Market Talk

- “The arguments for a slowdown and double-dip recession are basically the same: less stimulus spending, state and local government cutbacks, more household saving impacting consumption, another downturn in housing, and a slowdown in Europe and in China,” Calculated Risk blogger Bill McBride notes. “It is only a question of magnitude of the impact.”

- “Of course, you never know until after the fact whether a correction is just the first leg down in a new bear market,” Tom Petruno says. “That, once again, is the agonizing question for investors.”

- Financial regulatory reform legislation, in its present form, has several positive aspects, writes Mark Thoma. Still, it fails to eliminate the too-big-to-fail problem and, as a whole, leaves him wanting more. “As with health care reform, the legislation is unsatisfactory in many ways — it leaves much of the job yet to be done — and it’s not clear that Congress will have the will to follow through,” Thoma says.

- YouTube is the latest to weigh in on the Great Flash War of 2010, siding with Adobe (ADBE), which makes Flash video technology that Apple (AAPL) has banned from its devices. “Today, Adobe Flash provides the best platform for YouTube’s video distribution requirements,” writes John Harding, a YouTube software engineer. That’s why “our primary video player is built with it,” he adds.

- “Restaurants are a discretionary expense, and they tend to be ‘first in, last out’ of a recession for consumer spending,” Calculated Risk says, as opposed to the housing market, which is considered a first in and first out sector in the recession-dating cycle. “Since restaurants both lead and lag recessions, this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.”

- Verizon (VZ) will reportedly begin launching its LTE network in 25 markets starting November 15, according to gadget blog Boy Genius Report.

- “The inventory boost has accounted for over 50% of GDP growth so far during the recovery, so a substantial pickup in final demand growth will be necessary to keep gains in employment and output from slowing  economists from the Dallas Fed write. “That the required pickup will occur is far from obvious.”

- There’s increasing evidence the economy’s poised for another rough patch in 2H and beyond,” Pete Davis writes. “What more can Washington do? We’ve already done about everything anyone can think of to stimulate the economy. It’s had some beneficial effect, but it may not be enough.”

- Just as the S&P 500 keeps making lower lows, the VIX run-ups can’t quite reach their previous highs. “The increasing sluggishness in the VIX reflects what I call a progressive desensitization to fundamental factors…and technical factors that investors experience after the novelty of various threats — including very serious ones — begins to wear off,” VIX and More blogger Bill Luby says.

- He’s human? Six-time Wimbledon champ Roger Federer ousted in quarterfinals.

So much for the standstill. US stocks take a dive in the final 30 minutes after barely budging throughout much of the session and close 2Q at 2010 lows. S&P 500 was perched around 1040 throughout most of the day, but once it fell through that key support level, there was no looking back.

DJIA closes off 97 at 9774, marking its fifth straight decline and finishes down 10% for 2Q. S&P 500 drops 11 to 1031 and Nasdaq Comp falls 26 to 2109.

Moody’s warning this afternoon on Spain’s debt didn’t help matters. Also the weak ADP report cast a dark shadow on the market throughout the session. But all eyes remain focused on tomorrow’s ISM data and, more importantly, Friday’s jobs report.

Some interesting factoids from our market’s data desk as the quarter comes to a disappointing end. The Dow dropped 3.6% for the month of June, marking its second straight monthly drop. And it’s 10% drop in 2Q breaks a streak of four quarterly gains and represents the measure’s worst quarterly performance since 1Q09.

The Dow’s also down 6.3% year-to-date as of June 30, marking the third straight year the index has been in negative territory at the half-way point.

It’s getting ugly out there.

Bears and bulls fighting to a draw midway through today’s session as stocks are perched at the break even point after yesterday’s blood bath.

Caution is the name of the game, with all eyes focused on tomorrow’s ISM data and, more importantly, Friday’s jobs report. But for now, there just doesn’t seem like any real reason to buy, while there are plenty of reasons for investors to sell.

That was evident yesterday, when the Dow fell 268 points and the S&P 500 hit a new 2010 closing low, finishing right around the ever-important 1040 level.

