Weak bank stocks weigh on market

By Charley Blaine and Elizabeth Strott

Stocks faded today -- but not by much – as gains in health care and tech stocks were offset by weakness in energy and financial stocks.

Plus FedEx’s (FDX, news, msgs) cautious outlook cast a pall on the market.

At the close, the Dow Jones industrials ($INDU) finished down 7 points to 8,497. The Standard & Poor's 500 Index ($INX) was off 1 point at 911.

But the The Nasdaq Composite Index ($COMPX) added 12 points to 1,808, and the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, was up 13 points to 1,456.

The Dow and the S&P 500 suffered their third straight losses. The gains for the Nasdaq and the Nasdaq-100 was their first after two days of declines.

Futures trading suggests the market will open higher on Thursday. An important earnings report comes after Thursday's close from BlackBerry maker Research In Motion (RIMM, news, msgs).

Strength in the market came from health care stocks such as Pfizer (PFE, news, msgs), up 3% to $14.58, and generic drug maker Watson Pharmaceuticals (WPI, news, msgs), which agreed to buy privately held Arrow Group in a $1.75 billion deal. Watson closed up 5% to $30.27.

Plus, key technology stocks such as Qualcomm (QCOM, news, msgs), Microsoft (MSFT, news, msgs), Oracle (ORCL, news, msgs) and Cisco Systems (CSCO, news, msgs) also moved higher. (Microsoft is the publisher of MSN Money.)

Qualcomm was up 3.8% to $45.09 after Goldman Sachs added the stock to its "conviction buy" list while rival Texas Instruments (TXN, news, msgs), upgraded by Banc of America Securities-Merrill Lynch to "buy" from "underperform," finished up 3.3% to $21.41.

In addition, a report on consumer prices showed a smaller increase than economists had expected, indicating that inflation is not a threat to the economy just yet.

But financial stocks were mostly lower. Standard & Poor’s cut its ratings of 22 banks because of the prospect of more regulation and potential market volatility.

In remarks this afternoon, President Obama said the overhaul is needed to protect the rights of ordinary consumers and to guard against the practices that led to the financial crisis that nearly derailed the U.S. economy last fall.

JPMorgan Chase (JPM, news, msgs) fell 2.3% to $32.73. Bank of America (BAC, news, msgs) fell 3.4% to $12.30.

The stocks declined even as 10 big banks and financial companies, including JPMorgan Chase, American Express (AXP, news, msgs), Goldman Sachs (GS, news, msgs) and Morgan Stanley (MS, news, msgs) said they'd repaid about $68.2 billion in federal assistance money that they had received in the fall during the height of the financial crisis.

Despite the Dow's fall, 17 of the 30 stocks were higher on the day. Among S&P 500 stocks, 244 were higher, along with 67 Nasdaq-100 stocks.

Interest rates were mostly lower. The yield on the 10-year Treasury note was at 3.65% today, down from 3.657% on Tuesday.

Crude rallies back to $71

Crude oil, which had fallen to as low as $69 a barrel this morning in New York, rallied late in the day and closed up 56 cents to $71.03, its first gain in four days. The rally came as the government reported a larger-than-expected decline in domestic supplies.

But energy shares were mostly lower. Dow component Chevron (CVX, news, msgs) was off 1.5% to $68.83. Offshore driller Transocean (, news, msgs) fell 1.5% to $77.58. The Amex Oil Index($XOI.X) fell 1.8% to 932. The Philadelphia Oil Service Sector Index($OSX) fell 2.8% to 168.

The Energy Information Administration said oil supplies fell by a bigger-than-expected 3.9 million barrels last week. Gasoline supplies rose by 3.4 million barrels, and distillate supplies rose by about 300,000 barrels.

