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After the Close - The recent tug of war between the bulls and the bears continued once again today, with the latter pushing back forcefully. In the process, yesterday’s gains were retraced and then some. The situation over in Europe, specifically escalating sovereign-debt problems for a few of the euro zone’s prominent members (more below), was on the minds of investors. When all was said and done, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index were down 164, 34, and 19 points, respectively. Selling was rather pronounced throughout the session, with declining issues well ahead of advancers on both the New York Stock Exchange and the NASDAQ, to the tune of more than five-to-one on the Big Board.

The selling was all encompassing with each of the 12 major sectors finishing well into negative territory. Even the typically defensive groups (i.e., utilities and healthcare) were not immune to the selloff. The biggest setback took place in the consumer cyclical and energy areas. The stocks of energy companies fell sharply as the price of oil tumbled (more than 3%) on the New York Mercantile Exchange. Investors are worried that the euro-zone problems may take a toll on the global economy, leading to a sharp drop in demand for the energy commodity. Our sense is that consumer cyclical stocks were also weaker on concerns about the global economy. Within this space, shares of Tata Motors (TTM), Harman International (HAR), Deckers Outdoor (DECK), BorgWarner (BWA), Nike (NKE), and Ralph Lauren (RL) struggled.

As noted, the news from overseas was very disconcerting for investors. Fears about the euro zone’s sovereign-debt problems escalated, as yields on Spain’s and Italy’s fixed-income securities jumped. Too, the price of credit default swaps on Spain’s debt hit record highs earlier today, while Italy’s latest auction of five- and 10-year notes did not have much success—both ominous signs for the struggling monetary union. The major European bourses finished markedly lower and the euro weakened further versus the dollar on this news. And, rumors about the possibility of a TARP-style program to replenish the financially struggling European banks have begun to surface.

Meanwhile, today’s quiet day on the U.S. economic front will give way to a series of important reports over the next few days. Tomorrow, we will get the latest revision to first-quarter GDP, data on weekly jobless claims, and Automatic Data Processing’s (ADP) May report on private-sector payrolls. Then on Friday, the much-anticipated report on employment and unemployment will be released, along with data on manufacturing activity and personal income and spending. Our sense is that some good news on the economic beat will be needed to calm investors who are shaken by the euro-zone mess.

There was a definite recommitment to a “flight-to-safety” strategy on Wall Street today, something that we had opined yesterday was a distinct possibility given the turmoil overseas. The yield on the 10-year Treasury note, which moves in the opposite direction to the price, fell sharply, in the process establishing a record low for the benchmark instrument. In addition to bonds, demand for gold, often viewed as another safe-haven instrument, ratcheted up today. The fears among investors were also noted by the sharp jump in the S&P 500 Volatility (VIX) Index and the outsized declines in the riskier small-cap Russell 2000 and S&P Mid-Cap 400 indexes.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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12:30 PM ET - The U.S. stock market is heading sharply lower today, reversing yesterday’s gains, and then some. Notably, volumes were a bit light yesterday, suggesting some hesitancy on the part of traders. We will be watching to see how the afternoon shapes up today. Hopefully, for the bulls, bargain hunters will step in, helping to pare the session’s losses. Technically, the S&P 500 Index could well find support at the 1,300 level, if it heads lower. This area, which was hit around May 18th, roughly marks the bottom of the current correction.

At roughly noon in New York, the Dow Jones Industrial Average is off 154 points (-1.2%); the S&P 500 Index is lower by 19 points (-1.4%); and the NASDAQ is down 40 points (-1.4%). Market breadth is negative, as declining stocks are outnumbering advancers by about 6 to 1 on the NYSE. There is weakness distributed throughout all of the major market sectors, with sharp losses in the energy and consumer cyclical names. The decline in the energy area likely reflects the sharp drop in oil prices today. Crude oil is off over 3% to about $88 a barrel. There is some relative strength in the utilities, and in the defensive healthcare sector.

Once again the situation overseas is largely to blame for the declining equity markets here in the United States. On the Continent, the yields of Italian and Spanish bonds continue to move higher, suggesting that investors have little confidence in the regions’ finances. The euro is now at $1.24 against the dollar, down from the 52-week high of $1.42. The major bourses are off sharply today, with France’s CAC 40 down over 2% for the session.

Meanwhile, the economic reports on our shores are not helping matters. Pending home sales slipped 5.5% in April, where analysts had been expecting a slight improvement. Importantly, pending home sales rose almost 4% in March, so the April showing represents a meaningful setback. Tomorrow is packed with reports, including the ADP Employment Change issuance, weekly initial and continuing jobless claims data, and the second estimate of first-quarter GDP.

