Stocks Posted Worst Weekly Decline since May

Published on Saturday, 26 June 2010 09:30 Written by TradersHuddle Staff

Weston, June 26th (Tradershuddle.com) – Stocks posted sharp weekly losses, as the market fell for four of the five sessions this week. A Chinese announcement that it will abandon the Dollar peg, sparked confidence in the global economic recovery; but excitement quickly faded after dismal home sales reports and a Fed statement that sparked concern, as policy makers noted financial conditions are less supportive of economic growth.

For the week, the blue chip index lost 2.94%, the S&P 500 index fell 3.65% and the NASDAQ tumbled 3.74%.

At the start of the week, the market started strongly to the upside after news that China will let its currency move more freely, abandoning its Dollar peg sparked a buying effort as material stocks and industrials gained on speculation that this will drive demand from China as the yuan will climb against the greenback.

The bulls saw the Chinese move as a sign of confidence in the global economy spurring demand of riskier assets, which together with strong overseas gains helped pushed the major benchmark indices to gains of more than 1% in early going. But gradual loss of support, and a pullback in material stocks pushed stocks to erase early gains late in the session.

Material stocks had the largest advance among the 10 key S&P 500 sectors, advancing 0.4%, after jumping close to 2% early on. Alcoa (NYSE:AA), the aluminum producer, surged more than 5% on speculation its products will be more competitive than its Chinese competitors as the yuan appreciates.

Meanwhile, consumer discretionary and technology were the worst performing sectors. Technology stocks posted a 0.8% loss as a group, with the tech heavy NASDAQ underperforming the other headline indices. Microsoft (NASDAQ:MSFT), the largest software publisher in the world, was the second worst Dow component, as shares slid 1.85% to $25.35.

Apple (NASDAQ:AAPL), also helped lead technology stocks lower, after posting an all time high of $279.0, earlier. Apple also formally announced the release of its new iPhone software, which was available for download. The new operating system will have the ability of multitasking and better corporate security features.

Energy stocks lost 0.2% as a group, as natural gas fell and Crude oil climbed to a 6-week high, on speculation fuel demand will increase as China’s purchasing power increases with the yuan appreciating gradually. The contract for July delivery gave back early gains as it close 0.8% higher at $77.77 a barrel.

Home Depot (NYSE:HD), the largest home improvement chain, posted the fourth largest percentage decline in the blue chip index and led retailers to the biggest decline among 24 groups in the S&P 500 Index amid concern a stronger yuan will make it more expensive to import goods from China.

On Tuesday, stocks started slightly into the positive side and attempted to push higher as market participants shrugged-off euro weakness and a credit ratings downgrade on Europe’s biggest lender, BNP Paribas. However the move to the upside was halted after the existing home sales report disappointed investors.

Existing home sales for May decreased 2.2% month-over-month to an annualized rate of 5.66 million units, which is less than the expected rate of 6.12 million units per year. Homebuilders, along with the home improvement retailers fell on the news. Home Depot (NYSE:HD), the largest home improvement retail chain in the world, slid 2.61% to $30.61, to post the third largest decline in the Dow Jones Industrial Average.

Choppy and lackluster trade after the existing home sales report gave way to a broad based sell-off in the final hour of trading, with energy stocks hit the worst, falling 2.7% as a group.

Uncertainty regarding the deepwater drilling moratorium sparked volatile trade in the sector and particularly in the drillers, after a judge overturned the moratorium earlier today and later in the trading session, the White House promising an appeal. Crude oil fell on concern the pace of the economic recovery is uncertain as weakness in the housing sector coupled with a struggling labor market will reduce economic growth and fuel demand. The contract for July delivery fell 0.8% to $77.21 a barrel.

Industrial stocks were among the worst performers, as the sector posted a 2.4% loss after investors pushed economic sensitive stocks lower on growth concerns. Caterpillar (NYSE:CAT), the largest earthmoving equipment maker in the world, was the second worst Dow component after its shares fell 2.97% to $64.11. And Boeing (NYSE:BA), the 2^nd largest commercial aircraft maker, fell 2.49% to $66.28, also among the worst Dow components.

Even technology stocks were hit with a 0.9% loss, despite Apple (NASDAQ:AAPL) shares gaining on the day, after Deutsche Bank raised its price target on the stock, while Barclays Capital said a new carrier for Apple's iPhone, will be beneficial for its iPhone 4 product cycle.

Treasuries rallied after the government’s sale of $40 billion in two-year notes produced a record low yield and disappointment over the drop in existing home sales spurred demand for the relative safety of U.S. government debt. The yield on the benchmark 10-year note yield dropped to 3.16%.

Mid week, most stocks fell, with the Dow Jones Industrial Average eking a gain, after new home sales dropped to a rate of 300,000 units, the lowest rate on record, and the Fed kept interest rates unchanged and signaled that financial conditions are not as supportive of economic growth.

Stocks trimmed their losses, without going into positive territory until the release of the policy statement from the Federal Open Market Committee. Policy makers maintained the Fed funds rate at record lows, as expected, and stated that it will keep it at this level for an extended period of time. Concern among market participants grew, as the Fed stated that despite the economic recovery continuing, financial conditions, resulting from the European debt crisis, have become less supportive of economic growth on balance.

The move to the upside after the Fed statement proved to be short lived, as it lacked leadership, with the market stuck in choppy trade for the rest of the trading session. Utilities, Energy, and technology were among the worst performing sectors, with Telecom, staples, and materials in positive territory.

Energy stocks fell 1% as a group, after crude oil fell 1.6% to $76.57 a barrel on an unexpected increase in stockpiles and concern over fuel demand. Chevron (NYSE:CVX), the U.S. second largest energy producer, fell 2.35% to $72.26. Chevron posted the second largest percentage decline in the Dow Jones Industrial Average. And Exxon Mobil (NYSE:XOM), the largest U.S. energy producer, posted the fourth biggest percentage decline in the blue chip index, as shares slid 1.36% to $61.10.

