Stocks fade as economic fears take over market

The Dow rises 46; the S&P 500 and Nasdaq end lower. No commitment to stimulus from Fed Chairman Bernanke and a downgrade of Spanish debt dismay investors and may weigh on markets Friday. China cuts interest rates. Gold falls below $1,600.

By Charley Blaine Jun 7, 2012 12:52PM
Charley BlaineUpdated: 3:56 a.m. ET, Friday

What looked like quite a nice stock market rally for most of the day stalled out in late-day trading Thursday.

The Dow Jones industrials ($INDU) finished with a modest gain after rising as many as 140 points in the morning. The Standard & Poor's 500 Index ($INX) and the Nasdaq Composite Index ($COMPX) saw three days of gains end abruptly. The late-day swoon may make for a difficult day on Friday. Crude oil (-CL) in New York and London moved lower in the afternoon. Gold (-GC) fell below $1,600 an ounce

The market had opened sharply higher on optimism built on China's surprising decision to cut interest rates. But the consumer credit report added to disappointment with Federal Reserve Chairman Ben Bernanke's congressional testimony Thursday. Bernanke warned that Europe's financial crisis poses "significant risks to the U.S. financial system and economy and must be monitored closely." But he promised only that the Fed would act if needed. But Wall Street wanted to hear that the Fed was raring to go.

It turned out later that global markets were hoping for more from Bernanke as well and were also upset by a downgrade of Spanish debt. Stocks in Asia were lower Friday in apparent response to the Fed chief's comments. European stocks were mostly lower in early Friday trading; Greece was an exception. Oil and gold futures sagged, and futures trading suggested a down open for U.S. stocks as well.

The Dow closed up 46 points to 12,461, the blue chips' third gain in a row, admittedly a good sign. The S&P 500, however, was down slightly at 1,315. The Nasdaq dropped 14 points to 2,831.

Article continues below.
Technology shares were a contributor to the market fade, with weakness in key stocks such as Oracle (ORCL), Microsoft (MSFT) and Cisco Systems (CSCO). (Microsoft publishes MSN Money.)

Facebook (FB) was off 50 cents to $26.31 after dropping to as low as $26.15. The shares had reached $27.08 in the midafternoon before slipping again.

The Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, was off 11 points to 2,535. The index had been up as many as 24 points. Apple (AAPL), which represents more than 15% of the index's market capitalization, was up just 26 cents to $571.72

What finally pulled the market way back was investor dismay with a report showing consumers took out less credit than expected in April, another signal that the economy is sputtering. The Federal Reserve said that consumer credit outstanding grew $6.5 billion in April, compared with expectations of a $12 billion gain. The Fed said March credit outstanding grew $12.4 billion, down from an original estimate of $21.4 billion,

Financial stocks, especially those of large global institutions, sagged after the Federal Reserve released a proposal to enact an international agreement on higher capital standards for banks, known as Basel III. The proposal largely rejects pleas from the U.S. banking industry to soften parts of the new standards. Morgan Stanley (MS) was among the hardest hit, down 53 cents to $13.41.

After today's close, Fitch Investors downgraded Spanish debt to BBB from A. The agency had previously seen the country benefiting from a mild recovery in 2013, but now sees recession for the next two years. Between that and the cost of recapping the banks, Fitch sees Spain's debt-to-GDP ratio topping out at 95% in 2015, compared with 82% at its last forecast.

Crude oil gives up its gains
Crude oil had reached as high as $87.03 a barrel on the China news but fell back during the day, settling at $84.82, down 20 cents. Brent crude fell back under $100 to $99.55, off $1.09 a barrel.

Natural gas (-NG) futures, heating oil (-HO) and wholesale gasoline (-RB) also fell.

The national average price of gasoline dropped to $3.56 a gallon from $3.565 on Wednesday, said AAA's Daily Fuel Gauge Report. That's down 9.6% from the 2012 peak in early April but still up 8.7% for the year.

Gold settled down $46.20 to $1,588 an ounce. Silver was off 95.9 cents to $28.529 an ounce.

Interest rates were flat; the 10-year Treasury yield was at 1.654%, up very slightly from 1.651% on Wednesday. The dollar was lower against major currencies.

Energy prices -- New York close



Thur.

Wed.

Month chg.

YTD chg.
Crude oil (-CL)

$84.82

$85.02

-1.98%

-14.18%
(per barrel)











Heating oil (-HO)

$2.6671

$2.6717

-1.34%

-8.48%
(per gallon)











Natural gas (-NG)

$2.2740

$2.4210

-6.11%

-23.92%
(per mil. BTU)











Unleaded gasoline (-RB)

$2.6850

$2.6903

-1.38%

1.04%
(per gallon)











Brent crude 

$99.93

$100.64

-1.90%

-6.94%
(per barrel)











Retail gasoline

$3.5600

$3.5650

-1.66%

8.67%
(per gallon; AAA)












Bernanke says the Fed is ready if needed
The Fed chairman's testimony before the Joint Economic Committee was widely anticipated and a disappointment. That may reflect a problem with Wall Street, which was hoping Bernanke would at least hint another stimulus move was near.

The crisis in Europe has affected the U.S. economy, he said, acting as a drag on exports, weighing on business and consumer confidence, and pressuring financial markets and institutions.

But Bernanke basically said the Fed stood ready to stimulate the economy if things deteriorate. But he pointedly did not say that was warranted at this time. Instead, he said the Fed "remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate."

Since the Fed has cut interest rates basically to zero, about all it can do is what it is doing. That's selling short-term Treasury securities and buying longer-term issues. A small program of reinvesting maturing securities, called Operation Twist, is due to expire in June.

