It was a less than sensational day on almost all counts, as a mixed outlook on the economy from the International Monetary Fund and falling commodity prices sent stocks retreating from a morning rally. Before climbing back, the Dow and the S&P500 hit levels not seen since May; the Dow managed a 14.8-point gain; the S&P and Nasdaq were about flat.

Dow Jones Industrial Average:


Like the other two indexes, the Nasdaq remains below its support and could easily revisit its May lows:


Both the Dow and the S&P 500 have shed about 7% since their June 12 highs, albeit on unenthusiastic volume. A continuing lack of really good news will almost certainly pull things lower.

Market Statistics for Wednesday:

Maybe it wasn't exactly on tenterhooks, but the market waited for news of Alcoa's (AA) second-quarter earnings, which came in after hours. They were lower, as expected. In its third consecutive quarterly loss, the company lost $454 million or 47 cents a share, evidence, if we needed it, of slumping orders from key buyers in aerospace, automotive and construction; analysts predicted a loss of 38 cents. (Excluding restructuring charges, Alcoa's loss would be 26 cents per share.) A year ago the company earned $546 million or 66 cents. Since then, aluminum demand has fallen with the global economy, driving up stockpiles and driving down prices while production has fallen.

Alcoa (reporting after hours)

Alcoa used to be considered one of the bellwethers of the economy, but many analysts no longer think it is. One respected analyst claims that it now only tells you about the health of the aluminum industry, and considers FedEx (FDX) and United Parcel Service (UPS) better signs of a trend. Both are down since May.

Even if Alcoa -- the first member of the Dow to release earnings -- had reported a bundle of orders, it probably wouldn't presage a real turnaround, as most customers let their inventories go down in recent months and are now restocking while aluminum prices are relatively low.

However, aluminum prices have been showing a slight uptick over the last six months, something to keep an eye on, as the metal price will rise well before the stock price does:

Aluminum prices, last six months:

Copper prices, which I've always considered as accurate a bellwether as aluminum, are also sneakily rising lately, although copper stocks aren't (yet):

Copper prices, last six months:

In economic reports, the Mortgage Bankers' Association's (MBA) purchase application index jumped a very noteworthy 6.7% in the week ending July 3 to 285.6, a level that hints, gently, at improved demand for housing. The refinance index also jumped, up 15.2% to 1,707.7. The index measures applications at mortgage lenders; it's a leading indicator for single-family home sales and housing construction. Mortgage rates weren't much changed in the week; they're at a still-appealing 5.34% for a 30-year fixed mortgage.

It's hard to judge from just one instance, but a few more reports like this could be an indicator of better times for housing. Still, none of the five big housing stocks - Pulte (PHN), Lennar (LEN), Centex (CTX), D.R. Horton (DHI) and Beazer (BZH)- responded whole-heartedly.

Lennar Corp.:

And here's a quick look at existing and new single-family- home sales through May. Is the worst over for housing? Stay tuned.

Single Family Home Sales (through May):

Crude oil prices fell for the sixth straight day, dropping $2.79 to $60.14, after hitting an eight-month high last week of $73. The Energy Information Administration's weekly petroleum inventory showed large buildups offsetting a 2.9 million barrel drawdown in crude oil for the week ending July 3.

Gasoline stocks rose 1.9 million; distillates jumped 3.7 million, with refineries continuing to operate at an active 86.8% of capacity. Summer driving has nudged demand up 1.3% year over year, but the rising gasoline and distillate stocks still indicate a slowing demand for crude, and crude supplies have been high all year. Investors are interpreting falling oil prices as a sign of economic weakness as industrial and manufacturing activity remains sluggish.

AMEX Oil Index

And not helping matters in the least was the International Monetary Fund's lowering of its global economic forecast. The IMF said it expects the world economy to shrink by 1.4% this year, slightly worse than its April estimate of 1.3% and further confirming investors' fears that their hopes and dreams for a solid recovery this year were probably premature.

Next year, it said, global activity should expand by 2.5%, higher than previously thought. On a fourth-quarter-over-fourth-quarter basis, real GDP growth is projected at 2.9% next year, also higher than previously thought. In short, the global economy is starting to pull out of a recession unprecedented in the post–World War II era, but stabilization is uneven and the recovery will not be robust. I think we knew this going in.

Since mid-June, after three months of a rising market, investors have become worried that the world economy may take longer to emerge from recession than they'd hoped, and the markets have shown it.

IMF Projection:

On the upside, demand was at record levels in today's $19-billion, 10-year Treasury auction, pushing prices up while yields fell to their lowest in about seven weeks; it was the third of four major auctions this week. Yields on 10-year-notes fell 13 basis points to close at 3.32%, the lowest close since May 20. (Yields on 2-year notes declined 4 basis points to 0.93%, after earlier declining to the lowest in more than a month.)

Bidders offered $3.28 for every dollar sold, compared to $2.62 at the last auction in June. That's the highest "bid-to-cover" since at least 2001. The Treasury Department sold the 10-year notes at a yield of 3.365%, well below expected levels, with the amount offered matching the amount sold last month. This contrasts with comparatively tepid results in recent coupon auctions.