No such theatrics today, but it’s becoming increasing clear that the bulls are facing a serious test. Only 7% of stocks in the S&P 500 are trading above their 50-day moving averages, according to Bespoke Investment Group, which marks a much lower percentage than previous pullbacks seen during the run-up from the March lows.

“Clearly we’re in a period that’s testing the resolve of bulls, and multiple days like [yesterday] cause more and more bulls to throw in the towel,” Bespoke says. “Just as rallies beget rallies, declines beget more declines. As investors/consumers see things getting worse, they tighten their belts even more and sell stocks, which then causes farther declines. It can turn into a vicious cycle.”

Looking for other clues on market sentiment? Check no further than Josh Brown’s recent blog post at The Reformed Broker. He “takes the market’s temperature” and notes things aren’t looking too healthy.

“You know the bulls are spent when we couldn’t even get the traditional end-of-quarter markups,” Brown says. “No one running big money is looking to do anything heroic this week, regardless of stocks having gotten, shall we say, a bit cheaper.”

DJIA up 17 at 9887; S&P 500 up 4 at 1045.

The second quarter started off with a lot of promise, and it’s ending it with a lot of doubt. That’s the topic of today’s Markets Hub (now moved to about 11 a.m. ET.)

Three months in three minutes. Where else can you get that?

Just when I thought I could not possibly get more outraged by anything I hear about government bailouts, I read this from the Times:

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Societe Generale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.

Um, excuse me? Am I to understand that the U.S. government, which was about to hand over nearly $200 billion to AIG, forced it to agree not to sue any of the banks it owed money to, even if it should it later find out that any of them committed, oh, you know, fraud? Is that what my government brokered?

This is the kind of agreement that, say, a corporation might make one sign when they’re letting you go, but giving you a little severance package, know what I mean? Why in the world would the U.S. government, which was about to fork over an almost unheard of amount of taxpayer money, want to force to AIG to give up any legal chance to recoup any of that money? It would make sense if it was the banks forcing that issue, but for the government to…

A-ha! A-ha!

“Another way to read this requirement is that the Fed and Treasury were opposed to having fraud at the banks exposed, period,” Yves Smith writes at naked capitalism. “That is a very troubling stance for bank regulators to take.”

Continue reading…

Put your hand in the Mouth of Truth and say that.

Our colleague Brett Arends has a good read today: “The Three Biggest Lies About the Economy.”

Not that MarketWatch needs us to send them traffic, but you should head over there and read the whole thing. Here’s the Cliff’s Notes version. The three biggest lies are:

1. Unemployment is below 10%. “The official jobless rate, at 9.7%, is a fiction and should be treated as such.”

2. The markets are panicking about the deficit. “If they were, the interest rate on government bonds would be skyrocketing.” (We’re talking about the U.S. here.)

3. The U.S. is sliding into “socialism.” “For a system allegedly being strangled in its bed, U.S. capitalism seems to be in astonishingly robust shape.”

I’m not exactly sure who benefits the most from those myths, although that last one is obviously a favorite of the tea-party set. Actually, so is the second one. And it seems like the first one benefits the White House. But those myths, as Arends calls them, are helping to foster the “counter-revolution.”

“But there’s just one problem,” he writes. “We’re still living in a fantasyland. Most people have no idea what’s really going on in the economy. They’re living on spin, myths and downright lies. And if we don’t know the facts, how can we make intelligent decisions?”

Too bad we don’t have a Mouth of Truth in Washington (pun, by the way, most definitely intended.) Maybe somebody in Congress will sponsor a bill to build one. Gotta be good for three or four temp jobs.

US stock futures melting after a very disappointing report from ADP on the jobs market. Firm pegs private-sector hiring in June totalled 13,000, far below estimates of 60,000, which in itself is a weak number. ADP doesn’t count public-sector jobs, so it excludes all the noise related to Census hiring.

