After The Close - The world equity markets were under considerable selling pressure today, with concerns about the global economies on the minds of investors. In a nutshell, a disappointing reaction to Japan’s Prime Minister Shinzo Abe’s ill-defined economic growth policies (more below) and continued fears that the Federal Reserve will soon begin to ease off on its current easy monetary policies sent shockwaves through the international equity markets. While the losses on the homeland—the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index fell 217, 44, and 22 points, respectively—were notable, they still paled in comparison to the 519 points (or 3.8%) setback for the Nikkei 225 Index overnight. It also was not a pretty day for traders in Europe, with London’s FTSE-100 and Paris’ CAC-40 Indexes falling 2.1% and 1.9%, respectively.

On these shores, all of the top-10 sectors succumbed to the selloff, with the biggest laggards, not surprisingly, being those groups most closely tied to the performance of the global economy. The basic materials, financial, industrial, and consumer discretionary stocks suffered the largest losses. Of note, were setbacks for many of the multinational companies, including the stocks of General Electric (GE - Free General Electric Stock Report) and Caterpillar (CAT - Free Caterpillar Stock Report). At the closing bell all of the stocks in the Dow-30 Composite were in the red.

There was definitely a “flight to safety” strategy in action on Wall Street today. The pronounced selling in the small-cap Russell 2000 and S&P Mid-Cap 400 Index spoke volumes as to the growing appetite among investors for more safe-haven instruments. In fact, the yield on the 10-year Treasury note, which moves in the opposite direction to the price, fell four basis points, as skittish investors added more bonds to their portfolios—at least for today.

As noted, the main focus of the investment community today was global economic policies. Although Japan’s Prime Minister Shinzo Abe pledged to boost annual incomes by 3% and set up special economic zones to attract foreign businesses, investors were disenchanted by the lack of specific policy measures set forth to meet the aggressive goals for the world’s third-largest economy. Meanwhile, the recurring sentiment on these shores is that the Federal Reserve will soon step on the brakes with regard to its current bond-buying program. Such actions are historically viewed unfavorably by market participants and that certainly seems to be on the rise these days.

Fueling the sentiment that the central bank will begin to cut back on its bond-buying measures are improving U.S. economic fundamentals, if still at a very measured and uneven pace. To this end, the Federal Reserve’s latest Beige Book summation of economic conditions showed that economic growth increased throughout the United States from April through mid-May, fueled by home construction, steady hiring, and consumer spending. Also today, the Institute for Supply Management, a Tempe, Arizona-based trade group, reported that its survey of nonmanufacturing activity registered 53.7 in May, 60 basis points higher than the April reading and nominally better than the consensus estimate. It marked the 41st consecutive month of growth for the services sector, which accounts for a sizable portion of the nation’s economic output. The nonmanufacturing data did little to quell the growing sentiment that the Fed will cut back on stimulus measures in the months ahead, which, as noted, is likely behind the recent volatility on Wall Street. Investors should note that the S&P 500 Volatility Index (or VIX) jumped about 6% today, finishing near its highest level since mid-April.   - William G. Ferguson

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


12:15 PM EDT - The stock market is trading lower today, extending yesterday’s slide. This, after the overseas markets offered no encouragement this morning. The Nikkei continues its retreat, down almost 4% overnight, while in Europe, the bourses are also closing sharply lower. As we pass the noon hour in New York, the Dow Jones Industrial Average is off 147 points (-1.0%); the broader S&P 500 Index is down 17 points (-0.9%); and the NASDAQ is shedding about 32 points (-0.9%). Market breadth shows little support for equities, as declining stocks are ahead of advancers by about 3 to 1 on the NYSE. Notably, the ratio of advancers to decliners has been weak for some time now, even on days when the market has inched higher, and this may suggest some underlying problems. Further, there are now more stocks hitting new 52-week lows, than those at new highs on the NYSE, which may suggest some weakness too. Notably, these figures are much better on the NASDAQ, which has outperformed the broader market for the past few months. 

The market sectors are all losing ground today, with especially sharp losses in the basic materials issues. The financial stocks are also not doing well. Although still lower, there is some relative strength in the healthcare area. This defensive sector has held up well lately, unlike the utilities, which have been selling off, possibly on interest-rate concerns. While a decline in the utilities is upsetting to some, it should be noted that this sector has not played a leadership role in the recent bull market. Instead, the more important sectors to watch are the financial, technology, and consumer areas. 

