Benchmarks on Thursday ended with losses once again guided by
the same old European debt woes. Markets suffered their sharpest
monthly decline in two months and the month-long trend of hovering
in the negative zone also erased most of the Dow's gains so far
this year. Additionally, domestic economic readings were largely
discouraging, which further weighed on investor sentiment. However,
the benchmarks recovered from the days low as a report hinted that
the International Monetary Fund (IMF) was conducting internal talks
over providing rescue funds to Spain.
The Dow Jones Industrial Average (DJI) dropped 0.2% to close at
12,393.45. The Standard & Poor 500 (S&P 500) also lost 0.2%
to finish yesterday's session at 1,310.33. The tech-laden Nasdaq
Composite Index closed 0.4% or 12.02 points lower at 2,827.34. The
fear-gauge CBOE Volatility Index (VIX) slipped 0.3% to settle at
24.06. Consolidated volumes on the New York Stock Exchange, the
Nasdaq and the American Stock Exchange were roughly 8 billion
shares, far higher than this year's daily average of 6.83 billion.
Declining stocks edged past the advancers on the NYSE; as for 50%
of stocks that traded lower, 47% stocks ended in the green.
The benchmarks did not lose out heavily yesterday, but that was
enough to extend the month's losses. With May's losses for the Dow
reaching 6.2% and the S&P 500 and Nasdaq suffering losses of
6.3% and 7.2%, respectively, the benchmarks recorded their worst
performance in many months. While the S&P 500 suffered its
worst month since last September, the Dow and Nasdaq had their
worst monthly performance since May 2010. The month's losses also
washed away a lot of the gains the benchmarks had made so far in
2012. More particularly, May's losses erased three-fourth of the
Dow's first quarter gains and the Dow is just up 1.4% for the year
now. Meanwhile, the S&P 500 and Nasdaq are up 4.2% and 8.5%,
respectively for the year so far.
Markets have suffered such a gloomy month primarily due to
European debt concerns. The month started with a shift in political
dynamics in France and Holland and thereafter Greece struggled to
form a government throughout the month. Greece will be going to
polls once again on June 17 and would look to form a government
thereafter. The country is in dire need of a bailout and these
political uncertainties have taken a heavy a toll even on global
markets. This is because the country now increasingly faces the
prospect of exiting the euro. These heightened fears kept investors
around the globe wary about the devastating consequences. During
this month, a G8 meeting and the meet of European leaders at
Brussels failed to deliver anything concrete regarding the region's
debt issues.
European concerns lingered on even yesterday, and thus the
benchmarks were left languishing in the red. Amidst the
worries, investors were reminded that Spain itself is in need of a
bailout while the country announced plans last week to bailout one
of the largest lenders in Spain, Bankia.
Meanwhile, a report from The Wall Street Journal noted that the
IMF was holding internal regarding bailout funds for Spain. The
report stated: "Discussions are underway within the European
department of the International Monetary Fund to determine the
amount of rescue loans Spain could require in the event that the
country fails to find the funds needed to bailout its third-largest
bank by assets, Bankia SA, people involved in the handling of the
Spanish crisis said Thursday".
However, soon after the IMF rubbished the report and fund
spokesman Gerry Rice commented: "The IMF is not drawing up plans
that involve financial assistance for Spain, nor has Spain
requested any financial support from the IMF". Additionally, IMF
Managing Director Christine Lagarde said: "There is no such plan.
We have not received any request to that effect and we are not
doing any work in relation to any financial support".
The media report and the denial that followed subsequently
guided US markets. This helped the benchmarks pare a large chunk of
the day's losses, but obviously could not prevent their ultimate
decline as European concerns were joined by disappointing economic
readings on the home front.
The U.S. Department of Labor reported that the advance figure
for seasonally adjusted initial claims had increased by 10,000 for
the week ending May 26 from the previous week's revised figure of
373,000 to 383,000. The inflated figure for first-time unemployment
benefit claims was obviously a big negative for the labor market
and the broader economy. Moreover, the reported figure was
significantly higher than the consensus expectation of 371,
000.
Separately, according to the "second" estimate released by the
Bureau of Economic Analysis the nation's GDP expanded at a slower
pace during the first quarter 2012 compared to the earlier quarter.
The report noted: "Real gross domestic product -- the output of
goods and services produced by labor and property located in the
United States -- increased at an annual rate of 1.9 percent in the
first quarter of 2012 (that is, from the fourth quarter to the
first quarter…In the fourth quarter of 2011, real GDP increased 3.0
percent".
Additionally, a report compiled by the Purchasing Managers
Association of Chicago said business conditions in the Chicago
region was down to the lowest level since September 2009. The
Institute for Supply Management-Chicago business barometer was down
to 52.7 in May from 56.2 in April. This was well behind consensus
estimates of a reading of 56.9.
Coming to the sectors, the financial sector luckily ended higher
with Financial Select Sector SPDR (XLF) climbing 0.6%. Among the
companies, Bank of America Corp (NYSE:
BAC
), Citigroup Inc. (NYSE:
C
), JPMorgan Chase & Co. (NYSE:
JPM
), Goldman Sachs Group, Inc. (NYSE:
GS
), Morgan Stanley (NYSE:
MS
) and Wells Fargo & Company (NYSE:
WFC
) jumped 2.1%, 2.0%, 0.6%, 1.2%, 2.1% and 1.1%, respectively.
However, the tech sector was not as lucky and the Technology
SPDR (XLK) was down 0.4%. As for the tech shares, Apple Inc.
(NASDAQ:
AAPL
), Dell Inc. (NASDAQ:
DELL
), Google Inc (NASDAQ:
GOOG
) and Microsoft Corporation (NASDAQ:
MSFT
) dropped 0.3%, 1.8%, 1.3% and 0.5%, respectively.
APPLE INC (AAPL): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
DELL INC (DELL): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
MORGAN STANLEY (MS): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis
Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research