Tuesday, May 18, 2010

Markets decline on growing worries out of Europe

Stocks started higher but sold off & continued sliding all day. Dow closed down 114 (not far off its lows), decliners over advancers 3-1 & NAZ fell 36 (1½%). European worries, the new banking bill moving forward with increased regulations & a spreading oil spill are enough to drag down any bull market. Banks have been leading the markets this year & led the way down. The Financial Index closed near its lows & down 12% from its recent highs.


% Change

MLPs continue to sell off. The index dropped 1¼ to the 291s (which compares with a high of 305 last Thurs & 286 at the start of 2010). They are hurt by a growing demand for higher yields from riskier investments (junk bonds, etc.) plus continued problems with the massive oil spill has to hurt. The REIT index dropped 5½ to 200 (down 15 from its highs on Thurs & 182 on Jan 1). Junk bond funds fell 1-2% & are down around 10% from their highs at the start of this month. Money seeking safety is heading back into Treasuries. The yield on the 10-year Treasury bond fell almost 10 basis points to 3.38%, near its lows in the last year. VIX shot up 2.71 to the 33s, a new 13 month high (ignoring the spike up in early May) as fears are on he rise.

Alerian MLP Index --- YTD

Dow Jones REIT Index -- YTD

10-Year Treasury Yld Index - 2 months

VIX --- 2 years

Renewed worries about the European debt crisis & the declining € dragged oil down in late trading. Twice since Jan, oil prices approached $90 a barrel only to slide back to $70. Crude has dropped more than 20% from early May, the highest point since Oct 2008. Gold is hanging in there well, aided by its quality as a safe haven for frightened money.


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Wal-Mart (WMT), Dow stock & Dividend Aristocrat, reported Q1 earnings rose 10% aided by cost-cutting & robust growth in intl business. EPS for WMT (qtr ending Apr 30) was 88¢ compared with forecasts of 84¢ & 77¢ earned last year. Revenue rose almost 6% to $99.85B from $94.24B last year. Revenue at stores open at least a year dropped 1.1%, dragged down by performance at US stores. "Our customers, particularly in the United States, are still concerned about their personal finances and unemployment, as well as higher fuel prices," Mike Duke, Wal-Mart's president & CEO, said. WMT added that more than ever its customers are living "paycheck to paycheck" & the number of customers on food stamps increased significantly. The US division posted a 1.1% increase in revenue, while the intl division had a 21.4% increase, boosted by strong business in China, Brazil & Mexico. Revenue at stores open at least a year slipped 1.4% in the US. Investors liked the report, the stock rose 97¢ to 53.71 (but well of its highs).

Wal-Mart's 1Q net income rises 10 percent

Wal-Mart --- 2 years

The € is just above $1.22, another multi year low. High yield securities (junk bonds, etc.) have had a major sell-off in May while Treasuries rallied. European financial problems are not going away any time soon which should keep selling pressure on stocks. Dow is heading back down to the 10,380 low on gloomy Fri, May 7. It could crash thru that floor in a day or 2.

Dow Jones Industrials -- YTD

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