Alcoa, McDonald's give the Dow a boost

By Charley Blaine and Elizabeth Strott

Energy and metals stocks gave the stock market a boost today, more than offsetting a deepening slump in financial stocks and weakness in Apple (AAPL, news, msgs) after it said it would start selling a new version of its iPhone in July.

Energy shares jumped even though crude oil in New York closed at $134.35 a barrel, down $4.19 or 3% from Friday's record close of $138.54. Retail gasoline prices, however, were still above $4 a gallon.

The Dow Jones industrials closed up 71 points to 12,280, recovering roughly 18% of Friday's 395-point loss. The Standard & Poor's 500 Index pulled out of a midday slump, finishing at 1,361, up 1 points.

But the Nasdaq Composite Index was down 15 points to 2,459, and the Nasdaq-100 Index ($NDX.X) was off 11 points to 1,980. The culprits were Apple, down 2.2% to $181.61, and Google (GOOG, news, msgs), down 1.6% to $557.87.

Alcoa led the Dow (and the S&P 500) with a 7.5% gain to $42.17 after Barron's said the stock could hit $60 if it becomes a takeover target. The magazine didn't actually say it was a takeover target, however. The company is the "only sizable independent Western aluminum company left" for purchase by mining companies such as London- based Xstrata after Rio Tinto (RTP, news, msgs) Group bought Alcan last summer.

Alcoa was followed by McDonald's, up 4.1% to $59.31 after reporting that May same-store sales were much better than expected. The company got a tremendous boost from non-U.S. sales.

Lehman drags financials lower

Financial stocks took a big beating today; 17 of the 20 worst S&P 500 performers were financials. They may well pressure stocks for the rest of the week. The reason: Lehman Bros. (LEH, news, msgs) said it would report a $2.8 billion loss for the second quarter next week -- and raise $6 billion in new capital to weather the storm. Lehman fell 8.7% to $29.48, fifth-worst among S&P 500 stocks.

There was growing concern that the credit crunch would hit any number of financial stocks. The Dow's biggest loser, in fact, was JPMorgan Chase (JPM, news, msgs), which fell 6.4% to $37.51. JPMorgan Chase is widely believed to be among the strongest financial institutions in the country.

The Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund fell 1.4% to $23.01, its low on the year, lower even that its close on March 17, the day after JPMorgan Chase agreed to buy Bear Stearns. The ETF's low today -- $22.61 -- was also lower than the March 17 low of $22.65.

The S&P 500 hit its intraday low on the year on March 17, then rallied more than 13% before peaking on May 19. There is concern that the index could hit the March 17 low again.
In addition, The Wall Street Journal noted, Standard & Poor's cut its ratings on more than $100 billion in residential mortgage-backed securities backed by bond insurers MBIA (MBI, news, msgs) and Ambac Financial (ABK, news, msgs). S&P had slashed its ratings on the companies themselves last week. MBIA and Ambac Shares fell 10% today and weighed on other financial stocks as well.

As Lehman Bros. reported its big loss, the company also said it is raising $6 billion in new capital with the sale of new common and preferred stock.

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Lehman's big loss -- worth $5.14 a share -- will be its first quarterly loss since Lehman went public in 1994. Lehman earned $1.3 billion, or $2.21 per share, a year ago. Second-quarter revenue will be negative $700 million, down from revenue of $5.5 billion in the same period last year, the company said. Lehman's revenue numbers include trading losses and markdowns on assets.

Chief Executive Officer Richard Fuld "looks like he's just trying to get every bit of bad news out in one shot, which could be a good thing," said Chris Conefry of Madison Prop Trading.

Lehman has been closely watched since Bear Stearns was bought in March by JPMorgan Chase (JPM, news, msgs) in a deal backed by the Federal Reserve; Lehman, like Bear, has been highly exposed to risky mortgage-backed securities.

Those risks hit Lehman hard in the March quarter; the loss was far worse than anyone had expected. Analysts had expected a loss of $300 million.

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At least one analyst is optimistic that Lehman will be okay.