On the corporate front, shares of Pep Boys (PBY) are sinking on reports that it will not be acquired. Shares of Jos. A. Bank (JOSB) are also off, after the apparel retailer posted weak results. Meanwhile, recent IPO Facebook (FB) stock seems to be holding steady at about $28.75 per share. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

 

10:30 AM ET - In the old 1959 Brook Benton hit, “It's Just a Matter of Time,” were the words, “what goes up must come down.” The late baritone must have been thinking of the U.S. stock market, for just one day after the Dow Jones Industrial Average had surged to a closing gain of 126 points, that same 30-stock composite has tumbled by 153 points before we pass the one-hour mark of the new trading day. The other leading averages are following the Dow lower; with the S&P 500 Index now off by 18 points and the NASDAQ lower by 39 points.

Once again, it is raising bond yields in debt-encumbered Spain that get the lion's share of the credit for the latest reversal. Meanwhile, it is not just the stock market and the euro that are falling, but also oil. To wit, the price of a barrel of crude in New York was at $105 to start the merry month of May. Now, just one day from the end of the month, oil on the New York Mercantile Exchange is passing hands for less than $90 a barrel, amidst projections by some analysts that a barrel could fall below $80 in June. 

All of this is predicated on a belief that the current troubles in Greece, which may yet exit the euro zone, in Spain, where 10-year government bond yields have moved up near 7%, and in Italy, where similar securities now yield more than 6%, could lead to a breakup of that loose economic confederation.

Yesterday, there were some second thoughts during the day, as an early surge in the averages withered away under some profit taking, before a renewed charge later in the session. The bulls can only hope that some second thoughts take hold today. For now, though, the bears are in charge.   - Harvey S. Katz 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned. 

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Stocks to Watch from The Survey– As Apple (AAPL) and Google (GOOG) continue to flex their muscles in the smartphone market, the maker of the BlackBerry, Research In Motion (RIMM), has hired JPMorgan (JPM - Free JPMorgan Stock Report) and RBC (RY.TO) as advisers to seek strategic alternatives. The company recently lost money for the second straight quarter and its shares have been retreating throughout the first five months of 2011. They are notably lower again this morning.

Packaged food titan Kraft Foods (KFT - Free Kraft Stock Report) has announced it will be accelerating its push into China’s snack market. New products and an enhanced marketing strategy are forthcoming. – Erik M. Manning

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - The bulls were out in force yesterday, starting the holiday shortened week on an especially high note. However, even here, the bulls did not gain the upper hand without a fight, as more than half of an early 157-point surge in the Dow Jones Industrial Average had withered away by mid-session. It would take a last-hour upturn to restore the lion's share of the day's gains.

By the close, the Dow was ahead by 126 points, to end the session at 12,580. The NASDAQ was up by 33 points, following an early 45-point gain. The Standard and Poor's 500 Index was ahead by 15 points, or just two points from its intra-session high. And finally, the Russell 2000 Index, the small-cap benchmark, was in the black by 11 points, a bare one point from its session high. Underscoring this big aggregate gain was optimism that somehow the fragile situation in the euro zone will work itself out in reasonable fashion, that China's efforts to stimulate its economy will prove successful, and that upcoming economic data on our shores will affirm that our expansion is on relatively firm ground. Unfortunately, the lone metric of note issued yesterday, the Conference Board's Consumer Confidence reading, showed a surprisingly sharp drop in May. Hopes are that reports issued later this week, most notably metrics on employment, unemployment, and manufacturing, will be stronger.

Meanwhile, the news from overseas gets worse. Indeed, amid hopes that Greece will remain in the euro zone, and thus not invite a possible contagion emanating from its possible exit, comes news that bond yields in both Spain and Italy, two of the four largest economies in the European Union, are rising today on worsening fears of a spiraling of the euro zone's debt crisis. Specifically, the yield on Spain's 10-year notes have moved closer to the 7% level. Such a rise could spur other nations to seek a bailout of that debt-encumbered country. Adding to the concerns comes word that yields on Italy's 10-year paper have ascended the 6% level for the first time since January. All of this again raises the spector of a Greece contagion.

In response, stock markets around the world are falling, with the Nikkei giving ground overnight and the European bourses heading lower this morning. Meanwhile, our futures are falling rather sharply today, with the S&P 500 Index futures now down by 12 points and the NASDAQ futures heading lower to the tune of some 19 points.

All of this suggests that yesterday's sharp rise could well be a one-day affair. Illustrative of this pending downturn are indicated lower starts for such high-profile names as Apple (AAPL), Google (GOOG), and Boeing (BAFree Boeing Stock Report). It could be a bumpy ride today, with no assurance of a repeat of yesterday's happy recap for the bulls. – Harvey S. Katz      

At the time of this article's writing, the author did not have positions in any of the companies mentioned.