news, msgs) was the weakest of the 30 Dow stocks, falling 3.4% to $23.76. Bank of America, also a Dow component, was off 2.8% to $38.38, and insurance giant American International Group (AIG, news, msgs) was down 2.7% to $46.75.

The Amex Securities Broker/Dealer Index ($XBD.X) was down 1% to 166. The Philadelphia KBW Banking Index ($BKX) was off 2.1% to 82.

Separately, Citigroup shares were up 3% to $24.49 in after-hours trading on reports that the banking giant is close to selling up to $12 billion of leveraged loans and bonds to a group of private-equity firms.

At the end of 2007, Citigroup held about $43 billion of the leveraged loans, The Wall Street Journal said.

Techs have a tough day

Advanced Micro Devices wasn't the only problem facing tech stocks today. Chip stocks, computer makers, software makers and chip equipment makers all struggled.

Apple (AAPL, news, msgs) fell 2% today to $152.84. Google (GOOG, news, msgs) fell 1.9% to $467.81.

The struggle began with AMD's announcement late Monday said it will cut 10% of its work force, or about 1,600 jobs, because of increased competition from rival Intel (INTC, news, msgs).

AMD also cautioned that first-quarter sales would be $1.5 billion, a 15% decline from the fourth quarter and below the company's previous forecast. AMD had previously predicted a seasonal quarter-to-quarter decline, which is typically about 7%. Analysts had pegged sales to be $1.6 billion.

Analysts were surprised by AMD's announcement.

• Top Stocks blog: AMD's miserable week

"A 10% staff reduction is a major cut, and experience dictates that major cuts are a double-edged sword," said BMO Capital Markets analyst Brian Piccioni to MarketWatch.com.

AMD was down 5.2% to $6.01. Intel was off 3.1% to 21.08.

Novellus also announced late Monday that it will earn between 15 cents and 17 cents a share compared with a range of 21 cents to 24 cents that the company had projected on Feb. 28. The stock fell 8.1% to $21.88. Rival Applied Materials (AMAT, news, msgs)was off 3.4% to $19.50 in reaction.

The Philadelphia Semiconductor Index ($SOX.X) was down 2.8% to $359.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$108.50	$109.09	-$0.59	6.81%	13.04%
Heating oil (per gallon)	$3.1102	$3.0843	$0.0259	2.00%	17.39%
Natural gas (per million BTU)	$9.6970	$9.7910	-$0.0940	-4.00%	29.59%
Unleaded gasoline (per gallon)	$2.7504	$2.7835	-$0.0331	5.13%	10.42%

A prolonged downturn couldn't be ruled out

The Fed was deeply worried about how fragile the economy was when its rate-making body, the Federal Open Market Committee, met on March 18.

Minutes from the meeting show that officials believed a recession in the first half of 2008 was likely and that a "prolonged and severe economic downturn could not be ruled out."

The housing slump was showing few signs of recovery, central bankers said in the minutes, and they predicted home values would continue to drop. In addition, officials said the loss of home equity had discouraged consumers, who were already under increasing pressure from the increasing cost of gasoline and food.

Add to that continuing problems in the financial markets, and one understands why most FOMC members voted to cut the Fed's key federal funds rate from 3% to 2.25%.

The Fed thinks a recovery will come in the latter half of the year but is worried about inflationary pressures.

Interestingly, the minutes do not specifically mention the crisis involving crippled investment bank Bear Stearns (BSC, news, msgs), which was on the verge of collapse the prior Friday. On March 16, two days before the Fed meeting, Bear agreed to sell out to JPMorgan Chase (JPM, news, msgs) for just $2 a share with the Fed helping to finance the deal. That price has since been raised to $10, and Bear closed at $10.54 today.

Pending home sales fall

Will the housing market ever recover? According to data this morning from the National Association of Realtors, it isn't going to happen anytime soon.

The NAR said its index of pending home sales fell 1.9% in February, worse than the 1% monthly decline analysts had expected. Year over year, pending sales fell 21.4%.

"The slip in pending home sales implies we're not out of the woods yet," said Lawrence Yun, NAR chief economist, in a press release.

Pending sales for March rose 2.1% from January in the West but were down 6.1% from a year ago. The index fell 5.5% in the South and is off 30% from a year ago. The index fell 3.7% for in the Midwest and 17.4% from a year ago. The Northeast saw a 3.2% increase in contracts signed in February but is off 25.4% from a year ago.