"We are buyers of the stock on the assumption that Chief Executive Officer Dick Fuld will steady the Lehman ship and, with greater stability, the stock will appreciate," said Deutsche Bank analyst Mike Mayo in a note to clients last week. "Net-net, we feel that Lehman is not Bear. Liquidity is not a major issue, in our view, while equity risk remains but does not seem outsized."

But another observer cautioned that the end of the credit mess is not yet in sight. Lehman's results are "bad," Mark Priest, a senior trader at TradeIndex, told Reuters. "However, the market had expected them not to be great. Those who thought the credit crunch was over are clearly wrong."

Pending home resales rise

More people are starting to buy homes, according to the National Association of Realtors.

• Talk back: Has the recession already hit?

The NAR's index of pending home resales rose an unexpected 6.3% in April from March to a reading of 88.2, the highest level in six months. "Bargain hunters entered the market en masse, especially in areas that have experienced double-digit price declines, but it's unclear if they are investors or owner occupants," Lawrence Yun, the trade group's chief economist, said in a statement.

The number of pending home resales is down 13.1% from April of last year.

More regulation of financial system ahead?

Meanwhile, Federal Reserve Bank of New York President Tim Geithner said the U.S. financial system needs tougher regulations and stronger supervision to protect against future crises. The New York Fed is meeting with firms that trade in credit derivates to discuss oversight and market infrastructure.

Geithner told the Economic Club of New York that improved oversight must strengthen the "shock absorbers" inside firms and across the markets to protect the overall economy and financial system against possible systemic failures.

The conventional risk-management framework today, he said, focuses too much on the threat to a firm from its own mistakes and too little on the potential for mistakes to be correlated across firms."

Plus, he said, the existing regulatory structure is "an enormously complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion, and creates the risk of large gaps in our knowledge and authority."

Apple's new iPhone coming

Apple shares closed down as the company announced new version of its iPhone at its annual Worldwide Developers Conference in San Francisco today.

The decline may well have been due to profit-taking. The stock had had a big runup before the announcement. Since hitting a low of $115.44 on Feb. 26, the stock has jumped 57%.

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The newest iPhone, due in stores priced at $199 to $299, depending on memory size, is expected to work with third-generation networks, which would allow it to operate much faster. The iPhone is the second-best-selling smart phone in the U.S., following rival Research In Motion's (RIMM, news, msgs) BlackBerry.

"The iPhone is going to become much more mainstream if they can get corporate acceptance," Piper Jaffray analyst Gene Munster told Bloomberg News. "The engine is just starting to warm up."

• Top Stocks blog: The iPhone gets a major upgrade

Munster expects Apple to sell 12.9 million units this year and as many as 45 million in 2009.

That's if Apple can manufacture the phones fast enough. Barron's reported today that the production rollout for the new device is behind schedule. Sources told the magazine that Apple has slashed its expectations for iPhone unit sales by up to 16%. The company had expected to ship 12 million of the new 3G units by the end of the third quarter, but now expects to ship about 10 million to 10.5 million by the fourth quarter.

• Video: Apple announces its new version of the iPhone

Apple has sold 6 million iPhones, which sell for $299 to $399. The 3G iPhone would likely have the same pricing, but the older versions could get cheaper by $50 to $100, American Technology Research analyst Shaw Wu told MarketWatch.com.

While profit-taking may have hurt Apple, two of its biggest rivals in this business held their own.

Research In Motion closed up 2.1% to $134.12. Finnish cell-phone maker Nokia (NOK, news, msgs) added 1.8% to $26.61 in New York.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$134.35	$138.54	-$4.19	5.30%	39.98%
Heating oil (per gallon)	$3.8777	$3.9740	-$0.0963	5.46%	46.36%
Natural gas (per million BTU)	$12.6040	$12.6930	-$0.0890	7.60%	68.44%
Unleaded gasoline (per gallon)	$3.3940	$3.5480	-$0.1540	1.35%	36.26%

As oil pulls back, gas soars

When you make as much money from crude oil as many traders did on Friday, you probably should cash in your chips. That was one reason why crude oil fell. The other was that the dollar rose against major currencies, especially the

British pound and the Japanese yen.

The dollar's tumble last week set off the buying that pushed crude oil to new highs.

