It doesn’t seem to matter how many positive news items are presented, the ugly news always outweighs it, and the bears come to fruition. There was definitely some upbeat housing data and encouraging news from China which should have buoyed the bulls cause but newfound concerns about the fiscal health of Europe certainly steam-rolled this.
Friday,early in the morning, the National Association of Realtors said sales of previously owned homes skyrocketed a steeper-than-expected 7.6% in April, marking the best monthly increase in five months as first-time buyers scurried to cash in on a tax credit. Meanwhile, a welcome pledge from China to reform its exchange rate – as well as rumors that the country's central bank will postpone efforts to curb economic growth – initially boded well for the bulls.
However, financial companies managed to drag stocks lower on Monday as already anxious investors grew even more uncertain about the U.S. government's financial overhaul plan and debt problems in Europe.
News that the Bank of Spain rescued a regional lender for only the second time on record exacerbated fears of Continental debt contagion, and provided more than enough ammunition for the bears to claim the session. The rescue of the Spanish bank raised investors' uneasiness about Europe's economy. Investors can't shake their concerns that there could be more bank bailouts in Europe if a wave of bad debt cascades through financial markets. It's not clear that will happen, but traders remember well the problems in the U.S. that began with bad subprime loans. Those problems started small but eventually helped take down Lehman Brothers in September 2008.
The Bank of Spain stepped in to rescue Cajasur after it failed to complete a merger. It was only the second time Spain's central bank saved a regional lender. The country is one of those already dealing with ballooning deficits.
Analysts question whether countries like Greece, Spain and Portugal will be able to contain mounting debt through steep spending cuts. Investors are also worried that those budget cuts will upend an economic recovery in Europe and slow a worldwide rebound.
"Right now the U.S. financial markets are trading very much out of fear and not any fundamentals," said Guy LeBas, chief fixed income strategist of Janney Montgomery Scott in Philadelphia.
Meanwhile, traders still don't have a clear idea about which financial overhaul provisions will remain in the combined House and Senate bill. That is making some traders cautious about betting on financial stocks.
It remains uncertain, for example, whether a final bill will include a Senate provision that would require big banks to sell their derivatives operations. Derivatives are often profitable but risky investments. Derivatives that were tied to mortgages were blamed for worsening the housing crisis.
Major indexes are down about 10 percent from their highs of the year, set in late April. That size drop is known as a "correction." It's the first retreat of that scale since stocks began a largely uninterrupted advance off of 12-year lows reached in March of 2009.
About three stocks fell for every two that rose on the New York Stock Exchange, where consolidated volume came to came to 8.1 billion shares compared with 2.3 billion Friday.
Bond prices rose. Investors have been flocking to the relative safety of government bonds and have at times dumped riskier assets like stocks and commodities. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.20 percent from 3.24 percent late Friday.
Against this backdrop, the major market indexes accelerated their losses in the final hour of trading, with the Dow Jones Industrial Average (DJIA) swallowing a triple-digit deficit by the close.
The Dow Jones Industrial Average (DJIA – 10,066.57) finished with a loss of 126.82 points, or 1.24%. The S&P 500 Index (SPX – 1,073.65) also had a loss on the day, of 14.04 points, or 1.29%, whilst the Nasdaq Composite (COMP – 2213.55) didn’t fare that well either, losing 15.49 points, or 0.69%.
Notes of Interest….
• The Dow Jones Industrial Average (DJIA) is now poised to finish the month south of its 10-month moving average for the first time since June 2009, although it is still above the psychological level of 10,000.
• The S&P 500 Index (SPX) finished beneath support of the all-too-important 160-month moving average.
• The Nasdaq Composite (COMP) still retained support at its 10-month trend line.
• By the close, July-dated crude oil futures advanced 17 cents, or 0.2%, to finish at $70.21 per barrel. Despite a stronger dollar and the fact that eight of the last nine sessions have been in the red, crude finally finished a volatile session on the positive side.
• Gold for June delivery wrapped up the day on a very positive note adding $17.90, or 1.5%, to settle at $1,194 an ounce.
CBOE Volatility Index (VIX) did not impact on the day even though the indexes were mostly in negative territory, and by the close was actually down 4.44%, or $1.78, to close at $38.32.
Company Earnings Reports
There has been some positive notes today particularly from the earnings arena. Several companies have presented earnings reports that exceeded the analysts’ expectations. These are:-
• Longtop Financial (LFT)
• Campbell Soup (CPB)
However, we have several companies that presented quarterly a report that was a negative surprise to analysts!
• Yingli Green Energy Holdings Co. YGE)
• Biglari Holdings Inc. (BH)
• Flotek Industries (FTK)
Company News and Happenings:
• Goldman Sachs upgraded its view on Asia Pacific airlines giving China Eastern Airlines (CEA) shares a boost of 14.93% on Monday.
• Javelin Pharmaceuticals Inc. (JAV) European commercial partner recalled its pain medication Dyloject from the U.K. market.
• Popular Inc. (BPOP) shares fell 7.59% on news that long-time President and COO, David hafey Jr. is no longer with the company.
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