Dismal outlook, stock close at lows

Nothing like a grim global economic forecast to take down an overbought stock market. Dow sank 200 (finishing at the lows), decliners over advancers a very big 7-1 & NAZ sold off 61. Few buyers for banks today, the index closed at levels last seen in the early days of May.

S&P 500 FINANCIALS INDEX

Value 152.40

Change -10.02

% Change -6.2%

The Alerian MLP Index had a terrible day, down 6 to the 213s. REITs & junk bond funds also were punished while Treasuries were higher. The 10 year Treasury bond rose, taking the yield down 10 basis points to 3.69%.

10-Year Treasury Yield Index - 1 month




The VIX was strong all day, finishing up 3 (11%). Below is an article on the big gain for VIX today. Traders are starting to worry that the bulbs are not going to blossom quickly. This could be a drawn out recession bringing worries about what to do next.

• VIX soars as signs of summertime blues increase- CNBC

VIX ---- 1 month




Buyers for oil did not return in the PM. Oil had one its biggest decliners this year.

CLN09.NYM

..,Crude Oil Jul 09

..66.93

.. 2.62 ......(3.8%)

Consumer debt & high levels of unemployment are putting home ownership beyond the reach of would-be buyers according to a report today by Harvard University’s Joint Center for Housing Studies. The head of the study group gave an interview at lunch on Bloomberg TV, painting a dreary picture for the housing market going forward.

Housing Eludes Recovery as Job Losses, Foreclosures Climb


Today's decline took the Dow back to May 5 levels. It may be necessary to test the 8K floor again (which had been a ceiling for several months prior). At the heart of the sell-off is forecasting the kind of recovery following a bottoming phase of this recession. Unemployment keeps climbing despite reassurances by the administration that stimulus money is "working" to help the economy & especially to create jobs. I don't think so, only a small % has done much good to create additional jobs. More unemployment reports will come with fears unemployment can go over 10%. Climbing out of that hole will be slow. Sellers came in at the end, driving Dow down to close at its lows.

Dow Jones Industrials --- YTD

Gloomy economic forecast sinks stocks

Reality is biting hard today. A revised forecast by the World bank for a greater contraction in the world economy brought on selling. Dow tumbled 176, decliners over advancers 5-1 & NAZ fell 52. As expected, banks are leading the way down.

S&P 500 FINANCIALS INDEX

Value 156.35

Change -6.07

% Change -3.7%

MLPs are having a very rough time on the gloomy forecast for economic growth plus lower oil prices, down almost 6 (& down 18 from its high a couple of weeks ago). REITs & junk bond funds are also selling off while the VIX, volatility index, is up an eye popping 3.80 (13.6%). Treasuries are having a good day, up sharply bringing the yield on the 10 year Treasury down 7 basis points to 3.72%

AlerianMLP Index --- 2 weeks




The World Bank cut its forecast for global growth in 2009, predicting the world economy will shrink 2.9%. They said, "The global recession has deepened." Global trade is expected to plunge by 9.7%, while total gross domestic product for high-income countries contracts 4.2%. Economic growth in developing countries should slow to 1.2% - but excluding relatively strong China & India, developing economies will contract 1.6%. This forecast is a sharp reduction from its Mar prediction of a 1.7% global contraction (which would have been the worst on record).

•World Bank Cuts Global Forecast, Sees `Substantial' Effect on Poor Nations


Oil is pulling back sharply on the dreary forecast for the global economy (i.e. requiring less oil).

CLN09.NYM

...Crude Oil Jul 09

...66.88

... 2.67 .......(3.8%)

• Oil falls below $68 as optimism on economy wanes- AP

Walgreen (WAG), Dividend Aristocrat, fell 1.34 to 30.09 after reporting lower earnings, 53¢ EPS for qtr ending May 31 vs 58¢ EPS in the prior year. WAG is cutting jobs, opening fewer stores than originally planned & trimming the selection of items as part of its plans to return to double-digit earnings growth under a new chief executive.

• Walgreen profit slips on inventory revamp- Reuters

The idea of the recession bottoming out provides some comfort. But the follow up question has to do with how the recovery will play out. Today's markets are suggesting a slow recovery.

Dow Jones Industrials --- 1 month

Dow slips from 2009 high

Last week was a bad week, Dow pulled back 260 from its interim high at 8.8K. High yield securities felt the pain of selling. The Alerian MLP Index, in a stellar year, lost 11 from its interim high. REITs & junk bond funds also fell. Nothing special going on, maybe they're starting to be hit with a dose of reality. Massive gov spending will be tough for the economy to absorb. The yield on the Treasury 10 year bond ended pretty much where it started the week, at 3.79%. More reality may depress markets this week.

Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




Barclays High Yield Index - 1 month




10-Year Treasury Yld Index - 1 month

Holiday kind of day

Witching effects were minimal. Stocks tried for gains, but Dow didn't want to cooperate. Dow fell 16, advancers over decliners 3-2 & NAZ rose 19.

Banks had a pretty good day:

S&P 500 FINANCIALS INDEX

Value 162.42

Change 2.71

% Change 1.7%

MLPs are getting to experience sell-offs like the rest of the stock market, today down a fraction but still in the 219s. REITs & junk bond funds were firm. The Treasury bond rose, taking the yield down 5 basis points to 3.79%.

Alerian MLP Index --- 2 weeks





Healthy gas supplies caused a decline in crude oil but gas at the pump is high at 2.69 (as of yesterday).

CLN09.NYM..

Crude Oil Jul 09

..69.58

.. 1.79 ......(2.5%)

Bad unemployment news keeps droning on. 13 states have unemployment rates in double digits (including the biggest, California). In May, 8 states (including California, Florida & Georgia) reached their highest level of unemployment since records began over 30 years ago. When the national unemployment rate ticks up further, the number of states in double digits will grow.

•Unemployment Exceeds 10% in Quarter of U.S. States, Threatening Recovery


California's problems go from bad to worse. Moody's is preparing to reduce their credit rating "several levels" from A2 because of their inability to close the $24B budget gap. So far, the Feds say they will not get involved. The way to reduce the deficit is higher taxes & budgets cuts, both are ugly.

•California's Credit Rating May Be Lowered by Moody's Amid Financial Crisis


Dow Jones keeps near the break even line for 2009, but can't break thru. Dow is up about 1000 in Q2, but 60% came with the big gains in Apr. S&P 500 has been able to hang there better, up 2% YTD. With problems like housing, autos, more gov spending programs, California, etc., the future remains murky.

Dow Jones Industrials --- YTD

Markets higher on quadruple witching

Today is quadruple witching with a lot of options expiring, but little is happening in the markets. Dow is up 45, advancers ahead of decliners 3-1 & NAZ is up 27. Banks are joining the modest rally.

S&P 500 FINANCIALS INDEX

Value 160.62

Change 0.91

% Change 0.6%

The MLPs index is crawling its way back up to 220. REITs & junk bond funds are also slightly higher. On a quiet day I'll take a look at 2 major MLPs, Kinder Morgan & Enbridge Energy (EEQ) which have stock equivalents that track their units. Kinder Morgan has had a fairly flat year, not straying too far from 40 (the units trade about 6 points higher). Even the dip in Mar was relatively mild. Enbridge Energy has had a wilder year, almost doubling from the low in Mar. Both eased back in Jun, along with the index. I have always liked both stocks because they allow an investor to buy shares (rather than units) & avoid tax hassle, not to mention they are retirement account friendly. Each has an interesting story.

Kinder Morgan (KMR) --- YTD




Enbridge Energy (EEQ) --- YTD




Oil is inching up in the 71s. The 10 year Treasury bond yield is flat at 3.83%.


On this sleepy day for stocks, Dow is keeping near the 8½ level.

Dow Jones Industrials --- 1 month

Dow & S&P had a good day

Dow started higher & remain flattish at around +50 for most of the day in another day of indecisive trading. Dow rose 58, advancers ahead of decliners 4-3 & NAZ was even. Banks had a good day after a dreary start to the week (still down 8 from its yearly high at the start of the week).


S&P 500 FINANCIALS INDEX

Value 159.71

Change 3.87

% Change 2.5%

The high yield sector was a little higher, nothing major. MLPs rebounded after the index fell 15 in the last week, but picked up 1 today. REITs index was up 1 while junk bond funds were mixed.

Alerian MLP Index --- 2 weeks




Bonds had a bad sell-off, dropping 1+ taking the yield up 18 basis points to 3.84% on fears (for bond owners) the recession may be ending. The one week chart shows the dramatic increase in the Treasury yield today! Of course, this will lead to higher mortgages rates, something the fragile housing industry does not need.

•Treasuries Drop on Speculation Recession Ending, Record $104 Billion Sale


10-Year Treasury Yield Index -- 1 week





Crude oil was up pennies, in the 71s near its yearly high.

CLN09.NYM

..Crude Oil Jul 09

..71.38

.. 0.35 ......(0.5%)

Congress has a lot to do these days. They were supposed grill the Treasury Sec in the PM, but had to cancel because of votes they had to make & general business. That's how it goes when they are throwing around trillions like it is small change. The $787B stimulus package had to be rushed thru before anybody could read & assess it, it was that urgent! Now the unemployment rate has gone higher then they projected (the main reason for rushing), only a small % has been spent & dead people are already receiving checks from the stimulus package. The proposed financial regulations are getting a lot of attention, which they deserve as discussed in the article below. Meanwhile, Dow sloshes around mid 8K.