Probably the most discouraging item within ADP report–among all the dismal news–is that small businesses are back to layoffs. Businesses that employ less than 50 employers lost 1,000 in June. Small businesses have traditionally been the job engine of the U.S. economy, but they seem to be missing a piston or two in this recovery.

If job creation doesn’t pick up, the recovery will come under further pressure. S&P down 1.20, DJ futures down 8. The 10-year note’s price is 3/32 higher to yield 2.956%. The 30-year bond is 11/32 higher to yield 3.926%.

(Kathleen Madigan contributed to this post.)

- Well, that didn’t take long. Verizon Wireless is already slashing prices on the two Microsoft (MSFT) Kin phones, just one month after the devices’ release. “That we’re seeing discounts for the Kin so soon after its debut suggests that it’s not selling nearly as well as Microsoft and Verizon had hoped,” Digital Daily blogger John Paczkowski says.

- Ten-yr Treasury yield drops below 3% amid fears of a global economic slowdown. Tom Petruno at LA Times’ Money & Co blog notes G-20′s wealthiest nations pledge to slash deficits doesn’t help matters. “The more the industrialized nations talk about reducing spending, the greater the risk that the global economy tilts back toward recession and deflation.”

- “When the benchmark indices of four of the six largest economies in the world are either at or near new lows, it doesn’t paint a pretty picture of the outlook by investors on the path of the global economy,” Bespoke says.

- “If you’re invested in these kind of markets, only two extremes make any sense,” Reuters blogger Felix Salmon says. “Either you’re a buy-and-hold type who’s convinced about the existence of the equity premium over the long term and who happily ignores all intraday volatility, or else you’re a high-frequency trader who loves to make money on a tick-by-tick basis,” he adds. “Everybody else is liable to get stopped out, or otherwise crushed.”

- Not surprisingly, first-time home buyer traffic plunged in May amid the expiration of federal tax credit, according to recent survey (via Barry Ritholtz.) Survey’s first-time home buyer traffic index registered a 35.1 in May, down from 63.5 in April. And prior to May, the index hadn’t dropped below 50 since September 2009. The drop implies fewer signed contracts in June as well as less closed transactions in July and August.

- Deutsche Bank’s Jim Reid looks at inflation and deflation prospects facing the economy in the future. “While we fear inflation is the biggest longest term concern, we see deflation as the bigger near-term risk, and a highly possible path in many parts of the western world,” Reid says (according to FT’s Alphaville blog.)

- The founder of Q&A website Quora is feeding the rumor mill with tidbits suggesting that Google (GOOG) is preparing to take another stab at Facebook. Adam D’Angelo, who formerly worked at Facebook, says “reliable sources” have convinced him that GOOG is “really scared” by Facebook’s growing clout.

- Despite Apple (AAPL) CEO Steve Jobs’ antipathy toward porn apps for his company’s products, the porn industry appears to be lending AAPL a hand in its feud with Adobe (ADBE) over Flash video technology. According to the ConceivablyTech blog, the founder of Digital Playground — a US “porn heavyweight” — says it’ll abandon Flash as soon as desktop browsers fully support HTML 5.

- “If Mr. Bernanke wanted to make a big statement on fiscal policy and additional legislative measures to stimulate the economy, he would probably have done it in another venue, where he would be less open to criticism that he is jeopardizing the Fed’s independence,” James Politi writes at FT’s Money-Supply blog.

- “Depression is the price we pay for budgetary murder and, contrary to Krugman’s belief, further budgetary murder cannot possibly cure anything,” says Mike Shedlock.

- “Cutting government spending, raising taxes, raising interest rates, and hoping the rest of the world does the same as some have called for is not the answer to the threat of a depression,” writes Mark Thoma.

Keep 'im out for God's sake!

US stocks sell off hard, with the S&P 500 testing the key 1040 level, as more crack emerge in the global recovery story and Treasurys continue to accept the safe-haven trade.