AAA's Daily Fuel Gauge Report said the national retail pump price for gasoline was $2.679 a gallon, up slightly from Tuesday. It was the 50th straight day of increases at the pump.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$71.03	$70.47	$0.56	7.12%	59.26%
Heating oil (per gallon)	$1.8630	$1.8250	$0.0380	13.81%	32.53%
Natural gas (per million BTU)	$4.2530	$4.1290	$0.1240	9.87%	-24.35%
Unleaded gasoline (per gallon)	$2.0326	$2.0711	-$0.0385	5.63%	101.61%
Retail gasoline (per gallon; AAA)	$2.6790	$2.6740	$0.0050	8.60%	65.67%

FedEx posts loss, but beats Street

FedEx this morning posted a fiscal-fourth-quarter loss of $876 million, or $2.82 per share, much worse than the loss of $241 million, or 78 cents per share, it posted in the same period last year. Excluding charges, the company earned 64 cents per share in the quarter, topping the consensus estimate of 51 cents a share.

• Video: More on FedEx earnings

Volume of U.S. express packages fell 2%, with international priority deliveries tanking 12% in the quarter.

FedEx, which is often considered a gauge of economic health, said it expects to earn between 30 cents and 45 cents per share in the current quarter; Wall Street is looking for 70 cents per share.

FedEx is wading through the "most difficult economic conditions in our company's history," Chief Executive Officer Fred Smith said in a statement. Smith wasn't entirely pessimistic: He said that "the worst of the recession is likely behind us."

But Chief Financial Officer Alan Graf said he expects "the operating environment for our first two quarters in fiscal 2010 . . . to be extremely difficult," and he said the company lacked "enough visibility into the economic recovery" to give a full-year forecast.

The stock was down 1.4% to $50.70.

Consumer prices rise less than expected

Consumer prices rose 0.1% in May, the first increase in three months, the Labor Department reported this morning. But last month's gain was smaller than the 0.3% rise economists had forecast. On a year-over-year basis, the Consumer Price Index has fallen 1.3%, the biggest decline since April 1950.

The core CPI, which excludes volatile food and energy prices, was up 0.1% in May, in line with expectations, after having risen 0.3% in April.

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Energy costs rose 0.2% last month, the first increase since February, due in part to a 3.1% gain in the cost of gasoline. Prices of food purchased to consume at home fell 0.5% on the month. Fruit and vegetable prices fell 1%, and meat prices fell 0.9%.

"Any energy price increase is going to act as a tax on households in particular because their incomes are shrinking," Jonathan Basile, an economist at Credit Suisse Holdings, told Bloomberg News. "It's difficult to raise prices."

Mortgage applications fall

Rising mortgage rates have been weighing on the housing market, and last week fewer people applied for mortgages as a result.

The number of mortgage applications fell 16% last week to the lowest level since November, the Mortgage Bankers Association said in its weekly report this morning. Refinancings fell 23.3%, with applications to purchase a home dropping 3.5%.

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Rates on 30-year fixed mortgages improved a bit last week, averaging 5.5%, down slightly from 5.57% the previous week. But rates have been rising in recent weeks on growing worries about the government's massive borrowing efforts to help pay for its fiscal stimulus plans.

S&P downgrades 22 banks

Financial stocks, which had helped boost stocks from their March lows, were downgraded today by Standard & Poor's.

S&P lowered the credit ratings on 22 U.S. banks, including Wells Fargo (WFC, news, msgs), Keycorp (KEY, news, msgs) and PNC Financial Services Group (PNC, news, msgs).

"Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace's new reality," S&P credit analyst Rodrigo Quintanilla wrote in a note today. "Such a transition period justifies lower ratings as industry players implement changes."

Capital One Financial (COF, news, msgs) and BB&T (BBT, news, msgs) were also among the banks that got downgraded.

S&P said it will hold a conference call on Thursday to discuss the downgrades.

Obama announces new market regulations

President Obama gave details of his plans to overhaul financial market regulations this afternoon, in what he called "a transformation on a scale not seen since the reforms that followed the Great Depression."

The president said he is seeking "a careful balance" in his efforts to regulate the markets.

"With the reforms we are proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse. We seek to create a framework in which markets can function freely and fairly, without the fragility in which normal business cycles bring the risk of financial collapse; a system that works for businesses and consumers," Obama said.

The new regulations would give the Federal Reserve the power to oversee financial institutions, but the administration wants to create a consumer-protection agency that would be able to write rules related to mortgages, credit cards and other consumer products, taking those powers away from the Fed.