• Obama's plan for Fed worries some in Congress- AP

Dow Jones Industrials --- YTD

Stocks slosh around

Markets are having a tough time getting a head of steam going for a rally. Dow rose 65, advancers ahead of decliners by only 10% & NAZ fell 2. Banks found buyers after falling 7% this week.

S&P 500 FINANCIALS INDEX

Value 159.24

Change 3.40

% Change 2.2%

The MLP index inched up, still in the 218s but down from 232 a couple of weeks ago. REITs & junk bond funds were little changed. Treasuries sank as the the yield on the 10-year Treasury bond rose 12 basis points to 3.77%.

10-year Treasury Yld Index - 2 weeks




Oil remains in the 71s, up pennies. Below is a chart of OIL, an ETN tracking oil, to show how its price has behaved this year. After a big run up, it has been flattish in Jun.

OIL --- YTD




The forecast of economic activity rose in May, the 2nd straight gain following 7 months of declines. The Conference Board said its index of leading economic indicators, rose 1.2% in May, above the expected rise of 0.9%. The Conference Board also said activity in the six-month period through May rose 1.2%, the first time it has grown in 2 years.

•U.S. Leading Economic Indicators Index Increases 1.2%, More Than Estimated


The number collecting unemployment benefits dropped for the first time since early January, although new claims for benefits rose slightly. The unemployment rolls fell by 148K to 6.7M in the week ending June 6, the largest drop in more than 7 years breaking a string of 21 straight increases in continuing claims. Initial claims rose by only 3K to 608K last week while the four-week average fell by 7K to 616K. The four-week average is at its lowest level since mid-February, suggesting the pace of job cuts is slowing.

US Unemployment Benefit Rolls Fall; Claims Rise


The president has introduced a lot of legislation for Congress to pass. Yesterday was just another whopper, bringing more financial regulation & looks like it is getting mixed reviews by Congress. One fundamental problem involves giving the Federal Reserve even more authority after they missed giving warnings about last year's financial meltdown. The mixed reaction today between the Dow rising & NAZ selling off describes the confusion in the markets about these changes.


Dow Jones Industrials -- 1 month




NASDAQ --- 1 month

Stocks stuck in sideways rut

Dow slipped 7, decliners were 20% ahead of advancers but NAZ had a good day, up 11. Increased regulation for banks & bank kind of companies dominated tading today. Banks also felt selling pressure from downgrading of several banks by S&P

S&P 500 FINANCIALS INDEX

Value 155.84

Change -4.1

% Chang -2.6%

The Alerian MLP Index is coming off an outstanding run this year, but is paying the price for those gains n the last few days. It dropped 4 to 218, bringing it back near a one month low. The supply of all those new units sold are weighing on the market. The REIT index fell 2 while junk bond funds also sold off.


Alerian MLP Index --- 2 weeks





Oil has been hanging in pretty well while commodities have been under pressure. The confusing situation in Iran keeps buyers nearby.

CLN09.NYM

..Crude Oil Jul 09

..70.96

.. 0.49 ......(0.7%)

Treasuries are completing a 5 day rally, longest since the start of this year. The 10-year Treasury bond advance reduced its yield by 3 basis points to 3.65% (again, down from a high of 4% one week ago). The fears of inflation are receding combined with no additional supply (offerings) from the Treasury this week.

•Treasuries Post Longest Rally Since January as Inflation Concern Lessens


The President proposed a major overhaul of the U.S. financial system, unveiling measures to restore confidence & prevent a repeat of the worst crisis to hit Wall Street since the Depression. The plan would give new powers to the Federal Reserve to oversee the entire financial system & create a new consumer protection agency to guard against the types of abuses that played a big role in the current crisis. One key provision is the FED would have regularity powers over banks & other institutions that essentially look like banks. The classic example from last year was GMAC, but this broad definition could even include Wal-Mart (WMT) with its huge credit card business. This announcement, which had been largely leaked, did not cause any major move in the markets.

Obama Lays Out `Sweeping Overhaul' of Financial Oversight Following Crisis


Stronger banks are repaying TARP, including JPMorgan (JPM), American Express (AXP), Goldman Sachs (GS), Morgan Stanley (MS), BB&T (BBT) & U.S. Bancorp (USB). Obviously they are trying to get the fed off their backs. Most fell in today's weak market for bank stocks.

• 10 large US banks to repay $68B in TARP funds- AP

Under the radar screen with all their problems is California, equivalent to the 8th largest economy in the world. It has less than 2 months to get its house in order. That will mean an ugly combination of tax hikes (such as on tobacco & energy companies) & spending cuts which generally hurt the weakest the hardest. Spending cuts also will bleed thru to companies, many states, not to mention countries such as China & Japan. Keep up on announcements from Cal.


Markets keep looking for direction. More gov regulation (meddling) is not the kind of news they like to hear.

Dow Jones Industrials --- YTD