Dow up 186 as energy stocks surge

By Charley Blaine and Elizabeth Strott

Oil prices aren't down for the count yet. Crude oil jumped to nearly $127 a barrel today after a government report showed an unexpected drop in domestic gasoline supplies.

Energy stocks pushed higher as a result and led the stock market mostly higher.

The Dow Jones industrials finished the day up 186 points, or 1.6%, to 11,584. The Standard & Poor's 500 Index was up 21 points, or 1.7%, to 1,284. The Nasdaq Composite Index was up 10 points, or 0.4%, to 2,330. The Nasdaq-100 Index ($NDX.X), which tracks large-capitalization Nasdaq stocks, was up 7 points, or 0.4%, to 1,853.

A big problem for the Nasdaq indexes: Garmin (GRMN, news, msgs), a maker of car-navigation systems, was down 21.9% to $35.19 after cutting its 2008 sales forecast. In February, Garmin had predicted a 42% gain; it now anticipates sales of $3.8 billion, up 28%.

With one day to go in July, the Dow, S&P 500 and Nasdaq are all showing gains for the month. The Dow is up 2.1% after gaining about 453 points in two days. The S&P 500, up 50 points in two days, is showing a 0.3% gain for the month. The Nasdaq's gain, after 66 points of gains on Tuesday and Wednesday, is 1.6%.

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After the close, shares of Dow component Walt Disney (DIS, news, msgs) were lower. While the company's third-quarter earnings beat analyst estimates, it warned that economic softness may affect its business.

And coffee giant Starbucks (SBUX, news, msgs) saw its shares jump 4.3% to $15.30 in after-hours trading after its third-quarter results were slightly below the consensus estimate once charges for store closures and the like were taken out. The stock had fallen 2.1% in regular trading to $14.67.

Oil rules the market again

Crude closed at $126.77 a barrel, up $4.58, or 3.8%, from Tuesday. Wholesale gasoline was up 12.7 cents, or 4.2%, to $3.1351 after the government reported that domestic gasoline supplies fell last week from a week before.

Crude got an additional push higher when Israeli Prime Minister Ehud Olmert said he would not run for re-election in September. That set up the strong possibility that Israel will have more hawkish leaders. One potential successor is Transportation Minister Shaul Mofaz, who said recently that an Israeli attack on Iran's nuclear facilities is inevitable.

Energy stocks jumped on both developments and powered the day's rally. The Select Sector SPDR-Energy (XLE, news, msgs) exchange-traded fund, which mirrors the energy sector of the S&P 500, was up 4.8% to $76.72.

Dow components ExxonMobil (XOM, news, msgs) and Chevron (CVX, news, msgs) were up 4.3% to $84.38 and 5.3% to $87.26, respectively.

Hess (HES, news, msgs), which refines oil and sells gasoline through a chain of service stations, jumped 13.5% to $106.97.

Chevron's gain was the best among the 30 Dow stocks. ExxonMobil's gain was fourth-best, after Alcoa (AA, news, msgs), up 4.4% to $34.84, and Bank of America (BAC, news, msgs), up 4.3% to $33.61.

• Talk back: Is it time to buy oil stocks?

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$126.77	$122.19	$4.58	-9.45%	32.08%
Heating oil (per gallon)	$3.5203	$3.4722	$0.0481	-9.80%	32.87%
Natural gas (per million BTU)	$9.2480	$9.2170	$0.0310	-30.74%	23.59%
Unleaded gasoline (per gallon)	$3.1351	$3.0077	$0.1274	-10.46%	25.87%

Financial stocks continue their rebound

Financial stocks, which had powered a rally Tuesday, when the Dow jumped 266 points, were lower for much of today before finally ending with modest gains.

Merrill Lynch (MER, news, msgs) was up 2.5% to $26.91. Merrill's plan to sell $8.5 billion in new shares and take an additional $5.7 billion write-down had been the key to Tuesday's gains. Citigroup (C, news, msgs) was up 2%to $18.81.

Bank of America analysts said they were too optimistic about the "positive implications" of Merrill's plans to sell billions of high-risk collateralized debt obligations to Lone Star Funds.

On the other hand, Fox-Pitt Kelton Cochran Caronia Waller and HSBC both upgraded Merrill this morning. Although Merrill's plan to raise $8.5 billion in capital, announced earlier this week, will dilute shares, shareholders "have much lower risk on a going-forward basis," Fox-Pitt analyst David Trone wrote in a note to clients this morning.