Microsoft (NASDAQ:MSFT), the largest software publisher in the world, was the third worst Dow component, as shares lost 1.79% to $25.31. Microsoft moved to the downside along the tech sector, which lost 0.5%, after investors send Adobe (NASDAQ:ADBE), the publisher of document management software, sharply lower after investor disappointment with the company’s earnings report, which lack the expected profit growth. Adobe posted earnings of 28 cents a share for the 2nd quarter, up from 24 cents in the same period last year.

In currency news, the Dollar fell to its weakest level in a month against the yen and reversed earlier gains versus the euro, as the Fed kept interest rates unchanged.

Treasuries climbed after the Fed statement and the plunge in new home sales. The yield on the benchmark 10-year note fell to 3.12%.

On Thursday, stocks fell for the fourth straight day, as banks dropped on concern over financial regulation and renewed economic jitters regarding the effect of the European debt crisis in economic growth.

Fears financials conditions will hamper economic growth and lackluster economic data pushed the market to the weak side early on. Durable goods orders for May fell 1.1%, which was better than the expected 1.3% decline, and orders less transportation increased 0.9%, which was worst than the 1.3% increase that had been forecast. At the same time, the Labor Department reported that weekly jobless claims fell to 457,000, largely in –line with expectations, with continuing claims falling to 4.5 million.

The lack of inspiration and the fears sparked from yesterday’s dismal home sales and the Fed statement, which said financial conditions are less supportive of economic growth on balance, left the market open to a broad based selling effort, which pushed stocks sharply to the downside.

All 10 major sectors settled in negative territory after an afternoon attempt to trim losses failed. Instead, the broader market finished near its session lows, with major benchmark indices posting their worst performance in the week.

Consumer discretionary, financials, materials, and energy were the worst performing sectors. Financial shares took a hit on concern over the financial overhaul bill, which is in the last stages of negotiation at the House and Senate Conference Committee. And earnings projection cuts in the sector, also weighed heavily. Rochdale analyst Dick Bove lowered its estimates for Goldman Sachs (NYSE:GS), the premier investment-banking firm, citing a slowdown in investment banking, due to a slow economy and a charge for a one-time bonus tax in London. The financial sector fell 2.4%, with Bank of America (NYSE:BAC), the largest U.S. lender, falling 2.66% to $15.02 and posting the fourth largest decline in the Dow Jones Industrial Average after Collins Stewart trimmed its second-quarter profit estimate to 20 cents on expected effects on the financial regulation bill.

Leading the decline, with a 2.5% were the consumer discretionary stocks. Home Depot (NYSE:HD), the largest home improvement retailer, posted the third biggest decline percentage in the blue chip index, as the retailer was downgraded from a Buy to Neutral at Janney Montgomery Scott. The downgrade follows dismal home sales data, which signaled a struggling housing market, which will likely limit the upside potential for the home improvement retailer.

Despite higher crude oil prices, energy stocks posted a 2.1% loss. The energy complex was split with crude oil climbing 0.1% to close at $76.46 a barrel on euro strength. And Natural gas prices dropped 1.1% to $4.75 per MMBtu after an in-line inventory report pulled the prices down from a modest gain in the early going.

At the end of the trading week, most stocks advanced, snapping their recent losing streak at four sessions, as bank stocks surged after congress reached a deal in a watered down financial overhaul bill

The overall market struggled from the start of the trading session, despite the financial sector spiking higher after legislators reached a deal on the final financial regulatory reform bill. The bill, which is expected to pass in the coming weeks, will limit banks proprietary trading, with banks able to retain trading in interest swaps and foreign currency as some participation in hedge funds and private equity funds. The full impact of the bill, is still an unknown, however market participants pushed the sector higher as they see as a positive that the uncertainty regarding FinReg, has been lifted and now, financial institutions will work to try to minimize the impact on the bottom line.

Financial stocks gained 2.8% as a group, with JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC), the Nation’s biggest lender, gaining more than 2.6% and posting some of the biggest gains in the Dow Jones Industrial Average, as the FinReg deal removed an overhang on the sector.

Material stocks also had a strong showing, with a 1.4% gain, led by gold stocks like Newmont Mining (NYSE:NEM), the world’s largest gold miner, which gained 4.6%, as gold prices moved higher partly by the pullback in the Dollar.

The greenback’s decline, helped the afternoon advance by the broader market, but the move was difficult to sustain as stocks turned lower in choppy trading toward the close. Still most stocks advanced with major benchmark indices finishing mixed.

Economic data seemed to have little impact, the final GDP reading for the first quarter showed that the overall economy grew at a slower-than-expected rate of 2.7%. Meanwhile, the final Consumer Sentiment Survey for June from the University of Michigan. It improved slightly to 76.0, which represents the best reading since January 2008.

Industrial stocks also helped by the decline in the Dollar gained 0.6% for the day. Caterpillar (NYSE:CAT), the largest earthmoving equipment maker gained 2.11% to $64.71, posting the fourth largest percentage gain in the blue chip index. Caterpillar’s moved to the upside was partly as the commodity related trade returned.

Crude oil rose the most in two weeks on concern the first tropical storm of the hurricane season may form and disrupt production in the Gulf of Mexico. The gain accelerated as the greenback weakened against the euro. The contract for August delivery increased 3.1% to $78.86 a barrel.

And Treasuries rose, adding to their second straight weekly gain, after a report showed the U.S. economy grew at a 2.7 percent annual rate in the first quarter, less than previously calculated. The yield on the benchmark 10-year note dropped four basis points to 3.11%.

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