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Markets struggle on gains in oil prices and further worries about financial shares. The Dow ($INDU) fell 205.99 points to close the session at 12,083.77. The S&P 500 ($SPX) gave up 22.95 points, closing at 1,335.49. The Nasdaq ($COMPQ) lost 54.93 points to 2,394.01. Volume remained moderate on the session with 1.39 billion shares traded on the NYSE and 2.10 billion shares exchanged on the Naz. Market breadth was negative by a 6-to-26 and 7-to-22 margin on the Big Board and Naz respectively.

Commodity prices continued to garner plenty of attention with oil rising $5.07 a barrel to close at $136.38. Prices rose on news that weekly inventory levels fell by 4.6 million barrels. However, gasoline reserves rose by 1.0 million barrels with distillates up 2.3 million barrels. Crude inventory levels are down by 24 million barrels in the past four weeks and traders were disappointed in an unexpected decline in refinery activity. The fact is that record gasoline prices have not curtailed demand enough to increase inventory levels.

Financial stocks continued their struggles Wednesday with Lehman Brothers (LEH) falling 13.64 percent on the session. LEH has fallen sharply the past four sessions, falling from a closing price of $33.85 on June 5 to its close today at $23.75. Volume was massive Wednesday at 117.28 million shares. LEH has struggled after warning about earnings in the second quarter. Shares of Goldman Sachs (GS) were down 2.88 percent on rumors the company will announce large write-downs. The Financial Select SPDR (XLF) fell 2.9 percent.

The Fed Beige Book showed that inflation pressures are increasing and this is leading to higher prices for goods and services at the consumer level. Until recently, businesses were not passing on higher prices to consumers, but this is starting to occur and this could be a major problem for the economy going forward. Fed leaders have been pounding the inflation pulpit, trying to jawbone prices lower. However, record oil prices alone could create a lot of problems going forward.

In merger news, Staples (SPLS) finally got the approval of the Corporate Express (CXP) board buy the company. SPLS will pay $4.8 billion at current exchange rates, pushing CXP shares higher by 2.71 percent to $14.38. SPLS shares saw larger gains, rising 5.31 percent to $24.38. SPLS had made several offers for CXP, but CXP wasn’t interested until the latest offer.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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