Market Talk

US stocks under renewed selling pressure again as the latest worries across the pond center around Spain’s move to rescue a troubled lender.

The most recent concerns surrounding Europe come after the Bank of Spain rescued regional savings bank CajaSur over the weekend, suggesting sovereign debt woes could travel further. The move prompts Miller Tabak equity strategist Peter Boockvar to wonder what’s next for stocks.

“It will be the near term reaction to European budget cuts,” he says. “And whether bond investors are encouraged enough by them to buy sovereign new issues over the next few months to allow these countries to continue to finance themselves (and thus avoid tapping the bailout money).”

Concerns surrounding Greece and the broader European economy have weighed heavily on US stocks throughout the last few weeks as the market has entered into its first official correction in 15 months.

But the difference between a typical correction and something that spirals into something much worse is “faith that the bullish story hasn’t changed all that much,” writes LA Times’ Tom Petruno.

All that should matter near-term is whether new economic data and corporate profits continue to support the recovery thesis. This morning, the National Association of Realtors reported existing-home sales climbed 7.6%, to a 5.77 million annual rate in April, well above economists’ expectations as buyers took advantage of the first-time home-buyer tax credit. Prices and inventories also rose.

But stocks aren’t reacting positively to the good news and trade lower as European jitters continue to overshadow positive news on the domestic front.

“If recovery hopes fade amid (or because of) May’s barrage of depressing news, the bulls know they don’t have much else on which to build a case for stocks at these prices,” Petruno says

Dow down 47, but was off as much as 111 in earlier trading.

At some point this number will matter.

US stocks rising yet again, following yesterday’s gains, as President Obama signs new health-care legislation into law.

Positive reaction to the passing of the health bill is a bit perplexing, especially since many expected health care to act as a drag to the market’s yearlong rally.

But as we noted yesterday, it looks like there could be several benefactors from the legislation, ranging from hospital operators and pharmacy-benefit managers to drug and medical-device makers. And the final vote has added some much-needed closure to the situation, which seems to please investors.

But the ballooning federal budget deficit isn’t lost on some, and this $940 billion piece of legislation has Harvard economist Greg Mankiw worried about future implications:

In addition, I could not help but fear that the legislation will add to the fiscal burden we are leaving to future generations. Some economists (such as my Harvard colleague David Cutler) think there are great cost savings in the bill. I hope he is right, but I am skeptical. Some people say the Congressional Budget Office gave the legislation a clean bill of health regarding its fiscal impact. I believe that is completely wrong, for several reasons (click here, here, and here). My judgment is that this health bill adds significantly to our long-term fiscal problems.

Nevertheless, the stock market keeps puttering along. DJIA’s up 44 at 10830, while S&P 500′s up 2 to 1168.

“I don’t read this market rise as an endorsement of expanding federal indebtedness, but rather a vote of support for the functionality of government,” John Curran writes at Time’s Curious Capitalist blog.

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Fed's move doesn't scare us.

After an initial shock in the futures market, US stocks today have mostly shrugged off the Fed’s discount-rate hike, aiming to finish in positive territory for a fourth consecutive session.

Late yesterday the Fed boosted the rate it charges banks for emergency loans by a quarter-percentage point to 0.75%, which prompted fears as stock futures and bond prices fell while the dollar rose right after the announcement.

But the knee-jerk reaction faded and stocks have remained in positive territory for much of today’s session. Certainly a good sign, especially since today represents the market’s first test of how it can handle an environment titled toward tighter credit, Tom Petruno writes.

Fed boosting the discount rate isn’t surprising and shows it believes the financial system and overall economy are stabilizing. “The Fed used a word it will be repeating a lot in coming months: ‘normalization,’” Petruno says. “Normalization will mean gradually retreating from the emergency steps the Fed took to bolster the financial system and the economy.”

Of course any overreaction in the stock, bond or currency markets is the big risk, which could force the Fed to postpone its normalization moves, Petruno adds. “The ball now is in the markets’ court.”

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Kinda resembles Mr. Chambers...

Need some uplifting economic news? Look no further than yesterday’s comments from Cisco (CSCO) CEO John Chambers.

He sounded outright giddy about the recovery’s prospects, praising the economy for entering a “new phase of the recovery,” and added this is “one of the most robust positive turnarounds I’ve seen in my career.”

Bold words, which come after the giant maker of networking gear said its quarterly profit rose 23% from a year ago, while revenue jumped 8% – marking the first increases for both metrics in a year.

“The economic recovery may have found its chief cheerleader,” Tom Petruno writes at LA Times’ Money & Co blog. “And he lives in Silicon Valley – not Washington.”

Tech has been a bright spot throughout earnings, he notes, suggesting capital spending is picking up – possibly more robustly than previously expected. Still, investors have chosen to take profits instead of running tech stocks higher after last year’s surge. S&P 500 tech sector is off about 6% year-to-date, compared to about a 2% overall decline for the index.

Nevertheless, Cisco shares were recently up 1.3% at $23.38, bucking the trend of a broad market selloff that has the Dow off 1.7% and below 10100. Cisco, incidentally, is the only one of the 30 Dow components clocking in with a gain this morning.

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- Overseas stocks ahead of US on correction course. “But note: Over the last year, foreign stocks have mostly followed the US market trend, not led it,” Tom Petruno says. “At this point, they probably don’t have a message for Wall Street so much as they’re looking for a message from Wall Street.”