"Investors are looking at the financial sector and saying this may be the last inning," Avalon Partners' chief market economist, Peter Cardillo, told CNNMoney. "The market seems to be suggesting a bottom."

Disney's forecast worries investors

Shares of Walt Disney (DIS, news, msgs) fell 2.8% to $30.80 in after-hours trading after the company said its fiscal-fourth-quarter results were likely to be flat because of the soft economy.

The stock had risen 2.4% to $31.67 in regular trading.

In its fiscal third quarter, which ended June 30, Disney earned $1.28 billion, or 66 cents a share, up 8.5% from a year ago. Wall Street had expected 61 cents a share in earnings. Revenue was up 2% to $9.24 billion.

Disney's theme parks business, a big concern because of rising gasoline prices and a softening global economy, saw revenue rise 5% and operating profit rise 3%. But bookings for the fourth quarter were flat and modestly higher for the first quarter of its fiscal 2008-09.

The strongest part of the company came from its media networks, particularly sports network ESPN. But Disney noted that it has seen weak auto and consumer electronics advertising at ESPN.

Revenue for the film business was down 19% from a year ago and operating profit fell 49%, hurt by disappointing results for “Prince Caspian,” the second film in the "Chronicles of Narnia" series.

Starbucks, Visa cheer Wall Street

Starbucks shares jumped in after-hours trading after the company said it would close more stores than it would open in the next fiscal year.

The coffee giant expects to have a net decrease of 60 stores in the next year as it pares costs and real estate.

The company reported a loss of 1 cent a share for the fiscal third quarter. But, backing out 17 cents a share in costs associated with the store closings, Starbucks earned 16 cents a share on revenue of $2.6 billion. Analysts had expected 18 cents a share in earnings and $2.6 billion in revenue.

A year ago, Starbucks earned $158.3 million, or 21 cents a share.

Excluding 19 cents a share from restructuring, Starbucks said it expects 2008 to end with earnings in the "mid-70-cent" range. In fiscal 2009, the company is looking to earn 90 cents to $1 a share.

Meanwhile, credit card company Visa's (V, news, msgs) shares were up 1.3% to $79.50 after reporting better-than-expected earnings for the third quarter. The company said international business was especially strong.

Visa earned $457 million, or 59 cents a share, once one-time costs were subtracted. Analysts had expected 48 cents. Revenue was $1.6 billion; Wall Street had been looking for $1.55 billion.

Visa raised its operating margin estimate for 2008 to the mid-40% range, up from an earlier forecast of the low-40% range. It sees the margin rising to the mid-to-high-40% range in 2009 and 2010.

Rival MasterCard (MA, news, msgs) reports earnings Thursday.

American Airlines baggage system crashes at JFK airport

So, what happens if you're the first big airline to charge passengers for checking even a first piece of luggage?

In American Airlines' case today, the result was a disaster at New York's John F. Kennedy airport, where a software glitch cause its baggage-handling system to crash. Result: Employees had to sort baggage by hand, and some 25 flights, mostly to foreign destinations, were an hour to two hours late.

American waived fees on first and second bags for affected passengers. The airline charges $15 for the first bag and $25 for the second.

Shares of AMR (AMR, news, msgs) fell 7.2% to $8.80 in part because of the problem. Rising oil prices may well have had a larger effect. The stock was up 5 cents to $8.85 in after-hours trading.

On Tuesday, Delta Air Lines (DAL, news, msgs) raised its fee for checking a second bag from $25 to $50.

ADP sees a gain in July jobs

The number of private-sector jobs grew by 9,000 in July, according to the ADP employment index, far better than the loss of 55,000 jobs economists had predicted.

The Labor Department will issue its report on nonfarm payrolls Friday.

"The employment picture has held up much better than expected," Lawrence Creatura, a money manager at Clover Capital Management, told Bloomberg News. "It's very difficult for the economy to collapse if people still have jobs. For the stock market, it may mean that some sectors which were depressed in anticipation of the consumer weakening may be mispriced."

Economists are expecting a loss of 70,000 jobs in Friday's Labor Department report.

Bush signs housing legislation

President Bush this morning signed a bill to help boost the slumping housing market and give a lift to troubled mortgage finance companies Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs).

"We look forward to putting in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac," White House spokesman Tony Fratto said. "The Federal Housing Administration will begin to implement new policies intended to keep more deserving American families in their homes."

• Read more: Will the homeowner rescue help you?

