Thursday saw stocks with substantial losses, accelerating the downward momentum that has carried markets generally lower since Monday morning.
We are back to the pattern of late-day sell-offs, which is the same pattern we saw last month, when we had the worst May in a generation.
The Labor Department tried to kick things off on a high note, reporting that jobless claims declined last week by a steeper-than-forecast 19,000. However, gloomy reports from retail titans Nike (NKE) and Bed Bath & Beyond (BBBY) weighed heavily; while the former fell short of revenue expectations, the latter offered a disappointing forecast for the current quarter. Meanwhile, on Capitol Hill, ongoing debate over the pending financial reform bill applied pressure to major banking stocks.
The Fed issued a cautious growth outlook Wednesday on the back of the day's weak May new home sales report. That left stocks mixed to lower, but the tone turned even more negative overnight, with markets in Europe falling and U.S. stocks opening weaker.
A slide in the last hour of trading left the stock market with its second big loss of the week. Disappointing earnings dragged down a broad range of consumer-oriented stocks, and energy stocks sank amid continuing uncertainty over deepwater drilling.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 10,152.80) finished with a big loss of 145.64 points, or 1.41%.
The S&P 500 Index (SPX – 1,073.69) had an even bigger loss, on the day, of 18.35 points, or 1.68%.
The Nasdaq Composite (COMP – 2,217.42) also had a large loss of 36.81 points, or 1.63%.
The Russell 2000 Index of smaller companies had a loss of 11.08 points, or 1.72%, to settle at 633.17.
The S&P 500 has lost 3.8 percent in four days, with retailers among the biggest decliners a day after discouraging outlooks from Bed Bath & Beyond (BBBY) and athletic apparel maker Nike Inc (NKE).
Nike shares were down 4 percent at $69.95 while Bed Bath & Beyond slumped 5.7 percent to $39.07. The S&P Retail index .RLX slid 2.8 percent. "People's general focus is on how fragile the recovery is, and recent data points are giving fodder to the double-dip camp," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
Banks were pressured by fears Congress would pass stringent rules in an overhaul of financial regulations. Lawmakers were on the verge of adopting a bill that could restrict banks' trading and investment activities, crimping their profits.
JPMorgan Chase & Co (JPM) fell 2.2 percent to $38.03 while Bank of America Corp (BAC) was off 2.7 percent at $15.02. The KBW Bank index .BKX lost 2.2 percent.
"We don't know how oppressive the rules could be, and the market hates that uncertainty." said Rob Stein, managing partner at Astor Asset Management in Chicago.
Stocks of health care companies benefited from increased demand for investments considered reliable in a weak economy. Health care and consumer products maker Johnson & Johnson rose 61 cents to $59.60.
About 8.65 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion.
More than three stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 4.9 billion shares, compared with 4.6 billion Wednesday.
Notes of Interest….
• The Dow Jones Industrial Average’s (DJIA) breached its 20-day moving average for the first time since June 10.
• The S&P 500 Index’s (SPX) fell below its 14-day moving average and breached the 1,083 level, a key retracement of the slide from its 2010 high in April to the year's low on May 25.
• The Nasdaq Composite (COMP), the tech-rich index, also dropped below its 20-day trend lines for the first time in roughly two weeks.
• Crude futures for August, tacked on 16 cents, or 0.2%, to end at $76.51 per barrel. While the day's disappointing news from the retail sector effectively revived concerns about consumer spending habits, black gold was boosted by the prospect of tropical storms in the Gulf of Mexico. A slide in the U.S. dollar further offset demand-related concerns, making oil more attractive for traders holding foreign currencies.
• Gold futures gained from its status as a safe-haven investment. Amid a down day for both equities and the U.S. dollar, the precious metal emerged as the investment vehicle of choice for risk-averse traders. Gold for August delivery ended the day up $11.10, or 0.9%, at $1,245.90 per ounce.
• Bonds: Interest rates were mixed in the Treasury market. The yield on the benchmark 10-year Treasury note rose to 3.14 percent from 3.12 percent late Wednesday. The yield had fallen to a 13-month low of 3.07 percent.
• Signaling the level of nervousness on Wall Street, the VIX, or the markets’ so-called “fear gauge,” increased by 11% and closed at session highs.
Initial Jobless Claims Report
The number of first-time filers for unemployment insurance fell last week, according to a government report released Thursday. There were 457,000 initial jobless claims filed in the week ended June 19, down 19,000 from a revised 476,000 in the previous week, the Labor Department said.
The number of claims was slightly lower than expected. Economists surveyed by Briefing.com expected new claims to drop to 460,000.
"We at least went in the right direction this time, but it certainly doesn't indicate an overall improving trend," said Robert Dye, senior economist at PNC Financial Services. "The broader pattern is a sideways movement and an overall lack of improvement."