- “Millions” of Kindles flying off Amazon’s shelves. TechCrunch’s Michael Arrington pegs it at 3 million.

- Hard to draw conclusions in this complicated market. “The markets right now are especially complicated and appear to be facing fundamental things that it has either never faced or not faced in modern times,” says Roger Nusbaum, portfolio manager at Your Source Financial.

- S&P 500 crashes through support. Traders had been watching 1080-1085 level. So much for the strong opening. “The reversal today was telling,” FusionIQ CEO Barry Ritholtz says.

- It’s getting ugly out there. “This type of action, when the market trades sharply down even though economic reports and earnings reports both beat estimates handily, is not good,” Bespoke says. “There’s simply no way to sugercoat it.”

- Seems like Apple hasn’t lost affinity for AT&T. “Apple has been happy with the company as a carrier partner and is confident of its plans to vastly improve its network,” Digital Daily blogger John Paczkowski says.

- Pressure on the euro accelerates as currency falls below $1.39 for first time in more than six months.

- Might be a little soon to talk about “post-crisis” times, Pimco CEO Mohamed El-Erian says. “Too many markets, too many institutions have assumed this would happen quickly,” he notes.

- AIG releases list Of troubled derivatives contracts. AIG says in SEC filing that it’s releasing documents “due to recent public disclosure of the full contents of Schedule A,” a detailed listing of $62.1 billion in notional value derivative transactions its financial products group wrote.

- This blog needs more Gaga!

US stocks remain down, although they’re sharply off the lows with only 30 minutes remaining in today’s session.

Hard to pinpoint exactly what’s driving today’s move. Technology leading the declines a day after Apple’s (AAPL) iPad announcement. Jobless claims and durable goods reports also came in below expectations. S&P 500 up held at support around 1080, so there’s that to consider as well.

But, as Tom Petruno points out, it just seems investors are finding more reasons lately to sell rather than motivation to buy. And issues overseas may be the biggest factors driving this recent slide. From LA Times’ Money & Co blog:

Europe may be the bigger worry at the moment. Stocks were broadly lower there today amid more signs of contagion from Greece’s financial woes. Investors continued to demand sharply higher yields on Greek government bonds, even though the country successfully borrowed more than $11 billion early this week via five-year notes to give itself more breathing room.

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Interesting day for the stock market following last week’s beat-down. Stocks have recovered a sliver of their losses, but a cautious tone lingers ahead of some key events later this week.

Stocks are looking to overcome a streak of triple-digit losses as the major indexes recorded their worst three-day stretch since early March when the market bottomed out. Dow industrials hit a 15-month high on Tuesday, but promptly dropped 5.2% over the next three days. S&P 500 also fell 5.1% in same time span.

The bearish case also seems to be gaining steam amid concerns surrounding China, Greece, Ben Bernanke and President Obama’s bank plan. Check out Josh Brown’s post detailing the growing amount of double-dip believers making their voices heard. Not a good sign, especially with stock prices still up more than 60% from the March lows.

“Investors who’ve been riding the 10-month-old rally, and who haven’t sold anything along the way now have plenty of excuses to take money off the table,” Tom Petruno writes at LA Times’ Money & Co. blog.

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A rush to the dollar won't be pretty.

US dollar’s three-week-old rebound comes amid fresh debt worries abroad, which has triggered another rush to safety.

Dollar rally could continue picking up steam as traders who had been shorting the currency start bailing from those bets, Tom Petruno writes at LA Times’ Money & Co blog. But he doesn’t expect the trend to last long term.

“There still are plenty of people on Wall Street who believe the dollar is going lower longer-term,” he says. “But they may be happy to wait until January to try to make that case again. And between now and then, thin holiday trading seems likely to favor the trend already in motion – which is dollar strength.”

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Not gonna be a correction, not gonna be a correction, not gonna...

A correction in the stock market has been predicted for some time. As stocks have gone on their precipitous rise off the early-March lows, bearish market observers have repeatedly suggested the gains weren’t sustainable and a pullback would be inevitable.

Nine months off the March 9 lows, major indexes are up more than 60% and the expected correction has yet to occur. But that hasn’t stopped folks from calling for a pullback. In fact, investment newsletters now seem to think it’s a foregone conclusion.

Investors Intelligence reports the percentage of investment newsletter editors expecting a short-term 10% decline in stocks has hit a 17-year high. (hat tip LA Times’ Tom Petruno).

This week’s survey showed 35% of respondents were expecting some sort of pullback, 48% see stocks still rising and 17% were outright bearish. So the majority of these newsletter editors don’t expect a major decline, but rather a short-term correction followed by long-term gains.

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Are you surprised? The rally still hasn't lost steam

The eight-month-old rally still hasn’t lost steam, even as unemployment hits a fresh high and skeptics keep calling for a vast sell-off.

Whenever stocks start losing ground and the run-up looks like it may come to an end, investors step in and use the dips as buying opportunities, which LA Times’ Money & Co blogger Tom Petruno describes as a classic bull-market mentality. “You don’t sell the dips, you buy them,” he says.

Still, there’s one other factor that keeps pushing the market higher: fear. Portfolio managers are scared about reducing equity exposure for the fear that this rally will keep going and leave them behind, he says.

“After the horrors of 2008, a money manager who doesn’t keep up with the market’s comeback this year is facing his or her greatest risk of all: the risk of unemployment,” Petruno says.

The Dow’s up more than 60% off the early-March lows, yet still remains about 36% off the all-time high set in Oct. 2007.

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