REVIEW OF ECONOMY AND FINANCIAL MARKETS FOR WEEK ENDED JUNE 26 2009

 

 

 

 

Market Statistics

 

                 52 week
            Low High
DowJones (101.34points) (1.19%) to 8438.39   6,547.05 13,058.20                                             
Nasdaq +10.75 points +0.59% to 1838.22   1,268.64 2,549.94
S&P 500 (2.33 points) (0.25%) to   918.90      676.53 1,426.63
Crude Oil ($0.86/barrel) (1.23%) to $69.16   $33.87 $145.29
Gold +$5.10/oz) +0.55% to $940.70   $704.90 $1,001.80
10 Year Tsy (0.287%) to 3.505%   2.04% 4.32%
             
             

 

 

                                                                                                      

 

 

 

 

 

 WALL ST JOURNAL

 

OVERVIEW:

As can be seen from the numbers above, the stock indexes spent the week looking for direction amid contradictory economic news and even more contradictory statements about its direction from the market observers. This largely mirrors ambivalent feelings about the economy at large.

At the opening of the week, the markets dropped across the board as a World Bank Report came across the wires warning the global economy could contract at a rate of 2.9% this year (it’s earlier forecast was for a drop of 1.7%) and could grow at 2% in 2010 versus 2.3% previously. This brought out those fearing deflation and caused stocks and commodities to fall and Treasuries to rise. On Wednesday the Federal Open Market Committee did nothing to change market sentiment by maintaining its existing policy of keeping the target short term federal funds rate low (0%-0.25%) and not boosting Treasury Purchases (up to $300 billion) to keep the long term Treasury rates low . It said the economy “is likely to remain weak for a time”.

There is constant talk about whether there are “green shoots” appearing in the economy and whether we are likely to see a “V”, “U”, “L”, “W” or the latest “WWW” (known as the Internet recession) recovery. The reality is there is no consensus, other than it will not be a “V”. We have talked a lot about the need to see trends to confirm any  meaningful  economic movement one way or the other, but they are just not there. There is too much mixed news at present. If we were to go with our gut feel at the moment, it is on the downside. Why ? Too much consumer pain lingers; hesitance on the corporate side to invest; the banking sector, particularly  regional banks is still in serious financial condition; no effect from the stimulus package on job creation; home prices continue to decline; no global recovery in the works and  proposed legislation whether Cap & Trade or Health Care will likely negatively affect consumers through higher taxes, however they are couched….we could go on.

 

STOCKMARKET:

We talked last week about the importance of the steep drop in the Transportation Average (down 4.21% the previous week ) and this week it rose, but only 1.34%.The KBW Bank Index (which dropped 3.34% in the previous week) dropped a further 2.44% in the past week. This Index is down almost 18% for the year and we will continue to keep a close eye on this barometer of banking health .

We need to keep in mind that when we have seen a major decline across the board, as we saw on Monday when the NASDAQ and the S&P were both down greater than 3%,it has been on declining volume, making the decline less damaging than it might have been. We always want to have consecutive strong up days accompanied by rising volume and consecutive down days  accompanied by falling volume. This tells us how the Institutions look at the market. We have not seen consecutive up days with strong volume to make us optimistic about any sustained market uptrend.

 

COMMODITY MARKET:

Commodities recovered as the week went on as oil initially fell below $67 /barrel for the first time in three weeks based on economic weakness in the US and globally and then rose over $70/barrel based on Nigerian pipeline attacks and a return by investors to more riskier assets (commodities) and away from the safe haven US dollar. We should note that this sentiment in and out of so called safe havens literally changes within a trading week and offers no clear direction for commodities at present-much like the stock market in general.

 

CREDIT MARKET:

This was the one market this past week that established a clearer trend throughout the week. Having rallied early in the week on the World Bank Report and a successful auction of Government debt, Treasury prices continued to rise on a further successful auctions during the week. To quote a market strategist” The Treasury is having relatively few, if any, issues selling it’s debt”. What does that mean? Well,  Treasury prices rise (and yields fall) as demand is strong .There has been a great deal of concern that with so much coming onto the market, the opposite would happen ,that yields would rise, particularly on the barometer 10 Year Treasury (which impacts consumer rates).In fact the yields on the 10 year have fallen to their lowest levels since May.

 

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