DJIA tumbles 268 (2.6%) to 9870, its lowest close since June 7. Nasdaq Comp gets hammered, down 85 (3.9%) to 2135. Ten-year Treasury yield falls under 3%, euro falls under 1.22. NYSE volume pretty heavy at 6.2B shares.

But check out the S&P 500. Index loses 33 (3.1%) to 1041, setting a fresh year low, and trading as low as 1035. It’s now down about 14% from the May high (a move of 20% to most people signals a new bear market.) Index sinks as low as 1035, but holds there. One of its 500 components, Zimmer, rose today.

You’ll read a lot of reports that will cite some resumption of the jitters as driving the sell-off, some new wave of fear about the global recovery, something like that. But we’ve been hammering on this stuff for months. The only surprise to us, well, to me at least, is that the market didn’t sell off even worse.

That 1040 level has been hanging out like a live wire; that they tripped it and survived doesn’t mean the wire’s been capped. It’s still there, and the market is just set up now for a real showdown. But the bulls are operating from a distinct position of weakness.

The data becomes even that much more critical. Tomorrow we get ADP’s take on jobs. Thursday we get the ISM’s take on manufacturing, as well as pending home sales and construction spending. Friday, of course, is the queen mother of data points, the monthly jobs report. If one, or all, of those comes in weak, it could tip over an already tottering market. If one, or all, or them come in strong, then the bulls could find themselves suddenly pulled off the ropes.

UPDATE: S&P 500 closes at a fresh 2010 closing low, finishing down 33.3, or 3.1%, at 1041.24. The index dropped as far as 1035.18 before bouncing up and trading around the 1040 level into the close.  According to S&P’s Howard Silverblatt, today’s decline is the second 3% decline this month, with the other coming on June 4, and the fifth over the past year. S&P 500 is now off 14.5% from its recent high.

“So the question is if new money doesn’t come in for bargains should we set a place for the Bear at the Fourth of July barbecue?” Silverblatt quips.

ORIGINAL: US stocks getting shellacked today amid a disappointing consumer confidence report and mounting worries over a global economic slowdown.

But investors remain fixated on 1040 for the S&P 500. (And as I write this, the index has fallen through that level and traded as low as 1037.30). 1040 represents the S&P 500′s closing low and a key support level. Crashing through that level has several ramifications, which Dow Jones columnist Tomi Kilgore highlights in a recent snippet on the wire:

The S&P 500′s dip below 1040-1042 support, defined by the lows seen in May and earlier this month, is technically very significant in more ways than one. S&P 500 was down 37 points at 1038. First, it extends a pattern of lower lows and lower highs in place since April, a defining characteristic of a downtrend. It also confirms a long-term head-and-shoulders reversal pattern, which suggests the downtrend has a lot more room to run. The first key support area is the June 2009 highs around 945-955. Next is 860-880, which encompasses the July 2009 lows and the 61.8% retracement of the March 2009 to April 2010 bull market.

If that isn’t enough evidence of the significance of 1040, check recent comments from Minyanville’s CEO Todd Harrison.

“Don’t think for a second the folks on the Beltway aren’t acutely aware of the importance of S&P 1040,” he says. “You can agree or disagree with the tactics of the invisible hand but if nothing else, they’ve earned the respect of Boo’s Bandits,” he adds, referring to short sellers.

“Once upon a time, the short side was a natural and necessary balance in the process of free-market capitalism,” Harrison notes. “Now? Much like ‘big business,’ they’re considered pure evil by the majority of the mainstream population.”

There’s a lot of red on our screens, with all of the major indexes in negative territory and sitting near session lows. And half of the 10 S&P 500 sectors have broken below their prior correction closing lows, according to Bespoke Investment Group.

Consumer discretionary and staples hit new lows yesterday, while technology, industrials and energy all registered fresh lows today amid the broad market selloff. “Consumer discretionary continues to be the weakest sector during this current downturn,” firm says. “Any positive technicals that were in place for it are now long gone.”

Keep an eye on the last half hour of trading. If the S&P 500 closes significantly lower than 1040, tomorrow could get real ugly.

(John Shipman contributed to this post.)