Market Talk

- Financial stocks have hit bear market territory, while materials, energy, industrials and consumer discretionaries are getting close. “Unsurprisingly, it’s the defensive sectors that have held up the best since the market peaked on April 23rd, if declines of 9% to 14% can be characterized as holding up,” Bespoke says.

- It’s tough to ignore the increasing deflation risks filtering through the market. “The sure-fire economic solution to the mounting deflationary risk is a strong and sustained rebound in job growth,” James Picerno says at The Capital Spectator. “Unfortunately, the odds look high for a jobless recovery at the moment, thus the market’s outlook for a new round of disinflation, perhaps outright deflation.”

- All the bailout money that was dished out to the banking sector simply allowed the financial sector to avoid a vast restructuring. “The can was kicked down the road,” Barry Ritholtz writes, noting banks weren’t allowed to suffer the same destiny that happens to other insolvent businesses. “This was a terrible error, the greatest financial tragedy of the 21st century.”

- Despite the widespread opinion that double-dips are rare, data and indicators are warning that one is coming, John Hussman of Hussman Funds points out. His own firm’s recession warning composite is showing the same combination of factors that appeared in November 2007 and October 2000.

- ISM’s non-manufacturing report shows service sector activity slowed last month. “In yet another sign the economy is cooling substantially, three components of the June Services ISM are now in contraction,” Mish says. “This report was weakest where it matters most: employment, imports and exports.”

- Yahoo’s still searching for an ad sales chief. “We’ll see how it turns out, but as Yahoo just closed its second quarter, it’ll be important for some clarity around its most important business in its most important market, especially as its stock continues to its lackluster performance,” Kara Swisher writes.

- The likelihood of a “double dip” recession may be low, according to economists, but as Catherine Rampell points out at NYT’s Economix blog, the general public still seems pretty worried. Google searches for “double dip” have soared this year, she notes, with a specific spike beginning in May.

- Out of all the long-term unemployed, the older, more educated workers have the highest length of unemployment, Calculated Risk reports, citing BLS data.

- AgBank IPO totals $19.21 billion, still in the running for the biggest IPO ever.

- Brian Cashman says LeBron is going to be a Knick. Keep your fingers crossed. Oh yea, and LeBron starts a Twitter account today, tweets ONCE and has 114,000 followers and counting. Hey LeBron, how about throwing Market Talk some of your followers, eh?

US stocks travel a windy path before ending a choppy day modestly higher.

Dow snaps a seven-session losing streak, using a late-session rally to finish up 57 at 9744, its biggest gain since June 15. But the index rose as much as 172 in the morning before seeing all its gains slip away amid continuing global growth concerns. S&P 500 jumps 5 to 1028, ending a five-session losing skid. Nasdaq Comp rises 2 to 2094.

Reserve Bank of Australia keeps key interest rates unchanged, but leaves the door open for more increases over time, largely seen as a bullish indicator. Still, ISM services index grew more slowly last month, adding more fodder for the double-dip camp.

Investors also kept a close eye on the Agricultural Bank of China’s massive IPO. Sure, China’s AgBank raised about $19 billion in its IPO, and it could boost that to over $22 billion with the overallotment allowance, which would make it the biggest IPO ever (topping the $21.9 billion raised by Industrial & Commercial Bank of China in 2006.

But AgBank still didn’t meet its target of $23 billion, and even that number was below the $30 billion it expected to raise just a few weeks ago. So before everybody climbs back onto the China-growth bandwagon, keep that in mind.

Part of it is the market environment itself. Domestic investors haven’t been as keen on the shares as foreign investors have, but they may be just as interested in currying favor with Beijing as their return on investment.

Part of it is AgBank itself; the bank is considered the “ugly duckling” of the state-banking system, heavily exposed to the rural economy, where loan losses tend to be higher, and does less business with high-end customers.

(Paul Vigna contributed to this post.)

Over at MarketWatch, chief economist Irwin Kellner notes the economy is poised on the edge of expansion and recession, and he thinks it’s headed toward the latter:

There is no longer any doubt that economic growth has petered out. Growth in the first quarter, at 2.7%, was less than half of the fourth quarter’s 5.6% pace. Data available since then suggest that the second quarter was even weaker.

As a matter of fact, considering the recent declines in housing, employment, consumer spending, exports and local government spending — not to mention the plunge in stock prices — about the only thing keeping the economy from slipping backward in the quarter just ended was a rise in business inventories.

This is not good news for the nascent recovery.

This morning’s ISM report on the services sector just adds one more discouraging data point to the mix. Overall growth fell back, albeit remaining in expansion territory, and key components like employment fell into contraction territory. Actually, every component, new orders, employment, inventories, prices, export orders, everything fell except for supplier deliveries, which was flat.

The stock market paid no attention. In fact, it rallied to session highs immediately after the report. But that’s increasingly looking like just what Tomi Kilgore called it this morning: a dead-cat bounce. DJIA rose about 155 points this morning, then gave it all away as it slipped into the red. Lately up 37. Wherever stocks are at the closing bell, all this volatility, and the fact that equities can’t hold a one-day rally after two weeks of selling, isn’t a very good sign.

