Tuesday, June 29, 2010

Global economic worries plague stock markets

Stocks sold off badly at the start & matters only got worse during the day. Markets recognized that economic problems are global. China & Japan (2 of the largest economies in the world) sent out negative signals on their economies. Europe (especially southern Europe) is a financial mess. Now there are more doubts about the recovery in the US. Dow slumped 268, decliners over advancers 7-1 & NAZ plunged 85 (almost 4%). For what it's worth, they closed above the lows! Bank stocks led the way down. The Financial Index is approaching its 186 support level. If that does not hold, the next support level could be 150 (shown in its chart).


Value187.69One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-7.58 (-3.9%)

The Alerian MLP index was weak all day, slipping 4¼ to 307. However it's up 22 YTD, few can make that claim! The REIT Index fell almost 7 to just over 190, also higher YTD. Junk bond funds were down 1-2%, about what is expected in this down market. The VIX shot up 5+ (huge by its standards) to the 34s & headed for its 2010 highs. Meanwhile Treasuries are red hot. The yield on the 10-year Treasury bond fell thru 3%, down 6½ basis points to 2.97%. Money is flowing out of stocks into Treasuries.

Alerian MLP Index --- 2 months

Dow Jones REIT Index --- 2 months

VIX --- 2 months

10-Year Treasury Yld Index - 2 months

Oil sold off badly but its bulls are happy it held above 75, a key support level. Gold rallied during the day, bringing it back into the black. Fundamentals remain strong for gold especially during these trying times for financials.

CLQ10.NYM..Crude Oil Aug 10..75.83..Down 2.42

GCN10.CMX..Gold Jul 10..1,242.00 ..Up 3.80

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The Conference Board’s confidence index dropped to 52.9 in Jun from a revised 62.7 in May (versus a forecast of 62.5). The lack of stronger gains in the biggest part of the economy reinforces the Federal Reserve’s forecast for a “moderate” recovery. Today’s report runs counter to the final reading of the Thomson Reuters/University of Michigan index which showed its confidence level rose to 76 this month from 73.6 in May. Go figga, although I suspect the Confidence Board index gives a more accurate picture of what's happening.

Consumer Confidence in U.S. Fell More Than Forecast

Consumer confidence - 1 year

One-Year Chart for Confidence (CONCCONF:IND)

Exxon Mobil (XOM) & Chevron (CVX) are the 2 big oils in the Dow & have been hit hard with selling in the last 2 years. The former is an S&P 500 Dividend Aristocrat & the latter should join in a few years. While it will probably be difficult for these stocks to attract buyers in the coming months, the long term outlook remains excellent. The world needs more energy! Their 10 year track records are shown below & they compare favorably with major indices, like Dow & S&P 500, which are lower. Their yields are 3% & 4% respectively & worth noting for value investors. Today each was down more than 2%.

Exxon Mobil --- 1 decade

Chevron --- 1 decade

This was the ugliest day for stocks in a long time because of the recognition that economic problems are spread around the world, not just in Europe. But Europe is getting a lot of attention. The € is $1.22 & looks to be heading much lower. The Senate is trying to round up enough votes (by throwing in extras) to get the financial regulation bill passed. It will go thru, one way or another. But the main worry for the markets is investors flocking to Treasuries with the 10-year Treasury bond yielding below 3% (a very important support level) & the 2 year note yield down to a mere 60 basis points. Until "risk averse" thinking is reversed, more selling can be expected while Dow is flirting with 9 month lows.

Dow Jones Industrials --- 2 months

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