The market resumed its drop from yesterday as few were interested in buying stocks ahead of the weekend. It was a terrible week and month for bulls. For the week, the S&P 500 was off by 2.9%, the Dow was off by 4.1% while the Nasdaq fell 3.8%. Month-to-date, the Dow was down by 10.2% and the S&P 500 was down by 8.7%. Actually during the session the Dow briefly entered into bear territory as defined by a 20% drop from its previous high and closed only 20 points above that level. The drop in the S&P 500 made it not only the worst monthly performance since September 2002 but the 12th worst month of all time, which includes months such as October 87 and September 74. We got some interesting news on the economic front this morning. On the one hand, consumer spending rose a better-than-expected 0.8% in May, making it the biggest increase since November. On the other hand, consumer confidence dropped to 56.4, the lowest level in 28 years. In a related note, the PCE core inflation rose 0.1% while economists were expecting an increase of 0.2%.
Commodities were among the biggest winners for the session. The CRB commodity index moved slightly higher and closed at a new high. Crude earlier hit almost $143 a barrel before ending the session above $140 for the first time on record. On the loser’s list, we had names such as financials and consumer cyclicals. It should be noted that Philadelphia Banking Index is more than 30% below its 200-day moving average, exceeding the extremes last seen in January and March. The US dollar was lower against most major currencies while treasuries continued to rally amid flight to quality. The VIX index finished the day lower by around 2%. The volume was on the heavy side due to Russell rebalance while the market breath was negative.

It was a bloody Thursday on Wall Street. All three major indices were lower by around 3% for the session. The Dow, after a drop of 358 points, became the first major index to take out the January and March lows. To be precise, it closed at the lowest level since September 2006. This June turned out to be a disaster month for stocks. The Dow was down by 9.4% so far in the month, making it the worst June since 1930. Even taking other months into consideration, it marked the worst monthly performance since September 2002. Things are not looking promising overseas either. For example, stocks in Europe were down 10% so far in the month. A new record in crude price, deepening concerns over the financial sector and several disappointing earnings reports were cited as the reasons behind today’s drop.
We had some mixed news on the economic front this morning. The advance figure for seasonally adjusted initial claims came at 384K, unchanged from the previous week’s revised figure. Economists were looking for a number close to 375K. The continuing claims jumped 82K in the latest week to 3.139 million, the highest level since February 2004. In a separate report, sales of existing homes increased 2% to a 4.99 million annual rate compared to 4.95 million expected. The median price of existing homes dropped 6.3% from a year ago to $208,600. On the supply front, the number of unsold homes on the market fell 1.4% to 4.49 million from 4.55 million in April. However, that still represented 10.8 months’ supply. Both the price drop and the number of months’ supply were comparable to yesterday’s new home sales data, which came at 10.9 months and -5.7% respectively. Lastly, the Q1 GDP was being further revised up to 1.0% from an initial estimation of 0.6%. The final reading in Q1 GDP matched with economists’ forecast.