Indirect bidders, a class of investors that include foreign central banks, bought 43.9% of the sale, compared to 34% last month (although the proportion of sales to indirect bidders jumped last month after a change in tabulation methods). Another 13% of the sale went to direct bidders, or investors buying the debt for their own accounts. The more the auction goes to direct and indirect bidders instead of primary dealers, the better for the market, as dealers often turn right around and have to sell the debt, pressuring prices.

10-Year U.S. Treasury Yields:

The 10-year notes, and Thursday's sale of $11 billion in 30-year bonds , are so-called "reopenings" of securities sold during the government's quarterly refunding in May, meaning they carry the same coupon and maturity date as the original debt. The Treasury is using reopenings as a way to spread out the sales of increasing amounts of debt needed to finance the government's and the Fed's programs to revive the economy and ease credit-market strains.

Analysts have paid more attention to the government's debt sales in the last few months, looking for signals of whether investors, particularly foreign central banks, remain willing to buy U.S. debt.

You'll note that after falling on the IMF report, the market responded well, if briefly, to the auction news. Later it managed to recover after news that credit was still pretty tight:

S&P500 Intraday:

The Consumer Credit report brought some not-terrible news: the dollar value of consumer installment credit outstanding contracted much less than expected in May, at $3.2 billion vs. April's monster shrinkage of $16.5 billion. Expectations were more than twice that, at negative $7.5 billion. May's contraction was mostly focused on revolving credit (the open-ended credit line such as you get from a credit card), which came in at $2.9 billion after April's $8.7 billion in revolving credit debt. Which is to say, consumers are saving, not spending, and banks are pulling back available credit on credit cards. Nonrevolving credit, such as auto or student loans, fell .4 billion in May.

Credit card companies have been tightening available credit while consumers have pulled back on spending-either due to job loss or the fear of it. The scarcity of credit and the unwillingness to draw on it are major factors limiting economic improvement, not just in the consumer sector but in the business sector as well. It seems that Americans have gone from spending like sailors directly to stuffing money in their mattresses. Neither is good. A successful economy requires levels of spending, and saving, somewhere between the two.

In further earnings news, discount retailer Family Dollar (FDO) soared $3.56 or 12.8% after reporting that its fiscal third-quarter profit rose 36%. The economy, not surprisingly, has been driving more and more consumers to Family Dollar's stores. In the latest quarter, Family Dollar earned $87.7 million or 62 cents per share, up from $64.7 million or 46 cents a year ago. The company also gave profit guidance that was higher than the consensus, saying it would earn 39 cents to 43 cents a share in the fourth quarter, compared to analysts' estimate of 39 cents, and that sales trends would improve in July and August.

Family Dollar Stores:

Dollar stores are among the few companies that benefit from a recession. Shoppers still want to buy staples at a discount. Dollar Tree (DLTR) followed its rival up $3.23 or almost 8% and 99 Cents Only Stores (NDN) gained 47 cents or 3.6%.

Pepsi Bottling Group Inc. (PBG) reported a higher-than-expected quarterly profit as price increases and stronger U.S. sales of carbonated soft drinks helped offset declining demand for pricier beverages. Those falling aluminum prices also helped boost earnings. Soft drinks are selling well as consumers look for less-expensive treats, although Pepsi Bottling said sales volume had fallen here and in Canada. The stock, which jumped 22% on an April bid from PepsiCo, is up over 76% since March. It had a quiet day.

Pepsi Bottling Group:

Decidedly unglamorous but absolutely essential* lubricant and cleaning products maker WD-40 Co. (WDFC) posted a better-than-expected third-quarter profit despite a 15% drop to $6.9 million or 41 cents a share, down from $8.1 million or 49 cents a share a year earlier, but above estimates. The stock, although volatile, has been on a more or less steady uptrend since March. (*There's rarely any Pepsi in my house, but I haven't been without a can of WD-40 since Gerald Ford was President.)

WD-40 Co.:

After the close, the Treasury at last took the wraps off its plan to cut bank toxic assets. Much smaller than originally called for, it's a public-private government program designed to take up to $40 billion in so-called toxic mortgage securities and other assets off bank balance sheets, with the Treasury picking nine investment managers to participate in the program. The Treasury said the goal of the program is to "jump start" trading in the mortgage securities.

It's rather less than the $1 trillion in toxic assets the Treasury expected to clear from financial institutions when it unveiled the overview of the program in March. The toxic asset program has transmuted many times in the past nine months and now some industry analysts say interest in the program has faded. Perhaps financial institutions hesitate to sell assets because they think their valuations will rise as the economy turns around.

Tomorrow the Bank of England determines interest rate policy at its monthly Monetary Policy Committee meetings; if the outcome is different from expectations, which are No Change, the effect on the markets can be dramatic. Also reported will be jobless claims.

In earnings, the market awaits Chevron (CVX), networking solutions firm 3COM (COMS), beauty products company Helen of Troy (HELE) and enterprise software maker Lawson (LWSN).

Please note: I won't be posting the Wednesday wrap for the next two weeks, but will be back with you on the 29th.

Judy Alster