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Market Update by Mark Glassman (Author Archive)
Despite Chrysler, Stocks End April Higher
News at a Glance
- Chrysler Bankrupt: Automaker to file for Chapter 11.
- Data Surprise: Jobless claims fell last week, Chicago PMI up.
- April Rally: Dow gains 7% this month.
- Ken Canned: Lewis out as BofA chairman, still CEO.
The Lowdown
The bankrupcty of one of Detroit's Big Three pulled the plug on a modest rally Thursday. But it didn't diminish what turned out to be a good month overall.
Stocks gave back early gains as traders shrugged off surprising data from the labor market and the manufacturing sector after Chrysler's Chapter 11 filing. The Dow Jones Industrial Average lost 18 points at 8167. It started April at 7606. It's 7%+ gain is the best monthly increase in over a decade. The Nasdaq had climbed 5 to 1717, and the S&P 500 was flat at 872.
In Detroit, Chrysler made official what analysts had long predicted: the firm will file for bankruptcy protection immediately. The nation's third-largest automaker will receive $8 billion from the government to restructure over the course of 30 to 60 days. Chrysler will also forge an alliance with Fiat, in which the Italian automaker will help in running some of Chrysler's operations.
The growing threat of a swine flu pandamic also weighed on traders. Before Chrysler's announcement, the World Health Organization upgraded the pandemic threat level for swine flu from four to five, and Mexico City called on its citizens to shut down all non-essential businesses.
The bankruptcy and the health threat were enough to send the major indexes back to square one, despite some rosy economic data. The latest jobless claims report that showed the number of people filing for unemployment benefits for the first time fell last week; economists had been expecting an increase. Separately, the Chicago Purchasing Managers' Index came in above consensus.
In finance, new leadership at Bank of America (BAC) lifted the firm's shares. Shareholders voted to replace Ken Lewis as chairman, though he will remain on board as President and Chief Executive for the time being.
World markets rallied. In Asia, Japan's Nikkei climbed 3.9%, while Hong Kong's Hang Seng picked up 3.8%. In Europe, the U.K.'s FTSE ended the day up 1.3%.
On the Nymex, oil prices rose with the broader market. Crude traded up 3 cents at $51.03 a barrel.
Corporate News
- Bank of America (BAC) has a new chairman. Shareholders ousted President and Chief Executive Ken Lewis from his third role, voting to replace him with board member Walter E. Massey, president emeritus of Morehouse College.
- Ericsson (ERIC) reported a 35% drop in first-quarter net income as a decline in the demand for handsets weighed on the firm's subsidiaries Sony Ericsson and ST-Ericsson. "Extensive programs to reduce costs are ongoing to adjust to the current market environment and restore profitability," said President and CEO Carl-Henric Svanberg.
- Starbucks (SBUX) posted a 77% decline in second-quarter net income, however the coffee chain still topped Street estimates by a penny a share. The firm exceeded its goal of $100 million in cost savings by an additional $20 million.
- UBS (UBS) showed 2,000 employees the exit last month, as the firm sought to tamp down on costs, Reuters reported, citing a company spokesperson. UBS is scheduled to release its earnings on May 5.
The Economy
- Weekly jobless claims came in at 631,000 for last week, a modest dip from 641,000 the Labor Department in the prior week, the Labor Department said. Economists had predicted the number people seeking unemployment benefits for the first time will have risen slightly to 645,000. REPORT
- Personal income fell 0.3% in March, down from a 0.2% decline February, the Commerce Department said. Economists had expect income to have dipped 0.2% last month. Personal spending slipped 0.2% in March, retreating after a revised February rise of 0.4% in February. REPORT
- The Chicago Purchasing Managers' Index for regional business activity rose to an April reading of 40.1%, up from 31.4% in March. Economists had predicted the index would rise to an April reading of 34.0. A reading below 50 indicates activity is contracting.
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