Tuesday saw some level-headedness take the forefront and put some reality back into the market place. The Dow Jones Industrial Average (DJIA) plunged below 10,000 to their lowest level of the year before a late-day rebound that erased most of the losses if not lingering worries. In just the first half-hour of trading, the Dow sank to 9,774.48, its lowest reading this year, and for much of the day threatened to set a new closing low for the year. The average is down more than 10 percent in just the past month.
There are many existing dramas to support the bears, however in doing so does that help the person-on-the-street, the every-day investor, you and me? Let’s review some of the areas in contention during the day.
1. European Concerns
The market worries that even austerity measures by European governments will not be enough to fix the problem and fight off a prolonged economic slump in Europe, or even another global recession.
"It seems like the Europeans are playing 'tag, you're it' -- first it was Greece, and now it's maybe Spain or Portugal," said Jonathan Corpina, a New York Stock Exchange floor trader and president of Meridian Equity Partners.
"We know someone else is next. The problem is that it seems like every plan in place isn't going to satisfy the needs," he said. Many European countries are imposing budget cuts as well, trying to control their debt. Investors are concerned that these steps will stifle economic growth, and that the growth of other countries, including the U.S., will inevitably be stunted.
Even the Queen gets in on the act. Britain's Queen Elizabeth opened Parliament with a warning of hard times, saying in a speech on behalf of Britain's new government that there would be budget cuts because "the first priority is to reduce the deficit and restore economic growth."
3. North & South Korea
Escalating hostility between North and South Korea had investors on edge, with the former country reportedly on combat alert as a dispute over a sunken warship heats up. Investors were reminded that political issues can threaten economic growth.
4. Gulf of Mexico Oil-Spill
Analysts said the unresolved Gulf of Mexico oil spill also contributed to the foul mood.
The month-long effort to cap the BP oil well that has spewed millions of gallons of oil into the Gulf of Mexico is also rattling investors. Oil is coming ashore across a 150-mile swath of the Gulf Coast, endangering wildlife and livelihoods in commercial fishing and tourism.
It seems that the situation is getting worse and there's no real fix which is worrying because not only the oil industry is being affected but now it's the environment and fishing industries. Next we'll be talking about the hotel and leisure industries.
5. Home Prices Report
A disappointing report on home prices added to the downcast mood. The Standard & Poor's/Case-Shiller 20-city home price index fell 0.5 percent in March from February which was a sign that the housing market remains weak even with mortgage rates near historic lows.
Now we should review the items adding positive energy to the market.
1/ Financial Reform
The Dow dropped more than 250 points after the opening bell and stayed under 10,000 most of the day, then charged back to finish down only 22 points when signals from Washington suggested that banks would not be forced to sell their lucrative derivatives units as part of financial reform.
Bank stocks surged, and the rest of the market followed, after Rep. Barney Frank, chairman of the House Financial Services Committee, suggested financial companies should not have to spin off their derivatives businesses, as a Senate provision would have them do. Bank regulators and Obama administration officials also oppose the Senate provision, which was inserted by Sen. Blanche Lincoln, D-Ark.
2/ U.S. Recovery is Intact
Jim Dunigan, managing executive of investments for PNC Wealth Management, said good news about jobs or corporate earnings could stabilize stocks by signaling that a U.S. recovery is intact.
The government's monthly jobs report in less than two weeks is expected to show that employers are ramping up hiring further. And companies will soon start giving hints about profits for the quarter that ends in June.
3/ Economic News – Consumer Confidence
For now, traders are unswayed by upbeat U.S. economic news. They ignored a better-than-expected report Tuesday showing consumer confidence index rose for the third straight month.
"Market participants feel like they're walking on eggshells," said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, N.Y. "Every small piece of potentially bad news is being exaggerated and mentally being fast-forwarded to the worst-case scenario.
The Dow Jones Industrial Average (DJIA – 10,043.75) finished with a loss of 22.82 points, or 0.23%. The S&P 500 Index (SPX – 1,074.03) managed a very small gain on the day, of 0.38 points, or 0.04%, whilst the Nasdaq Composite (COMP – 2210.95) didn’t quite make it into the black finishing with a loss of 2.60 points, or 0.12%.
Overseas markets were also down sharply. Britain's FTSE 100 dropped 2.5 percent, Germany's DAX index lost 2.3 percent, and France's CAC-40 plummeted 2.9 percent. Japan's Nikkei stock average fell 3.1 percent. Hong Kong's Hang Seng fell 3.3 percent.
Investors also fled from the euro and commodities including oil, and again sought safety in government bonds. That drove interest rates lower. The benchmark 10-year note's yield fell to its lowest level since April 2009.
Notes of Interest….
• The Dow Jones Industrial Average (DJIA) has only closed below 10,000 once this year, in early February. Since then, it has traded below 10,000 seven times but each time managed to push above that psychological barrier by the close.
• Thanks to the bulls' last-minute rebound attempts, the Dow Jones Industrial Average (DJIA) maintained its place above the psychologically critical 10,000 level.
• By the close, July-dated crude futures gave up $1.46, or 2.1%, to settle at $68.75 per barrel, in part a reflection of expectations that weak economic growth will curtail demand for fuel.
• Gold for June delivery added $4, or 0.3%, to finish at $1,198 an ounce. Political tensions in Asia and sovereign debt concerns across Europe sparked a flood of safe-haven buying.
CBOE Volatility Index (VIX) did not impact greatly by the finish of the day, but early in the session was edging towards 20% gains. By the close the VIX was actually down 9.68%, or $3.71, to close at $34.61.
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:-
• AutoZone Inc. (AZO)
• Sanderson Farms Inc. (SAFM)
• Trina Solar Limited (TSL)
• Cracker Barrel (CBRL)
ChinaEdu Corporation (CEDU) met analysts predictions.
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