The market finished the FOMC decision day modestly higher. The Dow, dragged by poor performance in aerospace names such as Boeing (down 7%) and United Technologies (down 3%), was basically flat for the session. The Nasdaq, on the other hand, reversed its underperformance during the past two sessions and advanced 1.4% for the session. The biggest news for the day was certainly the Fed decision regarding its monetary policy. As the market had correctly predicted, there was little surprise coming out of the statement following the FOMC meeting. In the statement, the FOMC said that “Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased”, which was essentially repeating what Dr. Bernanke talked about in early June. The Fed went on to say that “The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.” Essentially that means the Fed is trying to keep its option open while keeping a close eye on inflation. Fed officials also discussed their new forecasts for 2008, 2009 and 2010 at the meeting. New outlook for inflation, growth and employment will be revealed by Bernanke in his semi-annual congressional testimony in July.
Other than the Fed decision, we also had some macro economic news this morning. Start with the new home sales data. The figure for May came at a seasonally adjusted annual rate of 512K, down 2.5% from a revised 525K in April. That was in line with what economists were looking for. The median price of a new home dropped 5.7% from a year ago to $231K while inventory of unsold homes rose to 10.9 months of supply in May. In another economic report, durable orders for May came flat after declines of 1% in April and 0.2% in March. Excluding the volatile transportation sector, orders for durable goods fell 0.9%, the first drop in three months. Bookings for non-defense capital goods excluding aircraft, which is an indicator of future business investment, fell 0.8% following a revised 3.1% gain in April.
Technologies and consumer cyclicals were among the biggest winners in today’s session. On the loser’s list, we had names like basic materials and capital goods. The CRB commodity index was off by 0.5% as weaknesses in energies and industrial metals were offset by strengths in agricultures. Crude was earlier lower by as much as $5 following a bearish inventory report. The US dollar was lower against most major currencies following the FOMC decision as traders increasingly bet that there will be no rate hikes in the near future. Currently the odds for a rate hike in Fed’s August meeting are around one third. Treasuries rallied with the yield curve steepened. The VIX index dropped 5% today and the market breath was positive.

The market ended the session modestly lower ahead of tomorrow’s FOMC decision, which is scheduled to be released at 2:15pm. The Nasdaq, which has been outperforming the rest of the market most time this quarter, slumped 17 points or 0.7% while both the Dow and the S&P 500 were off by 0.3%. After several quiet days, we got some latest readings on the economic front. Unfortunately, there is really nothing to cheer about. Start with the Conference Board’s confidence index, which fell to 50.4 in June from 58.1 in May. That was the lowest level in more than 16 years. The share of consumers who said jobs are plentiful fell to 14.1% from 16.1% in the previous month. On the other hand, those saying jobs are hard to get increased to 30.5% from 28.3%. Buying plans over the next six months for automobiles, houses, appliances and vacations all declined. In a separate report provided by S&P/Case-Shiller, home prices in 20 cities dropped 15.3% in April from a year earlier. On a monthly basis, the rate of decline slowed to 1.4% from 2.2% in March, which was seen by some as a bottoming sign (of course, we have had quite a few such signs already but none is right so far). If we are pressed to find another positive sign from the report, it was the number of cities showed a gain in prices in April compared with March. We had 8 such cities in April compared to only 2 in March.
Financials and healthcares were among the only major sectors that managed to post a gain. The former was beaten up so badly with many issues down more than 20% in June alone. At yesterday’s closing price, XLF, which is a financial ETF, was almost 25% below the 200-day moving average so a short-term rebound was well deserved. Interestingly, we had commodities on the loser’s list along with transportations, which were dragged by a profit warning from UPS late yesterday. Commodities facing widespread sell-off without obvious reasons require some special attention. Can it mean that money finally starts to move out from the red-hot sector and into somewhere else? It is certainly too early to make such a call but that’s something one should keep in mind. The CRB commodity index was little changed after recent runs. The US dollar was lower against most major currencies while treasuries rallied ahead of tomorrow’s critical Fed meeting. The VIX index dropped slightly today. The market breath was neutral to negative with heavier volume compared with yesterday.

The market was little changed this Monday ahead of the FOMC meeting tomorrow and Wednesday. Both the Dow and the S&P 500 were essentially flat while the Nasdaq ended the session lower by less than 1%. There was little economic news but we did get two small M&A deals in the agriculture and waste management sectors. Over the weekend, little surprise could be found in the Saudi meeting, which basically gave the crude price a green light to move higher.
Commodities especially energies were among the best performers. On the loser’s side, we have names like financials, transportations and consumer cyclicals. The CRB commodity index was unchanged as strengths in energies and industrial metals were offset by weaknesses in agricultures and precious metals. The US dollar was moving higher against most major currencies while treasuries were losing ground ahead of the FOMC meeting. It should be noted that most credit derivatives have seen their spreads jump during the past two weeks, indicating more turmoil (or more potential write-downs) in the credit market. The VIX was little changed in today’s session. The breath was decisively negative.