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5/13/2008 4:39 PM ET

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(RTTNews) - After seeing earlier weakness, stocks ended Tuesday’s session on a mixed note. Investors spent the session looking over a key government report on retail sales, while concerns about the outlook for the financial sector kept buying to a minimum.

Earlier, the Department of Commerce released its report on retail sales in the month of April, showing that sales decreased in line with economist estimates while sales excluding autos increased much more than economists had been expected.

While the retail sales data excluding auto sales came in higher than expected, the lack of big-ticket purchases has raised concerns over the impact of lighter consumer spending. Investors watch consumer spending closely, as it makes up about two-thirds of economic activity.

Financial stocks weighed on the markets after Oppenheimer analyst Meredith Whitney slashed her outlooks on several investment banks. In her note to clients, Whitney stated that the outlooks are far bleaker than reflected in the markets.

The weakness in the financial sector also came on the heels of comments from Federal Reserve Chairman Ben Bernanke indicating that the financial markets remain severely stressed.

Meanwhile, the Nasdaq got a lift from Yahoo! (YHOO) after CNBC reported that billionaire investor Carl Icahn was considering a proxy fight to try to push the internet giant back into merger discussions with Microsoft (MSFT).

The major averages staged a recovery attempt in late day trading, but only the Nasdaq was able to end the day in positive territory. While the Nasdaq closed up 6.63 point or 0.3 percent at 2,495.12, the Dow closed down 44.13 points or 0.3 percent at 12,832.18 and the S&P 500 closed down 0.54 points or less than one percent at 1,403.04.

Sector News

Boosted by another record high in oil, oil service stocks turned in some of the best performances. The Philadelphia Oil Service Index closed up 2 percent, reversing the loss posted in the previous session. With the gain, the index set a record closing high.

Oil soared again on Tuesday to reach another new record high. After reaching a new record intraday high of $126.98 a barrel, light sweet crude ended the session up $1.57 at $125.80 a barrel.

Other resource stocks benefited from higher commodity prices as well, including natural gas and steel stocks. The Amex Natural Gas Index closed up 1.4 percent, compared to a 1.3 percent gain by the Amex Steel Index.

Sandisk (SNDK) led disk drive stocks higher after a Citi Investment Research analyst said he saw a strong seasonal trend, adding that the company’s fundamentals appear to be improving. Sandisk closed up 4.5 percent, contributing to a 1.8 percent gain by the Amex Disk Drive Index. With the gain, the index set a four-month closing high.

Networking stocks also posted substantial gains, with the Amex Networking Index closing up 1.2 percent, at a four-month closing high. Other stocks that showed strength include semiconductor and defense stocks.

On the other hand, the financial sector, including bank and brokerage stocks, ended the day sharply lower. The KBW Bank Index closed down 2.1 percent, compared to a 1.8 percent decline by the Amex Securities Broker/Dealer Index.

Gold stocks also saw considerable weakness, with the Amex Gold Bugs Index falling 1.3 percent. Telecommunications and health insurance stocks closed notably lower as well.

Dow Components

While the Dow components were split between the gainers and the decliners, the stocks that closed lower showed steeper declines, keeping the blue chip index in negative territory. While 9 stocks closed with losses in excess of 1 percent, only 3 saw gains in excess of 1 percent.

Hewlett Packard (HPQ) led the blue chip index lower after the computer giant announced that it will buy Electronic Data Systems (EDS) for $25 per share or about $13.9 billion in cash to expand its technology services business.

Shares of Hewlett Packard closed down 5.5 percent. Although it moved well off of its intraday low, the stock closed at its worst level in nearly three months.

JP Morgan Chase (JPM) also saw significant selling pressure after the company reported that the SEC may file civil charges against the bank’s securities division. Reversing gains posted in the past two sessions, the stock closed 3.7 percent lower, setting a three-week closing low.

General Motors (GM) ended the day sharply lower as well, closing down 2.7 percent. The stock set a nearly monthly closing low, extending a recent downtrend. Earlier, the automaker’s COO said the U.S. auto industry is in a recession, although he said he is seeing sales growth in emerging markets.

Financial stocks, including Citigroup (C), Bank of America (BAC) and American Express (AXP) took their cues from the financial sector, ending the day with substantial losses. Citigroup closed down 2.6 percent, Bank of America closed down 2.2 percent and American Express closed down 1.9 percent.

After providing a weak outlook for its second quarter, Wal-Mart Stores (WMT) also showed substantial weakness. The discount retailer closed slipped 2.4 percent. Other Dow components that closed notably lower include Merck (MRK) and Walt Disney (DIS).

On the other hand, AIG (AIG) saw considerable buying interest, ending its recent trend lower. Shares of the insurer closed up 2.1 percent after falling for four consecutive days. On Monday, the stock set a multi-year closing low.

Alcoa (AA) also saw a notable gain. Extending its recent trend higher, the aluminum producer closed up 1.2 percent to set a nine-month closing high. IBM (IBM) and Proctor & Gamble (PG) ended the day higher as well.

Other Markets

In overseas trading, the major Asian markets ended Tuesday’s session on a mixed note. The Japanese market advanced on positive earnings news and the weakening of the yen. European stocks also closed mixed after seeing earlier weakness, with the U.K.’s FTSE 100 Index closing down 0.1 percent.

Meanwhile, treasuries ended the day sharply lower. The benchmark ten-year note dropped following the report on retail sales and continued to decline throughout the session to close at its intraday low. Subsequently, the yield on the ten-year note closed up 13.4 basis points at 3.909 percent, its best level in well over two months.

Looking Ahead

Looking ahead to Wednesday the markets may be affected when the Labor Department releases its consumer price index, which is one of the most widely followed indicators of inflation in the U.S. The March CPI rose 0.3 percent after coming in unchanged in February. Economists expect CPI to edge up by 0.3 percent once again in April.

There will be more Fed speak on Wednesday as well after several federal reserve members, including Fed Chairman Ben Bernanke, spoke on Tuesday. Boston Federal Reserve Bank President Eric Rosegren, Federal Reserve Governor Randall Kroszner, who is a FOMC voting member, and San Francisco Federal Reserve Bank President Janet Yellen are scheduled to speak throughout the day.

In earnings news, Applied Materials (AMAT), Electronic Arts (ERTS) and Whole Foods Market (WFMI) are among the companies scheduled to release their quarterly results after the closing bell on Tuesday. On Wednesday, Freddie Mac (FRE) is scheduled to release its first quarter results. Analysts expect Freddie Mac to report a loss of $0.92 per share.

For comments and feedback: contact editorial@rttnews.com

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