The 4-week moving average of initial claims was 462,750, down 1,500 from the previous week. Moving averages are tracked to smooth out the volatility week-to-week figures.
Continuing claims: The government said 4,548,000 people filed continuing claims in the week ended June 12, the most recent data available. That's down 45,000 from the previous week.
The 4-week moving average for ongoing claims fell by 21,750 to 4,586,500 from the previous week's revised 4,608,250.
Continuing claims reflect people who file each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. The figures do not include those who have moved to state or federal extensions, or people who have exhausted their benefits.
State-by-state data: Despite the overall drop in new claims, no states reported a decrease of more than 1,000 for the week ended June 12.
Nine states said initial claims rose by more than 1,000. Claims in California rose the most, by 17,572, due to layoffs in the service industry.
Claims in Pennsylvania jumped 5,266, which the state attributed to layoffs in the transportation and service sectors.
Durable Goods Report
Orders for U.S.-made durable goods sank in May, falling 1.1% on weaker demand for airplanes, steel and communications equipment, the Commerce Department reported Thursday.
The decrease was not as severe as the expected 1.4% drop forecast by economists surveyed by MarketWatch.
It is the first decline in total orders in the last six months and the largest since August 2009.
The underlying report was not as weak as the headline suggests. Excluding aircraft, orders rose 0.9%.
Shipments fell 0.4% in May, and were up 0.4% excluding transportation goods.
Inventories rose 0.8%.
Financial stocks fell after Congress continued working on a bill to overhaul regulation of the industry. Democratic leaders hoped to reconcile the House and Senate bills so President Barack Obama can have a deal in place by the time he meets with the leaders of the Group of 20 nations this weekend in Toronto.
Traders were concerned that some provisions of the bill would cut into bank profits. Large banks were lobbying to strike a proposal that would make the industry cover costs to dismantle the mortgage giants Fannie Mae and Freddie Mac. Bank of America Corp. dropped 2.7 percent and JPMorgan Chase & Co. lost 2.2 percent.
The government said initial claims for unemployment benefits fell last week but remained above the level that would signal employers are ramping up hiring. A second report indicated that orders for durable goods fell last month for the first time in six months. Orders for big-ticket goods fell 1.1 percent in May. Analysts predicted a 1.3 percent drop.
"There is just such stagnation in the economy," said Dan Deming, a trader with Stutland Equities in Chicago. Deming said investors are struggling to determine whether the economy can continue to bounce back without as much help from government spending.
"The water is so murky right now," Deming said. "It's just very hard to get a picture of where we're at."
Mortgage rates fell this week to the lowest level on record, which is good news for people looking to buy a home or refinance.
Freddie Mac said Thursday that the cost of a home loan has fallen this week to the lowest level on record. The average rate on a 30-year fixed mortgage dropped to 4.69 percent from 4.75 percent last week.
The Energy Sector
Developments in the Gulf of Mexico Oil Spill
* The Obama administration lost another legal skirmish on Thursday when a judge refused to put on hold his decision lifting a ban on deepwater oil drilling imposed after the worst spill in U.S. history. BP shares hit new 12-month low in New York trading.
* The tropical wave over the western Caribbean Sea could develop into a tropical depression over the next couple of days as it moves toward the oil-rich Gulf of Mexico, the U.S. National Hurricane Center and other weather forecasters said on Thursday.
Photos: Hurricanes and oil-rigs do not mix.
SPREADING IMPACT, REACTION
* Even with high-tech aids like satellite images, the U.S. government is finding hard data on the amount of shoreline affected by the Gulf of Mexico oil spill hard to come by.
RELIEF FUND * The $20 billion oil spill relief fund set up by BP should be used only to compensate victims of the spill, and not for clean-up costs, lawyers involved in BP litigation said.
BP Plc (BP)
* Short interest in BP's New York-listed shares rises 290 percent.
* Value fund managers who focus on undervalued and unloved stocks have started buying BP Plc (BP) shares, or at least considering it.
POLICIES * Kenneth Feinberg will step down from his role as U.S. Treasury's "pay czar" later this summer to focus on administering BP's $20 billion oil spill fund.
* The U.S. Interior Department is reviewing BP's plans to drill in Alaska after a report that the company's project did not receive proper environmental oversight.
SPILL CONTAINMENT EFFORTS * BP said on Thursday that its oil-capture systems collected or burned off 16,830 barrels of oil on Wednesday, a 38-percent decrease from a record rate of 27,100 barrels on Tuesday. The decreased reflects the 10-hour shutdown of part of the system for collecting oil on Wednesday.
In currencies, the euro was little changed versus the dollar, erasing earlier gains but remaining well above the four-year low of $1.188 hit last week. The dollar was barely changed versus the yen. The direction of the euro and the state of global debt are expected to be in focus at this weekend's G-20 meeting.