The may have fallen today, but energy stocks were the strongest sector of the market. The Amex Oil Index ($XOI.X) was up 1.9% to 1,572. The Amex Natural Gas Index ($XNG.X) was up 2.6% to 744.

ExxonMobil (XOM, news, msgs) and Chevron (CVX, news, msgs) were the third- and fourth-best Dow performers today. Exxon closed up 2.6% to 89.07; Chevron was up 1.7% to $101.20. Oil and gas producer Apache (APA, news, msgs) jumped 6% to $141.99.

Despite the oil pullback today, many analysts believe that momentum alone will push the price of oil higher.

Morgan Stanley and Goldman Sachs analysts predicted Friday and today, respectively, that crude will hit $150 a barrel by July.

Oil's jump last week was partly a response to an Israeli official's statement Friday that an attack against Iran was "unavoidable" if the country did not halt its nuclear program. Adding to the pressure was a prediction from Morgan Stanley that oil would hit $150 a barrel by July 4.

• Talk back: Will oil ever be under $100/barrel again?

"AAA does . . . caution gasoline station owners not to overreact to one day of oil trading by recklessly increasing retail prices," AAA fuel analyst Geoff Sundstrom told MarketWatch.com. "One day of trading does not constitute a market trend, and consumers should not be overcharged for gasoline simply because the oil markets reacted so strongly to (Friday's) news."

Nations meet to fight oil prices

Energy ministers from countries around the world vowed to combat the soaring price of oil on Sunday.

The Group of Eight nations, along with China, India and South Korea, met in Aomori, Japan, and agreed to establish the International Partnership for Energy Efficiency Cooperation to promote cooperation and an exchange of information on how to fight rising energy prices.

"The situation regarding energy prices is becoming extremely challenging," cautioned Akira Amari, Japan's trade and energy minister, according to The Associated Press. "If left unaddressed, it may well cause a recession in the global economy."

The 11 nations consume about 65% of the world's oil.

More inflation fears

With energy prices at record highs, inflation has become a big concern for the Federal Reserve. Fed chief Ben Bernanke is speaking today on inflation in Cape Cod, Mass., along with Federal Reserve board members Donald Kohn and Fred Mishkin.

A report on May consumer prices will be released by the Labor Department on Friday, and economists expect a 0.5% increase in the CPI. The core number, which excludes volatile food and energy prices, is expected to have risen 0.2% last month.

"A core number higher than 0.2% would start to ring alarm bells at the Fed that rising commodity prices are filtering through to core inflation," wrote Nigel Gault and Brian Bethune of Global Insight, in a note to clients.

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

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.850%	1.800%	0.050	0.00%	-41.08%
5-year Treasury note yield	3.388%	3.197%	0.191	-0.56%	-1.94%
10-year Treasury note yield	3.992%	3.938%	0.054	-1.33%	-1.07%
30-year Treasury bond yield	4.621%	4.650%	-0.029	-1.83%	3.63%
Currencies
U.S. Dollar Index	72.875	72.430	0.445	-0.10%	-4.98%
British pound in dollars	$1.9739	$1.9751	-0.0012	-0.47%	-0.77%
Dollar in British pounds	£0.5066	£0.5063	0.0003	0.47%	0.78%
Euro in dollars	$1.5649	$1.5647	0.0002	0.57%	7.07%
Dollar in euros	€ 0.6390	€ 0.6391	-0.0001	-0.59%	-6.61%
Dollar in yen	106.30	106.29	0.01	-0.08%	-4.96%
Canadian dollar in U.S. dollars	$0.979	$0.979	$0.0000	-2.80%	-1.43%
U.S. dollar in Canadian dollars	$1.022	$1.022	$0.0000	2.84%	1.38%
Commodities
Gold	$898.10	$882.10	-$0.90	1.17%	7.17%
Copper	$3.6130	$3.6230	-$0.01	0.19%	18.81%
Silver	$17.2100	$17.4300	-$0.22	1.89%	15.35%
Corn	$6.5725	$6.5075	$0.06	9.68%	44.29%
Crude oil (NYMEX) (per barrel)	$134.35	$138.54	-$4.19	5.30%	39.98%