News at a Glance
Boing, Boing: After sellloff, major indexes get huge bounce.
Energy Plummets: Oil drops $5 to below $115. Gas down, too.
Fannie Flops: Mortgage backer posts fourth straight loss.
Productivity Rises: Index up 2.2% in Q2, misses consensus.
The Lowdown
Traders came rushing back to equities the day after a broad selloff as another sharp drop in energy prices brightened the mood on Wall Street on Friday.
The major indexes recovered all of their day-old losses and then some as consumer cyclicals surged and financials bounced back from Thursday's heavy losses. The Dow Jones Industrial Average jumped 303 points to 11734, its highest close since June 25. The Nasdaq picked up 58 at 2414, and the S&P 500 rose 30 to 1296.
The rebound was driven by another decline in energy prices. Oil futures fell again as the dollar gained strength in Europe and Asia. By 4 p.m., crude traded down $5.10 on the day at $114.92 a barrel. Gas prices slipped for 22nd straight day to $3.836 a gallon, according to the latest AAA Fuel Gauge Report.
Consumer-oriented stocks led the market, spurred on by lower energy costs. McDonald's (MCD) also posted better-than-expected same-store sales for July, and Best Buy (BBY) got a vote of confidence from Blackrock when the firm boosted its stake in the electronics retailer.
MORE ON STOCKS FROM SMARTMONEY.COM
Financials also sprung back after absorbing heavy losses on Thursday. The sector bounced despite a letdown at Fannie Mae (FNM). The mortgage backer failed to meet analysts' estimates for the second quarter, a period in which more borrowers defaulted on their home loans. Fannie reported its fourth straight loss two days after Freddie Mac (FRE) let down the Street.
In economic news, non-farm productivity rose 2.2% in the second quarter, but that was shy of economists' estimates. Meanwhile, unit labor costs rose 1.3%. That was good news for U.S. businesses, many of which have been forced to cut their payrolls during the slowdown.
Corporate News
Fannie Mae (FNM) reported its fourth consecutive loss and fell short of analysts' estimates after a quarter in which more home loans went belly-up. Fannie lost $2.3 billion, or $2.54 a share, down sharply from a profit of $1.95 billion, or $1.86 a share, in the year-ago period, the mortgage backer said. Fannie also cut its dividend by more than 85% to a nickel a share.
UBS (UBS) agreed to buy back $19.4 billion in auction-rate securities to settle allegations that it tricked investors into taking on more risk than they realized, The Boston Globe reported, citing anonymous sources. The Swiss bank had been facing fraud charges in New York and Massachusetts. The report came a day after Citigroup (C) and Merrill Lynch (MER) reached agreements to repurchase a combined $17 billion in similar bonds.
MBIA (MBI) saw its second-quarter net income surge on a one-time gain related to credit derivatives. MBIA earned $1.7 billion, or $7.14 a share, up sharply from $211.8 million, or $1.61 a share, in the year-ago period, the bond insurer said. Wider spreads on credit default swaps gave MBIA a $3.3 billion boost.
The Economy
Non-farm productivity rose 2.2% in the second quarter, slowing from from a revised first-quarter increase of 2.5%, according to preliminary data released by the Labor Department. Economists had been looking for a 2.5% second-quarter increase. REPORT
Wholesale inventories, a measure of lag in demand relative to expectations, rose 1.1% in June, up from a revised 0.9% increase in May, the Commerce Department said. Economists had expected inventory growth to have slowed to 0.6%. REPORT
ReadMe
BusinessWeek on retail: Many stores have scaled back their inventories, boosting profit margins while slowing down sales. STORY
The New York Times on civil suits: A new study shows settling out of court is usually more lucrative than going to court. STORY
Slate on the Olympics: Several economists try to predict China's success at the Games. STORY
WatchMe
CNBC on China: Craig Russell, chief market strategist, China at Saxo Bank, says the country could get an economic lift after the Olympics. VIDEO
Forbes on the airline industry: Fund manager Don Hodges expects the major carriers to continue passing higher fuel costs on to passengers. VIDEO
NFL Preseason Football: The Philadelphia Eagles visit the Pittsburgh Steelers in a meaningless battle for Pennsylvania. That said, it's football. NFL, 7:30 p.m.
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