Thursday, July 12, 2012

Markets flounder on global economic worries

Dow dropped 64, decliners over advancers almost 4-1 & NAZ fell 38.  The Financial Index was off 2+ to the 192s (its low for the month). 

The MLP index slipped 1+ to the 386s after a major recovery in the last month & the REIT index was off a fraction in the 262s.  Junk bond funds pulled back but Treasuries rose, bringing the yield on the 10 year Treasury near its record low 6 weeks ago.  Oil declined as the € slumped to a 2-year low (below $1.22), reducing investor appetite for raw materials & on signals that the global economic recovery is faltering.  Gold is testing its yearly lows.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLQ12.NYM...Crude Oil Aug 12...84.40 .....Down 1.41  (1.6%)

GCN12.CMX...Gold Jul 12........1,558.00 ...Down 17.20  (1.1%)

Get the latest daily market update below:

  • <p>               In this Tuesday, July 10, 2012 photo, people walk by the recruiters at a jobs fair in the Pittsburgh suburb of Green Tree, Pa. The number of people seeking unemployment benefits plunged last week to the lowest level in four years, a hopeful sign for the struggling job market. But the decline was partly due to temporary factors. (AP Photo/Keith Srakocic)
Photo:   Yahoo

The number seeking unemployment benefits plunged last week.  But a big reason was that some automakers skipped traditional summer shutdowns to keep up with demand, leading to fewer temporary layoffs of autoworkers.  Sales of new cars & trucks surged in Jun, extending the auto industry's rebound.  Automakers also began their Independence Day promotions early, lifting sales at the end of the month.  Applications for unemployment aid dropped 26K to 350K, according to the Labor Dept.  That's the lowest level since Mar 2008.  The 4-week average fell to 376K.  Expectations are that most of the decline will be reversed in the coming weeks.

Jobless Claims in U.S. Plunge on Fewer Auto Shutdowns

Fed Signals

Photo:   Bloomberg

The Federal Reserve (FED) signaled that a further economic slowdown would bring growing support for additional steps to spur the 3-year expansion.  A few members said the FED should ease policy to move the economy toward its targets for full employment & stable prices.  Several others said more action could be warranted if growth slows, risks intensified or inflation seemed likely to fall “persistently” below their goal.  As the FED extends Operation Twist program thru the end of the year, the members debated whether additional steps such as a 3rd round of asset purchases might be needed.  Some said there was a risk that buying more Treasuries might eventually disrupt the gov debt market.

Buffett Said to Have Sought ResCap Purchase Before Bankruptcy

Photo:   Bloomberg

Warren Buffett in an interview said that economic growth in the US is slowing even as the housing market shows signs of rebounding.  “The general economy in the United States has been more- or-less flat, and so the growth has tempered down,” he said today.  With residential housing, “we’re seeing a pickup, and it’s noticeable. It’s from a very low base and it doesn’t amount to a whole lot yet, but it’s getting better.”  Buffett’s remarks contrast with his comments a year ago that the economy and jobs will “come back big time” when residential construction recovers.  US unemployment has exceeded 8% for more than 3 years.  “I’ve got a little different story this time,” he said.  “For a couple years I’ve been telling you that everything except residential housing was improving at a moderate rate, not crawling, but not galloping either, but that residential housing was flat-lining. And the last two months it’s been just sort of the opposite.”  Spending in Europe has slowed as the region grapples with a debt crisis, causing businesses to “pull in their horns,” Buffett added.  “Europe is really, it’s headed downward in the last, I don’t know, six weeks or so,” Buffett said. “It wasn’t going that way before. It wasn’t doing that well, but it hadn’t really hit the skids.”  Buffett has said he believes in the long-term prospects of the US & has called his 2010 purchase of railroad Burlington Northern Santa Fe an “all in wager” on the country’s economy.  Warren's words are always helpful in understanding where the markets are.

Buffett Says U.S. Economy Slowing Even as Housing Shows Signs of Rebound

This is the 6th straight day of market declines as traders prepare for Q2 reports.  Tomorrow JPMorgan (JPM), a Dow stock, will be the first bank to give results.  While it's expected to report a profit, its European debt mess will take up a lot of time in the Q&A with reporters.  The rest of today will probably be soggy. 

Dow Jones Industrials

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