US stocks reverse course in the afternoon, stamping out a promising two-session rally the bulls had constructed. DJIA slides 41 (0.4%) to 9899, after rising as much as 126 earlier. S&P 500 falls 6 (0.6%) to 1056, Nasdaq Comp loses 12 (0.5%) to 2159.
There are two things to keep an eye on here. One is the euro, which started slipping in the afternoon, falling back under $1.20. You could see U.S. equities sag, as if there was a chain with the euro at the bottom of it pulling them down.
The other is 1040 on the S&P 500. Until stocks build up to escape velocity, that level is going to continue making a lot of traders nervous.
Traders seized on report that Chinese exports surged and drove US stocks higher, adding to yesterday’s gains. But the rally fell apart in the afternoon, sparked by comments from German Chancellor Angela Merkel that it’s time to start planning exit strategies. Bernanke tells Congress he doesn’t expect a double-dip into recession, but issues a warning about debt, saying economy won’t grow fast enough to cover that $13 trillion bar tab Uncle Sam’s run up.
Also notable today was the latest report from the Mortgage Bankers Association, which showed another sharp slide in mortgage applications, despite ultra-low interest rates. “Homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.
Maybe they soon will. But if prices start falling, or even if potential buyers just think prices are going to fall, they may not.
Don't worry, Ben. Nobody's going to make you do anything hard.
Ben Bernanke’s getting plaudits from the fiscal austerity crowd, like my colleague Evan Newmark’s column today, for his comments today about the state of the federal government’s finances. The central bank chieftain warned Congress that the federal debt — now $13 trillion and counting — was on an unsustainable path, and that the economy wouldn’t grow fast enough to cover the debt payments. If Congress doesn’t come up with a plan now, there will be “sharp, disruptive shifts” in spending and taxes.
It’s the same warning Congress has been hearing for years. Decades probably. It’s always true, never heeded. But, and maybe I’m crazy here, it seems to me the Fed chair is in a rather unique position to influence Congress with more than mere words.
He could raise rates.
If Bernanke really wanted to make a point to Congress, he shouldn’t waste time with testimony that nobody but stocks traders follows anyhow. He should just start raising rates. One of the biggest but least appreciated benefits (at least, outside the Beltway) of the Fed’s zero-interest rate policy, the ZIRP, has been that Congress’s funding costs have gone down, allowing them to finance ever greater deficits. Bernanke could change that math in about a second.
Friday’s jobs report was a big sentiment changer, no doubt. The only caveat you could put on it was that it was “only one month,” and as such, it’s too soon to say the report’s disturbing number represent some kind of new, and downward, trend. There’s a saying in the journalism business: once is an occurrence, twice is a coincidence, three times is a trend. So the May report didn’t represent a trend.
But one may be forming. And even if the jobs market isn’t going to see a wholesale nosedive, it’s still stuck in a netherworld between gains and losses. In five distinct ways, the jobs market is even worse than the May report indicates, WSJ’s Brett Arends wrote yesterday:
What people haven’t realized is that the leading indicators for June are even worse. TrimTabs Investment Research Inc. tracks the real-time jobs picture by monitoring income tax deposits at the Treasury. And these have suddenly started falling. Based on the latest data, the firm predicts the economy will actually lose up to 200,000 jobs, net, in June. “The big news is that we have a job loss of about 200,000 coming in June,” says Trim Tabs’ Madeline Schnapp, “and the market isn’t ready for it.”
It’s not just the stock market. You can bet that the administration — and the country — isn’t ready either.
But people should be ready for it. After the 2001 recession ended in November, it was almost two full years, September 2003, before the economy started steadily creating jobs on a monthly basis. Until then, it was up one month, down the next, up two months, down the next. This idea that there wouldn’t be any potholes on the road to full employment this time around is more than a glass half-full view, it’s a glass full-full view.
A more stable tone in Europe this morning helps foster a slightly positive bias to US stock futures premarket, but not quite enough to signal much follow-through after yesterday’s rally. The euro seems to have arrested its descent for now, and US dollar index is near its lowest levels of the week.
Despite recent drop in interest rates, Mortgage Bankers Association’s weekly mortgage application survey shows another sharp decline, in absence of that homebuyer tax credit. Not a good sign for home prices.
Bernanke testifies on the Hill this morning. April wholesale trade at 10:00 a.m.; Fed’s Beige Book out at 2:00 p.m. ET. S&P futures up 5, DJ futures up 37. Ten-year lower, yield at 3.20%.
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 […]