Builder shares fall on Bush opposition to housing bill

Housing stocks took a dive today the Bush administration said it will oppose a Senate bill to help the housing market. The administration said the bill contains too many costly and extraneous elements, spokeswoman Dana Perino said.

The White House rejected provisions that would give a tax break to buyers of foreclosed homes and provide other tax breaks.

The prospect that help will get mired in political battles pushed Lennar (LEN, news, msgs) shares down 8.3% to $20, second-worst among S&P 500 stocks after Washington Mutual.

Also lower were: Ryland (RYL, news, msgs), down 4.3% to $34.54; Pulte (PHM, news, msgs), off 5.8% to $14.94; and D.R. Horton (DHI, news, msgs) down 4.4% to $16.22.

The Senate bill includes $10 billion in tax-exempt bonds for local housing agencies to refinance subprime loans, $4 billion in grants for local governments to buy foreclosed properties and $100 million to expand counseling for homeowners at risk of defaulting.

Greenspan defends legacy

Former Federal Reserve Chairman Alan Greenspan is defending himself -- and his 18-year run as Fed chief.

"I was praised for things I didn't do," Greenspan said in an interview with The Wall Street Journal. "I am now being blamed for things that I didn't do."

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Greenspan has recently been criticized for lowering interest rates too much during the 2001 recession. A second stream of criticism has focused on the Fed's role in financial markets while he was at the helm.

"I do take it seriously if my peers think I have misstated the facts," Greenspan said to the paper. "But where's the evidence? Too many people make accusations by assertion. I think it's improper."

• Video: Greenspan fights back

Greenspan is keeping busy. In a speech delivered in Tokyo and reported by Bloomberg, he said a bottom in home prices will likely come before the year is out.

"Once the markets start to stabilize, especially if the real economies don't go into a severe recession," then "we can expect a recovery to begin to take place," Greenspan said. "It will be slow, it will be hesitant."

Greenspan said the credit crisis was the worst threat to the financial system in 50 years.

• Video: Grading Greenspan

Alcoa gets hit by a lower dollar

Alcoa kicked off the first-quarter-earnings season with a whimper.

The aluminum company late Monday reported a 54% decline in first-quarter earnings, with $303 million, or 37 cents per share, in profit, down from the $662 million, or 75 cents per share, it earned in the same period of 2007. Excluding restructuring charges, Alcoa said it earned 44 cents per share, missing Wall Street's consensus estimate of 48 cents per share.

Sales fell 6% to $7.4 billion.

Shares of the Dow component fell 0.7% to $37.18 on the day.

Alcoa sells aluminum in dollars for the most part and buys it in foreign currencies; the falling dollar pared 8 cents off of Alcoa's earnings, the company said.

Short hits from the markets -- 4 p.m.

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.350%	1.360%	-0.010	0.00%	-57.01%
5-year Treasury note yield	2.718%	2.743%	-0.025	7.22%	-21.33%
10-year Treasury note yield	3.558%	3.556%	0.002	2.65%	-11.82%
30-year Treasury bond yield	4.383%	4.369%	0.014	0.87%	-1.70%
Currencies
U.S. Dollar Index	72.530	72.500	0.030	0.51%	-5.43%
British pound in dollars	$1.9697	$1.9900	-0.0204	-0.71%	-0.98%
Dollar in British pounds	£0.5077	£0.5025	0.0052	0.71%	0.99%
Euro in dollars	1.5718	1.5723	-0.0005	-0.20%	7.54%
Dollar in euros	€ 0.6362	€ 0.6360	0.0002	0.20%	-7.02%
Dollar in yen	102.63	102.36	0.27	2.83%	-8.24%
Canadian dollar in U.S. dollars	$0.987	$0.987	$0.0006	0.99%	-0.56%
U.S. dollar in Canadian dollars	$1.014	$1.013	$0.0002	-0.98%	0.58%
Commodities
Gold	$918.00	$926.80	-$8.80	-0.22%	9.55%
Copper	$3.8905	$3.9795	-$0.09	8.87%	27.93%
Silver	$17.6750	$18.1200	-$0.45	4.90%	18.47%
Crude oil (NYMEX) (per barrel)	$108.50	$109.09	-$0.59	6.54%	13.04%