Stocks begin October on the wrong foot

Dow started the day (& month of Oct) down & remained in the dumps all day. Dow finished with a 203 decline (closing at its lows), decliners over advancers almost 5-1 & NAZ was off a very big 64. Banks pulled back sharply, hurt by the resignation of Ken Lewis at Bank of America (BAC). A 10 point drop for the Financial Index is a big deal & we pretty much got that today. The index is also about 15 below its 2009 high just 9 days ago.

S&P 500 FINANCIALS INDEX

Value 192.38

Change -8.80

% Change -4.4%

Bank of America (BAC) on its change of command announcement was down 71¢ to 16.21. It's up sharply from its lows near 3 earlier this year. Those buyers are happy campers. But buyers just 2 years ago paid $50+ to get a nice yield on its newly raised div of $2.56. They are very unhappy.

Bank of America --- YTD




MLPs have been stuck in a sideways trading zone in the 240s for 2 months. Today, the Alerian MLP index fell 3¾ to the 245s. The Dow Jones REIT Index dropped a very big 7½ to 161 or 20 below its high peak 2 weeks ago. Junk bond funds were off a little, still near or at recent highs. Money is flowing into the safety of Treasuries. The yield on the 10-year Treasury bond plunged 11 basis points to 3.19% (last seen in mid May). Note the disconnect between junk bonds & Treasuries, both are rising. That relationship can not last. Oil was up a few pennies, still in the 70s & gold slipped just under 1K.

Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month

Auto sales for General Motors & Chrysler had the biggest slowdowns in Sep. However Hyundai bucked the trend, reporting a 27% rise. Sep was the first month following the Autos for Clunkers program & it turned out to be more difficult month than anticipated. GM auto sales plunged 45% in Sep to 156K vehicles. Ford (F) reported sales of 114K (down 5%) in Sep, but the decline followed 2 straight months of rising sales. Chrysler sales of 62K vehicles were down 42% from 2008. Toyota Motor (TM) sales fell 13% while Nissan sales fell 7%. Ford's decline was the smallest among major manufacturers GM blamed the decline on the clunkers program pulling buyers into the 2 previous months, weak consumer confidence low inventory levels during Sep before production increases could replenish stocks.

•GM, Toyota, Ford, Chrysler U.S. Sales Decline as `Cash for Clunkers' Ends

Ben Bernanke, Federal Reserve Chairman, said U.S. economic growth next year probably won’t be strong enough to “substantially” bring down the jobless rate, which may remain above 9 percent at the end of 2010. “Most forecasters including the Fed are currently looking at growth in 2010, but not growth so rapid as to substantially lower the unemployment rate,” Bernanke said at a House Financial Services Committee hearing today in Washington. Growth of 3% means the rate would “still probably be above 9 percent by the end of 2010,” Bernanke said. These are chilling thoughts for the bulls who are talking about a rapid recovery next year. Implications for the high yield sectors REITs & junk bonds are sobering. How slow growth will affect MLPs is less clear, they just want to continue building pipelines & terminals no matter what. Lower earnings have not been a big hindrance to their expansion plans.



Stocks have had a spectacular run for 6 months, but ran into headwinds around the one year anniversary of the Lehman collapse in mid Sep. Nothing serious so far, key averages are still within a few % of their highs, but they're feeling the effects of headwinds. If worries about the pace of economic recovery increases (discussed today by Chairman Bernanke), there could be more selling. Bulls might welcome a change in markets which are extremely overbought.

Dow Jones Industrials --- 1 month