Oil's big decline fails to excite Wall Street

By Charley Blaine and Elizabeth Strott

The recent drop in crude oil prices offers consumers and investors the real prospect of substantially cheaper gasoline by the fall.

But the potential for relief at the gas pump did surprisingly little for the stock market and left many traders uneasy about next week's market.

At the close on Friday, the Dow Jones industrials were up 21 points, or 0.2%, to 11,371. The Standard & Poor's 500 Index was up 5 points, or 0.4%, at 1,258. The Nasdaq Composite Index was up 30 points, or 1.3%, to 2,311.

Crude closed Friday at $123.26 a barrel, down $2.23, or 1.8%, on the day and 4.4% for the week. Since peaking at $147.22 on July 11, crude has fallen 16.3%.

Wholesale gasoline dropped 2.7 cents to $3.03 a gallon and fell 4.4% for the week. It's down 14.8% since July 11.

There was some relief for cash-strapped consumers, who have been trimming their driving -- 11 cents a gallon since July 17 to just about $4 a gallon on Friday, according to AAA's Fuel Gauge Survey.

"We expect pump prices below $4 this weekend, and we could see the price fall another 25 cents before Labor Day (Sept. 1), if oil prices don't rebound," AAA spokesman Geoff Sundtrom told Reuters.

That's the good news. The uneasiness stems from the continued weakness in the nation's financial system because of the damage from the mortgage crunch to banks, investment houses, insurance companies and Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), the nation's largest suppliers of mortgage capital to the housing industry.

Fannie Mae and Freddie Mac were off 3.9% to $11.55 and 6.1% to $8.27, respectively.

Standard & Poor's put Fannie Mae and Freddie Mac on credit watch with negative implications.

At the same time, Wachovia (WB, news, msgs) shares were down 7.6% to $14.50 after S&P cut its rating to "strong sell." Separately, a Morgan Keegan analyst cut his rating on the stock to "underperform," saying the company's credit problems were too big to justify the recent rally in the stock.

Washington Mutual (WM, news, msgs) fell 4.7% to $3.84 as worries about its finances continued. The company came out Friday to say it had more capital than it needed to continue.

For the week, the Dow was down 1.1%, with gains early in the week wiped out by Thursday's 283-point loss. For the year, the blue-chip index is down 14.3%.

The S&P 500 was off 0.2% on the week and is down 14.3% on the year. The Nasdaq finished up 1.2% for the week; it's down 12.9% this year.

The economy and more earnings on tap

Next week will offer two more important pictures of the health of the economy. First up will be the Commerce Department's gross domestic product report on Thursday, which economists think will show 2% to 2.5% annual growth as business continues to invest in new machinery.

Friday brings the June report on payrolls and employment from the Labor Department. The consensus estimate is for a decline of 75,000 jobs. Global Insight, an economist consulting firm, sees a 45,000 decline.

In addition, 118 S&P 500 companies will report quarterly earnings, including four members of the Dow: Verizon Communications (VZ, news, msgs) on Monday; General Motors (GM, news, msgs) and Walt Disney (DIS, news, msgs) on Wednesday and oil company Chevron (CVX, news, msgs) on Friday.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	11,370.69	11,496.57	-1.09%	-14.28%
S&P 500	1,257.76	1,260.68	-0.23%	-14.34%
Nasdaq Composite	2,310.53	2,282.78	1.22%	-12.89%
Russell 2000	710.34	693.08	2.49%	-7.27%
Crude oil per barrel	$123.26	$145.29	-15.16%	28.42%
10-yr. Treasury yield	4.11%	4.08%	0.74%	1.88%
Gold per troy ounce	$926.80	$933.60	-0.73%	10.60%

Why the market was kept in check

Lower crude should have given the stock market a boost on Friday but didn't. Financial stocks were one problem.

Another was autos. General Motors was the Dow laggard Friday, down 8.5% to $11.90 after CEO Rick Waggoner said July sales would be similar to June sales, which were off 15% from a year ago.

