- The unchecked flow from BP’s busted well is bringing more than just thick crude to the surface — desperate emotions are bubbling up, too. Former labor secretary Robert Reich wants the federal government to temporarily put BP into receivership and take over its North American operations. As justification, he argues BP hasn’t been truthful about the size of the gusher, and “continues to be responsible primarily to its shareholders, not to the American public.”
- Pinning recent ups and downs in asset and commodity prices solely on Europe “misses an important part of the story,” UC San Diego economics professor James Hamilton says. Venture a glance at China.
- The Economist effectively declares bank balance sheets have been repaired and banks don’t need to raise much new capital. But naked capitalism blogger Yves Smith begs to differ. “It should be no surprise that US bank regulators are continuing to prop up banks, but it’s disappointing when the media gives them and the bank earnings phony-baloney they enable a free pass.”
- S&P 500 drops 19, or 1.7%, to 1071, marking the third worst post-Memorial Day performance ever for the index.
- Attitudes toward big banks are changing around the world, except the US. “Our top policymakers are simply convinced that what is good for the biggest and most dangerous element on Wall Street is good for the American economy,” former IMF chief economist Simon Johnson writes. “This is cultural capture in its purest and most extreme form.”
- “Policymakers are betting that the recovery is strong enough to self-sustain, and so they are turning their attention to other threats,” Ryan Avent says. “Perhaps they’re right. But if they aren’t, the policy decisions being made right now will look awfully peculiar and unfortunate several years down the road.”
- There may be signs that “the rich” are back, from luxury home sales in New York and San Francisco to rising sales at Tiffany (TIF) and Whole Foods (WFMI), Daniel Gross says. But the actual story may be about the “not-quite-rich,” and “while they may have emerged from their stunned, locked-down stupor, these consumers are not at full strength…it may take another year or two of solid growth, market gains, and healthy bonuses before they start to party like it’s 2007.”
- Internet ad spending has jumped from zero to 5% of all US ad spending over the past decade. “That is the most bullish signal about investing in the Internet that I have seen this year,” Fred Wilson writes.
- “If stocks keep pace with valuations, then the S&P 500 could easily be over 1400 within 18 months,” Eddy Elfenbein says. Bold prediction, which would mark a 30% increase off current levels. But keep an eye on those earnings forecasts: if companies increasingly start cutting guidance, “then the whole bullish scenario falls apart.”
For much of today’s session, it seemed like June would get off to a better start than May ended. Stocks rose after the ISM manufacturing report for May, and the construction spending report for May showed more life than investors expected (even if the ISM did fall back a bit from April.) Stocks rose early, with the Dow up as much as 82. But another brutal late swoon takes down US stocks, with the S&P 500 taking a particular pounding after equities spent most of the day gaining, just another headfake for investors.
Investors were given a false sense of hope after manufacturing and construction reports came in better than expected. But the problems that are stalking the markets haven’t gone anywhere, and June, in the end, starts off the same way May ended.
There were two distinct air pockets in today’s trading: the first came just before 2 p.m., when the indexes suddenly just dropped, with the Dow near session highs no less. (the blue chips were holding up better than the other indexes for most of the day anyhow.) The second came at 3:45, when the closing buy/sell orders.
You could just see the indexes go down, and then keep going down as the orders settled. It was brutal stuff. The S&P 500, now down at 1071, looks to be at a pretty critical juncture. There’s support in the 1072-1069 range, depending upon your favorite chartist. But closing on the lows makes it look like a shaky support.
DJIA falls 113 (1.1%) to 10024, S&P 500 drops 19 (1.7%) to 1071, Nasdaq Comp loses 35 (1.5%) to 2222. DJ Transports lose 2.4%. Energy stocks get battered as BP continues to botch attempts to shut down its gushing Gulf well.
While stocks had suffered most of their damage by about 3:58 p.m., the news that crossed the Tape at that minute, that the US Attorney General is investigating criminal and civil charges against BP, couldn’t be very good for sentiment. BP has lost $70B in market cap since the Deepwater Horizon exploded in the Gulf. If the next effort to cap the well isn’t successful, that number could increase.
So, there you go, that’s the market today, and boy howdy, we didn’t even mention Europe or China.
As we wrote last week, May was an ugly month investors. In fact, it was one of the worst on record. For US stocks, the Dow plunged 871.98 points, or 7.9%, its worst May point drop ever and largest percentage drop since 1940.