The plan would give the government the ability to unwind other big companies that are key players in the marketplace.

The administration would keep most regulating agencies intact, with the exception of the Office of Thrift Supervision, which it plans to merge with the Office of the Comptroller of the Currency. The Securities and Exchange Commission, which regulates securities firms and markets, and the Commodity Futures Trading Commission, would also get more powers.

Adobe profit falls

Adobe Systems (ADBE, news, msgs) said late Tuesday that it earned $126 million, or 24 cents per share, in its fiscal second quarter, a 41% drop from the $215 million, or 40 cents per share, it earned in the same period last year.

Adobe was hit by declining demand for its graphic-design software programs as advertisers cut back on spending because of the recession.

But shares were up 1.8% to $28.68 this afternoon because the company's guidance was a bit stronger than expected.

Excluding items, Adobe said it earned 35 cents per share, in line with analysts' expectations.

Revenue dropped 21% to $705 million, topping the consensus estimate of $695 million. Sales in the company's creative software division fell 22% to $411.7 million.

"Creative Suite 4 was unfortunate timing," said Pacific Crest Securities analyst Chad Bartley told Bloomberg News. Creative Suite 4, a big graphic design, video editing and web development software package, came out last fall just as the recession worsened.

"The advertising market has seen substantial declines, with a lot of layoffs."

Adobe expects to earn 30 cents to 37 cents per share on revenue of between $665 million and $715 million. Wall Street is looking for 33 cents per share on $676.5 million in sales.

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Adobe said sales are starting to bottom out in the U.S. The company also said it is continuing to look for merger and acquisitions opportunities.

Auto suppliers' request for aid denied

The U.S. government has spent tens of billions of dollars bailing out and helping facilitate the bankruptcies of General Motors (GMGMQ, news, msgs) and Chrysler, but the bucks stopped there.

The Obama administration turned down a request by auto parts suppliers for up to $10 billion in additional loans to help them survive the auto industry meltdown. Neil De Koker, the CEO of the Original Equipment Suppliers Association, warned late Tuesday that more bankruptcies were likely as a result of the government's decision, as auto suppliers attempt to deal with the effects of GM's and Chrysler's production shutdowns.

"They felt that unless we see chaos or a disorderly situation arising where have assembly-line shutdown(s) due to lack of ability to get parts or stuff like that, then we would re-look at this situation, but that at the present time, we believe everything is working," De Koker said. The government gave auto suppliers $5 billion in loans earlier this year.

Auto supplier Visteon (VIST, news, msgs) filed for bankruptcy protection in late May.

Short hits from the markets -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.165%	0.165%	0.000	26.92%	43.48%
5-year Treasury note yield	2.658%	2.691%	-0.033	13.25%	71.37%
10-year Treasury note yield	3.647%	3.674%	-0.027	5.25%	62.52%
30-year Treasury bond yield	4.465%	4.503%	-0.038	2.93%	65.92%
Currencies
U.S. Dollar Index	80.575	81.130	-0.555	1.61%	-1.92%
British pound in dollars	$1.6412	$1.6396	0.0016	1.35%	11.39%
Dollar in British pounds	£0.6093	£0.6099	-0.0006	-1.33%	-10.23%
Euro in dollars	$1.3974	$1.3949	0.0025	-1.33%	-0.25%
Dollar in euros	€ 0.7156	€ 0.7169	-0.0013	1.35%	0.25%
Dollar in yen	95.86	95.65	0.21	0.60%	5.75%
Canadian dollar in U.S. dollars	$0.885	$0.883	$0.0019	-3.39%	8.25%
U.S. dollar in Canadian dollars	$1.130	$1.132	-$0.0016	3.52%	-7.62%
Commodities
Gold	$935.80	$932.20	$3.60	-4.54%	5.82%
Copper	$2.6950	$2.2650	$0.43	22.64%	91.13%
Silver	$14.2800	$14.1300	$0.15	-8.52%	25.10%
Corn	$4.0400	$4.0400	$0.000	-7.39%	-0.74%
Crude oil (NYMEX) (per barrel)	$71.03	$70.47	$0.56	7.12%	59.26%