Wednesday, June 8, 2011

Stock markets sell off after a drab Beige Book report

Dow fell 21, decliners over advancers 5-2 & NAZ dropped a much bigger 26.  Dow's loss was reduced with the 2 big oils gaining on higher oil prices.  Banks stocks continue in the dumps, taking the Financial Index to another new 6 month low.  It's chart below looks awful & its decline is not over.


Value198.26One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   -1.88     (-0.9%)

The MLP index has been falling for 6 straight days & the REIT index fell 1 to under 240 (10 below its recent 2011 highs).  Junk bond funds were off but Treasuries were stronger, advancing as the Federal Reserve said that record monetary stimulus is still needed to bolstered demand.  Today’s $21B auction of 10-year notes went well, bringing the yield solidly below 3%.  The disarray at OPEC & it's inability to speak with a united voice brought buyers back into the oil market. The chart for gold below shows it has been slipping in the last 2 days (green line is today's prices), but remains near the $1577 recent record highs.


Value355.26One-Year Chart for ALERIAN MLP INDEX (AMZ:IND)
Change  -0.64    (-0.2%)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLN11.NYM...Crude Oil Jul 11...100.97 ...Up 1.88  (1.9%)

Live 24 hours gold chart [Kitco Inc.]

For the first time this year, the economy slowed in several US regions in the spring.  High gas prices weakened consumer spending, & the Japan crises reduced manufacturing output.  4 of the Federal Reserve's (FED) 12 bank regions suffered slower growth in Apr & May compared with earlier this year, according to a FED survey. The report confirmed a slew of data that portray a national economy whose growth has faltered. Hiring has slowed, orders to factories have declined & home prices have fallen.  The FED banks in New York, Philadelphia, Atlanta &^ Chicago said growth weakened in those regions. By contrast, the FED regions in Boston, Cleveland, Richmond, St. Louis, Minneapolis, Kansas City & San Francisco said growth remained steady.  The Dallas region was the only one to report accelerating growth, mostly because of higher oil prices that benefited that region's energy industry.  The "Beige Book," report is based on anecdotal information gathered by officials at  regional banks & is released 8 times a year to provide a more in-the-trenches review of the US economy than gov statistics.  One more signal that the economic recovery is stumbling.  There looks to be growth, but the growth rates are lower & certainly not helpful in reducing high unemployment rates which are already figuring in next year's elections.

Fed Says Economy ‘Generally’ Grew

Federal Reserve Chairman Ben Bernanke

Photo:   Bloomberg

Ben Bernanke, Federal Reserve (FED) Chairman, said the “frustratingly slow” US recovery warrants sustained monetary stimulus while predicting that growth will gain speed in H2.  “The economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed,” Bernanke said yesterday. At the same time, the FED “will take whatever actions are necessary to keep inflation well controlled,” he said.  Bernanke said consumer spending is being held back by high unemployment, a drop in home values & tight credit.  Growth is likely to pick up as fuel prices moderate & factory disruptions ease as Japanese parts suppliers recover from the earthquake.  “Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers,” he said.  He's betting a lot on strong recovery in the coming months helped by lower crude oil prices.  I think oil & unemployment will remain high for the rest of the year, limiting economic growth.

Recovery Still Needs Stimulus: Bernanke

Some Reps have said a brief default, which would be inevitable in August if lawmakers fail to raise the nation's $14.3T debt ceiling, might be acceptable if it forces the White House to deal with large budget deficits.  Fitch said it would then slash to "junk" the ratings on US Treasury bonds, seen worldwide as a risk-free investment, if the gov misses debt payments by Aug 15 in a row over slashing the budget's deficit.  The ratings would go back up once the gov fulfills its debt obligations, but probably not to the current AAA level, Fitch said, in a stark statement about the impact of a short-lived default on the US credit-worthiness.  The White House said Fitch's warning makes it clear that "there is no alternative to raising the debt ceiling."  Maybe this talk is hypothetical, but just thinking about this alternative is scary!

Gas prices at the pumps are inching lower, not for much longer with oil back over $100.

National Unleaded Average
Current Avg.$3.748$3.894$4.022$3.993$3.223$4.242
Yesterday Avg.$3.761$3.909$4.037$3.996$3.226$4.245
Week Ago Avg. $3.775$3.917$4.045$4.008$3.240$4.264
Month Ago Avg. $3.960$4.104$4.231$4.155$3.338$4.393
Year Ago Avg. $2.718$2.887$2.990$2.983$2.195$2.888

Source:   AAA

Apple (AAPL) started this week at 343, before its huge media event on Mon along with subsequent media events.  Today it's 332 (little changed today & YTD).  That was not supposed to happen, especially considering all those analysts with target prices around 450.  AAPL was fond of bragging about having the 2nd largest market cap in the world, it still does.  But its inability to move forward in 5 months is a vivid reminder that this stock market has major problems.  The Financial Index, which contains the biggest name banks, also has been sinking, especially since early May.  The start of summer is close & it looks like this will not be a good one for stocks.

Dow Industrials (INDU)

stock chart

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