Venturing outside of US stocks, many of the major asset classes posted their worst monthly performances since February 2009. REITs fell 5.4%, while commodities slid 6.9%, as noted by James Picerno at The Capital Spectator. Treasurys were the only asset posting modest gains, as investors used them as a safe haven amid a flight to safety.
“The red ink last month is a sign that the big, easy gain in everything is over,” Picerno says. “The simplicity of the past year is giving way to complication and nuance. That creates opportunity for tactical asset allocation maneuvers, but it also comes packaged with higher risk. Phase II of the post-Great Recession period is here.”
But amid all the declines, there may be at least one positive to come from a brutal past month for investors.
“What’s more important about this past May’s tumult is that it reintroduced a little risk back into the prevailing mindset,” Joshua Brown writes at The Reformed Broker. “Regardless of the market’s direction from here, that reintroduction is probably a good thing.”
That can’t be underestimated. But for stocks to make another substantial move higher, they need to break the “strong downside momentum” that has been prevalent throughout the last month and has halted all rally attempts in their tracks, says Bruce Bittles, chief investment strategist at Robert W. Baird.
He says two consecutive days of gains, which hasn’t happened over the last month, combined with another session where upside volume significantly exceeds downside volume needs to happen before stocks can run higher.
Trading volume has recently been well above average during the largest down days, but has been weak when the market has posted impressive gains over the last few weeks, not a good sign for conviction.
“Breaking the downside momentum is a necessary prerequisite before declaring the correction has run its course,” Bittles says.
The Dow has been bouncing around all day, but was recently up 22 at 10158.
All right, places people, we got to make this good.
The funniest thing you’ll hear today is this bit about the U.S. pushing Europe to publicize the results of its “stress tests.” I mean, isn’t that hi-larious? The U.S. government’s 2009 stress tests were a carefully orchestrated stage show intended to restore confidence in the banking system, not to necessarily uncover any meaningful information.
Now, at a G20 meeting of finance ministers, the U.S. is pushing Europe to stage their own show. From the Journal:
Worries about Greece’s ability to repay its debt, and concerns about the stability of Spain and Portugal, provide a sobering backdrop at the gathering this week in Busan, South Korea, of finance ministers and central bankers from the Group of 20 industrial and developing nations. U.S. officials said they are convinced that by publicly demonstrating the strength of its banks and promising to solidify those that prove weak, Europe might help stem the crisis of confidence.
“This crisis is multifaceted, but I believe bank stress tests can be helpful as a critical component of any comprehensive plan to restore confidence in the European financial system,” said Lee Sachs, who was, until a month ago, a top adviser to Treasury Secretary Timothy Geithner.
Listen, on the one hand, you have the stress tests. On the other, you have the Fed cutting interest rates to zero, the federal government pushing the $700 billion TARP program at the banks, the Fed buying a trillion and a half worth of bonds from the banks (and other institutional-type holders) and Congress pressuring FASB to drop mark-to-market accounting. Which do you think had the greater effect?
June looks just like May did, and that’s not good news for investors. We break it down on this morning’s Markets Hub. Madeleine Lim and myself wonder if what we’re really seeing here is a market that’s had its Fed-induced largesse removed, or if this is just a Europe and China-driven thing, as Mike Reid thinks.
Keep in mind, too, that the first trading day of the month usually sees the proverbial new money coming to the market. That could either spark a rally, or add to the gloom if the added firepower proves ineffective.
Fresh week, new month but the tone for US stocks hasn’t changed much yet from May’s ugliness.
European markets selling off, and euro reaches a four-year low vs the dollar. Asian stocks also lower overnight after some hints that China’s growth may be easing. Stock futures have improved from earlier levels, but still suggest a potent downdraft when regular trading begins.
May ISM manufacturing index, April construction spending both due at 10:00 a.m.; Dallas Fed’s May manufacturing survey at 10:30 a.m. ET.
Euro recently at $1.2156; USD index at 87.35. Crude futures down about 2%, gold moving higher, recently near $1,225/oz. S&P futures down 14.50; Dow futures down 111. Ten-year note higher, yield at 3.25%.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
David Oreck, founder of a well-known maker of vacuums and air purifiers, says he’s upset his namesake company is in bankruptcy. He says Nashville, Tenn.-based Oreck Corp. was a perfectly profitable company when he sold his stake in it to a private equity firm in 2004. He blames the firm, New York-based American Securities Capital […]