The Bush administration had opposed a provision within the bill that provides $4 billion so that states can buy up foreclosed properties, but it came around to supporting the bill last week.

Fannie Mae rose 5.3% to $12.21 today; Freddie Mac was up 3.7% to $8.73.

SEC to extend naked-short ban; Fed keeps window open

The Securities and Exchange Commission late Tuesday voted to extend until Aug. 12 a new rule banning so-called naked short sales of 19 financial-services companies.

The move, much anticipated by Wall Street, will not be expanded to include regional banks. According to The Wall Street Journal, SEC Chairman Christopher Cox has hinted his agency could introduce rules to extend the ban to all U.S.-traded stocks.

Short sellers are investors betting that the price of a security will go down. In effect, the trader sells shares he does not own and hopes to buy them back later at a lower price. In a "covered" short sale, the trader has arranged to borrow the shares in advance. In a naked short, he has not.

Naked short selling is illegal when it is part of a deliberate effort to drive down the price of a stock.

The SEC first banned naked shorting of the financials July 15.

In separate news, the Federal Reserve this morning announced that, "in light of continued fragile circumstances in financial markets," it had extended the time frame in which investment banks can borrow through its discount window.

The Fed will extend its credit facility to nonprimary dealers through Jan. 30, 2009; the original end date for access to the window was this September.

The Fed first opened up its window to brokers and investment banks in March, amid the fallout from the Bear Stearns meltdown.

Most people on Wall Street had anticipated the move.

Mortgage applications fall

Falling home prices and tighter lending standards seem to be having an effect on Americans interested in buying homes.

The number of people who applied for mortgages plunged 14.1% last week to the lowest level since December 2000, according to the Mortgage Bankers Association. On a year-over-year basis, the number of mortgage applications fell 30.3%, the association said in a report this morning.

The average rate on a 30-year fixed mortgage fell to 6.46% last week from 6.59% the previous week, but the rate on a one-year adjustable-rate mortgage (ARM) rose to 7.25% from 7.16% -- also the highest level since December 2000.

ArcelorMittal profit doubles

Amid the recent market turmoil, one sector that has been doing well is steel.

This morning, ArcelorMittal (MT, news, msgs), the world's biggest steel maker, reported a huge jump in second-quarter profit, thanks to strong demand around the world.ArcelorMittal, which makes 10% of the world's steel, earned $5.8 billion, or $4.19 per share, more than double the $2.72 billion, or $1.97 per share, it earned in the same quarter last year. "The strongest growth is coming from newly industrializing economies, such as Brazil, Russia, China and Eastern Europe," Chief Financial Officer Aditya Mittal said on a conference call with analysts. ArcelorMittal also said that it expects "a strong year" despite weakness in Europe and the U.S.

ArcelorMittal's news follows that of United States Steel (X, news, msgs), which reported similar results Tuesday.

Shares of ArcelorMittal jumped 8.9% to $91.50. U.S. Steel was up 0.7% to $166.85.

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

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.670%	1.680%	-0.010	-2.05%	-46.82%
5-year Treasury note yield	3.375%	3.370%	0.005	1.02%	-2.32%
10-year Treasury note yield	4.048%	4.044%	0.004	1.73%	0.32%
30-year Treasury bond yield	4.638%	4.622%	0.016	2.36%	4.01%
Currencies
U.S. Dollar Index	73.510	73.505	0.005	0.98%	-4.15%
British pound in dollars	$1.9814	$1.9829	-0.0016	-0.59%	-0.40%
Dollar in British pounds	£0.5047	£0.5043	0.0004	0.60%	0.40%
Euro in dollars	$1.5584	$1.5586	-0.0002	-1.06%	6.62%
Dollar in euros	€ 0.6417	€ 0.6416	0.0001	1.07%	-6.21%
Dollar in yen	108.09	108.04	0.05	1.79%	-3.36%
Canadian dollar in U.S. dollars	$0.978	$0.978	-$0.0003	-0.24%	-1.55%
U.S. dollar in Canadian dollars	$1.023	$1.023	$0.0006	0.23%	1.55%
Commodities
Gold	$912.30	$926.40	-$14.10	-1.72%	8.87%
Copper	$3.6460	$3.5905	$0.06	-6.09%	19.89%
Silver	$17.4650	$17.3750	$0.09	-0.26%	17.06%
Corn	$6.0150	$5.9400	$0.07	-17.01%	32.05%
Crude oil (NYMEX) (per barrel)	$126.77	$122.19	$4.58	-9.45%	32.08%