European Markets: The U.K.'s FTSE 100 fell 1.51% to 5100.23, Germany's DAX lost 1.44% to 6115.48 and France's CAC 40 tumbled 2.37% to 3555.36.
Asian Markets: Japan's Nikkei 225 rose 0.05% to 9928.34, Hong Kong's Hang Seng slumped 0.59% to 20733.50 and China's Shanghai Composite slid 0.12% to 2566.75.
Company Earnings Reports
There have been some positive notes today, particularly from the earnings arena. Several companies have presented earnings reports that exceeded analysts’ expectations. These are:-
• Bed Bath & Beyond (BBBY)
• Lennar Corp. (LEN)
• Discover Financial Services (DFS)
• Paychex (PAYX)
**Nike (NKE) presented an earnings report that met analysts’ expectations.
** ConAgra Foods Inc (CAG) presented an earnings reports that was below analysts’ expectations.
Company News and Movements:
• Hasbro Inc (HAS) gained 4.9 percent to $43.14 after a news report that the toy company was in negotiations for a possible leveraged buyout, a report the company denied.
• Pfizer Inc (PFE) fell 2.8 percent to $14.46 after it suspended clinical trials of its experimental arthritis drug.
• Chipmakers as measured by the Philadelphia semiconductor index .SOXX were off 2.9 percent.
• Six semiconductor companies, including Micron Technology Inc (MU) have agreed to pay $173 million to settle U.S. antitrust lawsuits accusing them of conspiring to keep computer chip prices artificially high. Micron shares fell 2 percent to $9.62.
• Computer maker Dell Inc (DELL) fell 6.4 percent to $12.93. The company said it was focused on improving profitability and diversifying, but investors expressed doubts about the company's turnaround plan.
• Oracle Corp (ORCL) rose 3.9 percent to $23.08 in extended trading on Thursday after it reported adjusted fourth-quarter earnings that beat expectations.
• U.S.-listed shares of BlackBerry maker Research in Motion Ltd ( (RIMM) fell 4.7 percent to $55.80 after the closing bell as shipments and subscriber growth fell short of expectations in the first quarter.
• The S&P Energy index .GSPE fell 2 percent while U.S.-listed shares of BP Plc (BP) dropped 3.1 percent to $28.74 and hit a 52-week low in intraday trading.
The following companies had some impressive options movements:-
• Chipotle Mexican Grill, Inc. (CMG)
• Hornbeck Offshore Services, Inc. (HOS)
• MEMC Electronic Materials, Inc. (WFR)
"Usually in good markets, with a few good distribution days you get a strong reversal, and we're not seeing it," said Steven Wolf, managing director of investments at Source Capital Group in Westport, Connecticut. "It's almost like the market has started to give up."
The slump in stocks made it clear that anxiety is still ruling the market, after appearing to have waned last week. The Dow and other major stock indexes touched new lows for 2010 earlier this month, and then regained some ground when fears about a debt blowup in Europe began to ease.
Now, the concern is that cracks are appearing in the U.S. recovery. Since last week, several reports on housing and jobs have indicated that the economy's biggest trouble spots aren't getting much better. Even manufacturing, which has been one of the strongest areas of the economy, looked weaker in one report last week. Analysts warn against drawing big conclusions from a few reports but investors will want to see some better numbers for stocks to resume their climb.
The latest numbers point to "substantive holes in the economic recovery story," said Tom Samuels, portfolio manager of the Palantir Fund in Houston.
The Federal Reserve said Wednesday that the economy is continuing to recover, but that risks remain. It signaled that the problems in Europe are a risk for the U.S.
Mike Rubino, CEO of Rubino Financial Group in Troy, Mich., said investors had been expecting the economy to improve "at a much faster level" than they're seeing. That disappointment has pulled stocks from their 2010 highs in late April.
The government is set to release its final number Friday on gross domestic product for the first quarter.
After two-straight weeks of 2% gains for the Dow, the bears appear to have recaptured control of the markets, with the Dow down almost 300 points so far this week and the S&P 500 mired in a four-day slump. Stronger-than-expected, but still weak, reports on initial jobless claims and durable goods orders failed to put a stop to the bearishness.
“There is nervousness in this market -- a psychological component that you honestly cannot discount. I think that’s more of a driving force than any slight improvement in any of the numbers,” said NYSE trader Doreen Mogavero.
"The Fed downgraded their economic outlook, which is not good for the markets," said David Chalupnik, head of equities at First American Funds. "It tells us that the economy is losing steam and earnings are at risk."
He said that markets are likely to be particularly volatile in July, as the second-quarter reporting period heats up, with many forecasts still too high relative to the current economic outlook.
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