Friday, June 1, 2012

Disappointing jobs report brings dreadful day in the markets

Stocks started with a large drop at the opening, only to be followed by more selling.   Dow lost 274 & closed near its lows, decliners over advancers 7-1 & NAZ had an even worse day, dropping 79.  Bank stocks found no friends.  The Financial Index dropped 7 to the 181s (one of its worst days ever), last seen 5 months ago.  Besides the European debt messes, increased regulation is making its presence felt (along with the whopper loss at JPMorgan (JPM)).

The MLP index plunged a massive 8 to the 357s (a new 7 month low) & the REIT index dropped almost 6 to the 242s.  Junk bond funds fell 1-2% (big by their standards) after having a very bad month in May.  Meanwhile Treasuries rallied, bringing new record low yields (see below).  Gold bugs were happy to see the massive spike in gold prices today (shown in the daily chart) as risk averse investors finally caught gold fever.

JPMorgan Chase Capital XVI (AMJ)

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CLN12.NYM...Crude Oil Jul 12...82.84 ...Down 3.69  (4.3%)

Live 24 hours gold chart [Kitco Inc.]

Consumer Spending, Incomes in U.S. Increased in April

Photo:   Bloomberg

Consumer spending in the US rose in Apr, households were supporting the economy then.  Purchases increased 0.3% after a revised 0.2% gain in Mar according to the Commerce Dept, matching the estimate.  But incomes rose 0.2%, less than forecast. Households have managed to stretch their budgets to propel growth in the US as gasoline prices were falling.  At the same time, households may have trouble sustaining the pace of spending in the future until a stronger labor market leads to bigger income gains.  This data is routine, but more importantly it is 1 month old in a fast changing economic environment.

Consumer Spending, Incomes in U.S. Increased in April

Treasuries rallied, pushing 30-year bond yields to a record low, after the economy added fewer jobs in May than expected, indicating the worsening European sovereign-debt crisis may restrain US growth.  10-year note yields dropped below 1.5% for the first time.  The difference between the yields on the 10 & 30-year securities narrowed to nearly the least since Jan on reduced concern inflation will erode the value of fixed-income assets.  The benchmark 10-year yield fell to 1.47%, reaching an all-time low for a 3rd day (touching as low as 1.44%).  30-year bond yields declined 2.54% (reaching as low as 2.5089%, just below the record 2.509% in Dec 2008).  The gap between 10 & 30-year securities narrowed to 108 basis points, close to the least since Jan.  The difference between the yield on the 2-year & 10-year notes, dropped to 122 basis points, the least since Jun 2008.  Bottom line, there is a lot of frightened money out there & those investors are falling all over themselves buying Treasuries.

 U.S. 30-Year Yields Falls to Record on U.S. May Jobs Gain

The failure of the Facebook IPO is casting a long shadow over the stock market.  The execs hyped & hyped the stock ahead of time.  Now the "lucky" ones who got it at the IPO price have big losses & regrets.  Many of these investors will have 2nd thoughts about buying any stocks for some time, not to mention others, like me, who watched this as a reminder of the internet crash in 2000.  One thing, the IPO market has gone into a deep freeze.  The stock fell another $1.90, giving the IPO investors a loss of more than $10 a share.

Facebook, Inc. (FB)

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After starting the shortened week at depressed levels, markets sank further into the abyss.  Dow lost more than 300 & is down over 1K since the start of May.  YTD, Dow is down about 100 & the S&P 500 is just barely in the black.  I don't remember too many talking about this scenario at the start of the year.  Look for the eurozone to come out with some kind of bond buying program this weekend.  The Federal Reserve might even give us a QE3, trying to halt the sliding markets.  Even if they do, any relief should be limited.  Euro debt problems aren't going away & the US economy is wishy washy at best.  The pres at lunchtime was prodding Congress to pass another jobs bill to solve problems.  I don't think it will because it won't solve fundamental problems.  But it will add to the debt & the US will be bumping against the new debt limit in just a few months.  There could be an oversold rally on Mon, be cautious about buying into it.

Dow Industrials

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