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Double dip. The infamous Seinfeld phrase has taken on a whole new meaning when discussing the economy’s latest prospects.

The latest stock-market swoon has folks concerned that the recovering economy may now be “double-dipping” back into recession. It’s still too early to tell whether this is the case, but recent economic data point to the economy expanding at a much slower rate than previously anticipated.

Of course, a “double dip” may not be possible, considering the Great Recession still hasn’t officially come to an end, at least according to the National Bureau of Economic Research. Robert Hall, chairman of NBER’s economic dating cycle committee, sheds some light on declaring double dips, in an interview with the AP.

In Hall’s view, a double dip is akin to a continuous recession that’s punctuated by a period of growth, then followed by a further decline in the economy.

The NBER doesn’t define a double dip any more specifically than that, says Hall, an economics professor at Stanford University.

In econo-speak, Hall explains: “The idea — hypothetical because it has yet to happen — is that activity might rise for a period, but not far enough to complete a cycle, then fall again, and finally rise above its original level, only then completing the cycle.”

But that hasn’t stopped bloggers and economists from weighing in on the double-dip debate.

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The rally monekys are out in force today, after that long weekend, and that even longer, and painful, sell-off last week. Assets across a variety of classes and regions are rising. But is it for real, or just a big dead-cat bounce? We break it down for you on the Markets Hub.

Ah, the circle of life. From Miller Tabak’s Dan Greenhaus, writing after today’s ISM services report showed further stalling in the economy:

There has clearly been a downshifting of economic activity as we entered the summer. A variety of top down indicators – retail sales, employment measures, manufacturing indices and now the ISM non-manufacturing index – are indicating a slowdown in economic activity. With many economists still expecting growth of 4% in Q3 (we are closer to 2%), we would expect a host of downgrades although such downgrades will probably be closer to 3% than 2%. The service sector remains the most important sector of our economy from a jobs standpoint and if the sector slows, it’s hard to make a case for robust expansion in labor market indicators. Without that expansion, its hard to make a case for a sustained pick up in incomes which in turn make it difficult to argue for a robust pace of consumer spending.

If that’s not enough for you, here’s John Hussman of Hussman Funds in his weekly missive:

A week ago, we accumulated enough evidence to conclude that the U.S. economy is most probably headed into a second leg of recession. It is unclear whether this will be identified as a second recession or a continuation of an existing downturn. In either case, I’ve repeatedly noted that the apparent strength in the U.S. economy over the past year has been driven almost exclusively by an almost inconceivably large burst of fiscal and monetary “stimulus” last year, whereas intrinsic economic activity has stagnated. Personal income remains at its lows once government transfer payments are excluded, which is in stark contrast to typical post-war recoveries. Weekly jobless claims are pushing again toward 500,000, whereas prior post-war recoveries have seen jobless claims quickly retreat below the 400,000 figure that roughly delineates job growth from continued job losses. The most straightforward explanation of the economic data is that we’ve observed a stimulus-led recovery that has not translated into private economic activity, and that the effects of the stimulus are now diminishing.

If all that’s true, it means that 2011 earnings estimate for the S&P 500 is probably just a tad high. The 2010 estimate might  prove optimistic as well.

Dow Jones columnist Tomi Kilgore reports on some key technical levels to keep an eye on:

The Dow Jones Industrial Average has reached the key 9830-9880 resistance range, which is defined by the early-February, early-May lows. This area needs to be cleared on a closing basis within the next couple sessions or the bounce will look very much like a “dead cat.”

If the DJIA breaks through, the next levels to watch are 9950-10000, followed by 10150-10200. Since the underlying technical indicators haven’t been showing signs of outperformance relative to the DJIA’s price (bullish divergence), the odds currently favor the “dead cat” scenario.

DJIA lately up 153 at 9840. There should be minor support at the 9750-9775 level, followed by the 9610-9625 area.

The bulls are back from the long weekend, and they look ready to play. US stock futures pointing to a sharply higher opening, as equities in both Asia and Europe are rising as well. Stocks overseas are seizing on a purportedly bullish statement from Australia’s central bank. But what’s so bullish about this:

“The expansion remains uneven, with the major advanced countries recording only modest growth overall,” said the bank’s Gov. Glenn Stevens in a statement accompanying the decision.

No, what’s more likely is this morning is just the bulls buying the dips. You’re starting to hear the bulls favorite song lately: stocks are cheap. That stocks-are-cheap thing, by the way, is predicated on S&P 500 earnings not only getting back to but surpassing their previous peak of $87/share in 2006. Street currently has S&P 500 earnings around $95/share in 2011.

How likely are the prospects of the S&P 500 companies setting an earnings record in 2011? Until proven otherwise, rallies are not to be trusted right now.

Incidentally, stocks are looking to break an unusual losing streak: the market has been down the first day of the week for six weeks. ISM services index for June at 10 a.m. S&P futures up 11.60; 10-year yield down slightly at 2.97%. Euro higher at 1.2573.