GM and Ford Motor (F, news, msgs) were also pressured by Chrysler's announcement Friday that it will no longer lease autos to customers starting on Aug. 1.

Chrysler, controlled by buyout firm Cerberus, said it would no longer lease vehicles to customers because the rates on which the leases are based were "no longer competitive." There was some concern about the residual values of vehicles at the end of leases as well. The problem is that big trucks and cars aren't holding their values.

Ford was down 1.2% to $5.05.

Auto dealer Auto Nation (AN, news, msgs) was down 6.5% to $9.75. Lithia Motors (LAD, news, msgs) was off 5% to $3.89 in after-hours trading after the announcement. The stock had risen 2% to $4.09 in regular trading.

Tech stocks had a strong day, thanks in large part to Juniper Networks (JNPR, news, msgs), up 17.7% to $26.57. The company reported very strong earnings late Thursday.

The rally extended to Google (GOOG, news, msgs), up 3.4% to $491.98; Apple (AAPL, news, msgs), up 1.9% to $162.12; Cisco Systems (CSCO, news, msgs), up 3.1% to $22.43.

Microsoft (MSFT, news, msgs), up 2.8% to $26.16, was the Dow's leader. Intel (INTC, news, msgs) rose 1.6% to $22.01. (Microsoft is the publisher of MSN Money.)

New-home sales not as bad as expected

New-home sales were running at an annualized rate of 530,000 units in June, the Commerce Department reported. That was down slightly from May and off 33% from June 2007, but it was better than the Briefing.com estimate of 507,000 units.

The median price was $230,900, up slightly from May's $227,700 but down 2.9% from a year ago. About 426,000 homes were on sale at the end of the month, a 10-month supply. That was down from May's 10.4-month supply but up from an 8.3-month supply a year ago.

The home sales rate pushed the Philadelphia Housing Sector Index ($HGX.X) up 1.4% to 112. Pulte Homes (PHM, news, msgs) was up 2.5% to $11.31. D.R. Horton (DHI, news, msgs) was unchanged at $10.80. But Ryland (RYL, news, msgs) was down 3.8% to $20.61.

Foreclosures continue to hang over the market. RealtyTrac said Friday that 740,000 homes were in some stage of foreclosure at the end of the second quarter, up 14% from the first quarter and 121% from a year ago. The total has risen for eight consecutive quarters.

California, Nevada, Florida, Ohio, Arizona and Michigan continued to be hardest hit by foreclosures, RealtyTrac said, but 48 of 50 states and 95 of the top 100 markets are seeing increased foreclosures. One in every 43 Nevada households received a foreclosure notice in the quarter.

On Thursday, the National Association of Realtors said existing-home sales in June fell to their lowest level in 10 years.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$123.26	$125.49	-$2.23	-11.96%	28.42%
Heating oil (per gallon)	$3.5229	$3.5671	-$0.0442	-9.74%	32.97%
Natural gas (per million BTU)	$9.0840	$9.3230	-$0.2390	-31.97%	21.40%
Unleaded gasoline (per gallon)	$3.0323	$3.0594	-$0.0271	-13.40%	21.74%

Consumer confidence shows a gain

Consumer confidence rose by a surprising amount in July, with gains posted across all income and age groups as well as among all regions of the country, the Reuters/University of Michigan Surveys of Consumers showed Friday.

But don't get too excited, said Richard Curtin, who runs the survey. Even after the July gain, "the overall level of consumer confidence is dismal and still points toward declines in the pace of spending in late 2008 and early 2009."

The July gains could signal that consumers simply overestimated the extent of the economic damage or even that they now sense that the end of the economy’s decline is on the distant horizon.

The Index of Consumer Sentiment was 61.2 in the July 2008 survey, up from 56.4 in June, but 32% below the 90.4 recorded in last year’s July survey. There have been fewer than a dozen instances since 1952 when the survey recorded a lower confidence level than the June and July levels.

Honda profits jump

Honda Motor (HMC, news, msgs), Japan's second-largest automaker, posted an unexpected 8.1% gain in fiscal first-quarter profit as it cut incentive spending in the U.S. and earned more from affiliates.