Technically, the S&P 500 Index is now about 4% off its 52-week high. While this is not yet a so-called correction, the market does seem to be taking a pause. If there is further weakness this index may well test its 50-day moving average, located at 1,605, which is just about 1% below the current level. Notably, in prior pullbacks, which occurred in April and in February, the market found support at this key level. The VIX is up almost 8% to over 17, suggesting some traders are becoming more fearful. Also, gold, often used as a hedge against stocks and other assets, is higher at over $1,400 an ounce. Investors are scooping up Treasuries, too, even with the meager 2.1% yield.

Meanwhile, the economic reports have been mixed. We started out with a weak employment report, as the ADP figures showed 135,000 private positions added to the economy in May. This showing was less than had been expected, but better than last month’s number. Meanwhile, productivity for the first quarter was revised to show a 0.5% increase, which matched expectations. Factory orders improved 1.0% in April, a bit less than anticipated. Furthermore, the ISM non-manufacturing index came in at 53.7, just a bit better than the consensus view. For the afternoon, traders are likely awaiting the release of the Fed’s Beige Book summation for June, due out at 2:00 PM.

Elsewhere, in corporate news, the earnings reports have been light. But shares of Bob Evans (BOBE) are trading higher after that company issued better-than-anticipated profits.

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


Stocks to Watch from The Survey The earnings calendar is rather light today, but shares of wine, beer, and spirits company Brown-Forman (BF/B) and homebuilder Hovnanian Enterprises (HOV) are both up in pre-market trading on earnings news. Conversely, the stock of Layne Christensen (LAYN) is indicating a sharply lower opening this morning, after the provider of drilling and construction services reported disappointing April-period results.

Elsewhere, computer and personal electronics powerhouse Apple (AAPL) has lost a legal battle to rival Samsung, which, if upheld, could bar the importation of certain older models of iPhones and iPads. Investors do not appear overly concerned at this point, however, and Apple stock is down just slightly in the premarket. – Matthew E. Spencer  

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


Before The Bell - Volatility is clearly on the rise on Wall Street. Indeed, if there had been any doubt of this, it was cleared up yesterday, as the stock market waxed and waned and did so several times during the session. Thus, after an early rise in the leading averages, they quickly succumbed to some additional profit taking, which in the early afternoon, had translated into a loss for the Dow Jones Industrial Average of some 150 points.

Now, the averages didn't stay there all that long. And they did manage to come moderately off of those lows for a couple of hours. Then, near the close, the buyers rushed in and shortly before the final bell, the Dow had pared its intraday loss to a manageable 25 points, before selling erupted once more in the final few minutes driving that 30-stock composite to a closing setback of 77 points. The NASDAQ, which also went to and fro throughout the day, wound up losing some 20 points, while the loss in the Standard and Poor's 500 Index was about half that amount. Losing stocks, meantime, led gaining issues by more than three-to-two on the Big Board and by some two-to-one on the NASDAQ.

Behind this frenetic action is a lingering fear among the bulls that the Federal Reserve will soon either slow down or end altogether its long-running program of bond purchases. The sense, among many, is that the lead bank is growing weary of such asset buying and fears that the long-term damage to the economy of such continued aggressive monetary stimulus could well be an unwanted step-up in inflation.

To our thinking, there is unlikely to be a halt to such bond buying just yet, as we sense that the aggregate tone of the U.S. economy is still too weak for it to go it alone--at least that is what we believe the Fed will ultimately conclude.

As to the major data issuances, this week has seen a weaker-than-expected reading on manufacturing activity, which was issued on Monday by the Institute for Supply Management, and a report showing an increase in the nation's trade deficit, released yesterday. Now, later this morning, the same ISM will release the monthly report on non-manufacturing activity. That metric is expected to show a slower rate of growth in May than in April. However, few are expecting an outright decline in that series, as we did see in manufacturing.

Then, there is the employment situation, where on Friday the Labor Department will issue its monthly figures on non-farm payrolls and the unemployment rate. Consensus views hold that the nation added 165,000 jobs last month, the same as in April, while the jobless rate is forecast to have held steady at 7.5%. Before that report, we are due to get data on weekly jobless claims tomorrow morning. And, just moments ago, in sort of a warm-up release, payroll services provider Automatic Data Processing (ADP) reported that its survey of private-sector jobs showed that 135,000 such positions were added in May. That was up from a downwardly revised estimate of 113,000 jobs added for April, initially tabulated at 119,000 private-sector positions.

This report can be, but is not always, a harbinger of things to come on the overall employment side, the data for which, as noted, will be released on Friday morning.

As to the impact from this report, the equity futures have reacted little, as there was not much of a surprise, and the futures are pointing to a solidly lower opening in less than an hour from now, following steep losses overnight in the Nikkei 225 and the Hang Sang. The bourses also are in the red across Europe, at this time. – Harvey S. Katz

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