Net income totaled 179.6 billion yen ($1.7 billion), or 98.98 yen a share, for the three months ended June 30, compared with 166.1 billion yen, or 91.38 yen per share, a year earlier, the company said Friday. The result was better than the 120.5 billion yen median estimate by six analysts compiled by Bloomberg. Sales fell 2.2% to 2.87 trillion yen.

The shares were down 2.3% to $33.95 in New York.

The carmaker's earnings from ventures in China and elsewhere rose 3.2% to a record 38.1 billion yen. Gasoline prices above $4 a gallon in the U.S. spurred demand for Tokyo-based Honda's Civic and Fit models, allowing the carmaker to reduce discounts.

"This was a surprise and will be a buffer for Honda's full-year earnings,'' Ichiro Takamatsu, chief investment officer at Alphex Investments Co., a Tokyo hedge fund, told Bloomberg News. "The company has got one of the strongest brands in Asia and was the best performer in North America where everyone else was struggling.''

Juniper jumps on higher guidance

Juniper Networks shares jumped after the networking gear maker forecast third-quarter revenue of $925 million to $935 million. Analysts had been looking for revenue of $888.6 million.

The company said earnings jumped 40% in the second quarter to $120.4 million, or 22 cents a share. Revenue was $879.03 million, up from $664.92 million. Adjusted income was 28 cents a share. Analysts estimated earnings of 26 cents a share on revenue of $853.14 million.

On Thursday, Juniper named Kevin Johnson as CEO. Johnson had been the lead Microsoft executive on the company's failed bid for Yahoo (YHOO, news, msgs).

Crocs shares tumble

Shares of Crocs (CROX, news, msgs) plunged 44.7% to $4.95 on Friday after the footwear maker slashed its financial forecasts due to softer demand for its brightly colored sandals.

The stock has fallen 93% since peaking on Oct. 31.

"While we did experience solid sell-through with many of our major accounts, retailers across the board were extremely cautious with their level of reorders, choosing to operate with leaner inventories versus a year ago," said Crocs Chief Executive Ron Snyder in a statement.

The company said demand is weak in both the United States and Europe.

Crocs now expects second-quarter earnings of 3 cents to 7 cents a share on sales of $218 million to $223 million. It had previously expected per-share earnings of 42 cents to 47 cents on revenue of $247 million to $258 million.

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

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.690%	1.610%	0.080	-0.88%	-46.18%
5-year Treasury note yield	3.449%	3.354%	0.095	3.23%	-0.17%
10-year Treasury note yield	4.111%	4.016%	0.095	3.32%	1.88%
30-year Treasury bond yield	4.696%	4.611%	0.085	3.64%	5.32%
Currencies
U.S. Dollar Index	73.075	73.125	-0.050	0.38%	-4.72%
British pound in dollars	$1.9928	$1.9873	0.0055	-0.02%	0.18%
Dollar in British pounds	£0.5018	£0.5032	-0.0014	0.02%	-0.18%
Euro in dollars	$1.5716	$1.5684	0.0032	-0.22%	7.53%
Dollar in euros	€ 0.6363	€ 0.6376	-0.0013	0.22%	-7.00%
Dollar in yen	107.82	107.37	0.45	1.53%	-3.60%
Canadian dollar in U.S. dollars	$0.981	$0.985	-$0.0042	0.12%	-1.20%
U.S. dollar in Canadian dollars	$1.020	$1.015	$0.0050	-0.10%	1.21%
Commodities
Gold	$926.80	$922.30	$4.50	-0.16%	10.60%
Copper	$3.6050	$3.5770	$0.03	-7.15%	18.55%
Silver	$17.3750	$17.2980	$0.08	-0.77%	16.45%
Corn	$5.7725	$5.7300	$0.04	-20.35%	26.73%
Crude oil (NYMEX) (per barrel)	$123.26	$125.49	-$2.23	-11.96%	28.42%