The Street was hoping that last week's weak jobs report would be a good-enough trigger, but there are a number of members of the Fed's rate-making body, the Federal Open Market Committee, who fear that the Fed's moves may unleash new bouts of inflation.

What Bernanke did, however, was warn that the fiscal cliff is coming -- where legislation passed last summer would force across-the-board spending cuts while Bush-era tax cuts expire. Rapid cutting of federal spending would trim the economy's sails quite a bit.

What he wants is a fiscal policy that protects the economy now but brings deficits down in the long run. Congress needs to act, he said. The Fed can't do it all.

To push the point further, Fitch Ratings executives warned the ratings agency would downgrade the nation's triple-A credit rating if the government doesn’t get its fiscal house in order. A potential downgrade could send shockwaves through financial markets, similar to how S&P jolted markets last summer when it stripped the U.S. of its top credit rating.

Jobless claims drop for first time in five weeks
Separately, the Labor Department reported that initial jobless claims fell 12,000 in the latest week to 377,000 after four weeks of increases.

The news was better than expected, and some economists expect the weekly numbers to fall in the coming weeks largely because gasoline prices are coming down.

China worries about a softening economy
China’s 25-basis-point (0.25%) cut in benchmark lending rates on Thursday surprised  economists and financial markets. Many economists said they thought the rate cut is a signal the economy is slowing faster than previously thought.

"Policymakers are going all out to shore up the economy," wrote Mark Williams, chief Asia economist at Capital Economics in London.

China has been raising rates fairly steadily since the worst of the 2008-09 financial crisis eased because of worries about an overheated real -estate market. There were two rate increases in 2010 and three in 2011.

China's economic growth was a big reason why markets recovered as rapidly as they did after the 2009 market bottom.

Seven of the 10 S&P 500 sectors were higher, but two of the biggest sectors -- financial and technology -- fell back. Utilities and industrial stocks were the leaders.

United Technologies, Procter & Gamble and Boeing lead the Dow
Sixteen of the 30 Dow stocks were higher, led by United Technologies (UTX), Procter & Gamble (PG) and Boeing (BA). Bank of America (BAC) and Hewlett-Packard (HPQ) were the laggards.

Meanwhile, just 212 S&P 500 stocks were higher. The leaders were utility Exelon (EXC), Goodyear Tire & Rubber (GT) and Marathon Petroleum (MPC). The laggards were networking company Juniper Networks (JNPR), natural-gas producer WPX Energy (WPX) and chip-maker Advanced Micro Devices (AMD).

Only 26 Nasdaq-100 stocks were higher, led by Research In Motion (RIMM) and Baidu (BIDU), the Chinese Internet company, up 38 cents to $10.72 and $3.34 to $122.46, respectively. Seagate Technology (STX) and Randgold Resources (GOLD) were the laggards).

Best Buy and Lululemon shares take a hit
Best Buy's (BBY) shares were down 19 cents to $19.70 after Richard Schulze, its founder and biggest shareholder, said he is resigning as chairman to "explore all available options" for his 20.1% stake in the electronics retailer. He had planned to step aside as chairman in June and leave the board after the 2013 annual meeting.

While a private sale would be the most likely transaction for Schulze’s shares, his public announcement to seek options would imply little interest so far from private equity buyers, Bloomberg News said. The Minneapolis Star-Tribune suggested Schulze ultimately wants to take the company private, but that would require raising $12 billion or so to make a deal work.

Lululemon Athletica (LULU), the Vancouver-based yoga-wear retailer, declined the most in six months after projecting full-year earnings and sales that trailed analysts’ estimates. Lululemon fell $6.18 to $63.84. The shares had soared 50% this year through yesterday.

Full-year profit will be as much as $1.60 per share, the company said Thursday. Analysts had been projecting $1.63. Revenue will total as much as $1.34 billion, a touch less than the consensus estimate of $1.35 billion. In March, Lululemon had projected full-year profit of as much as $1.57 a share on sales of a maximum of $1.33 billion.

Short hits from the markets -- New York close



Thur.

Wed.

Month chg.

YTD chg.
Treasury yields











13-week Treasury bill

0.0800%

0.080%

14.29%

700.00%
5-year Treasury note 

0.715%

0.726%

6.56%

-13.86%
10-year Treasury note

1.654%

1.651%

4.62%

-11.60%
30-year Treasury bond

2.757%

2.720%

3.18%

-4.57%
Currencies











U.S. Dollar Index

82.106

82.379

-1.23%

1.97%
British pound

1.5540

1.5540

0.82%

0.02%
(in U.S. $)

 








U.S. $ in pounds

£0.643

£0.643

-0.82%

-0.02%
Euro in dollars

$1.26

$1.26

1.67%

-3.00%
(in U.S. $)

 








U.S. $ in euros

€ 0.796

€ 0.796

-1.64%

3.10%
U.S. $ in yen 

79.81

79.67

1.60%

3.51%
U.S. $ in Chinese

6.39

6.36

0.13%

1.00%
yuan











Canada dollar

$0.974

$0.973

0.52%

-0.77%
(in U.S. $)

 








U.S. dollar 

$1.028

$1.027

-0.52%

0.77%
(in Canadian $)

 








Commodities

 

 

 

 
Gold (-GC)

$1,588.00

$1,634.20

1.52%

1.35%
(per troy ounce)

 








Copper (-HG)

$3.371

$3.379

0.15%

-1.91%
(per pound)

 








Silver (-SI)

$28.5290

$29.4880

2.78%

2.20%
(per troy ounce)

 








Wheat (-ZW)

$6.4175

$6.2425

-0.31%

-1.69%
(per bushel)

 








Corn (-ZC)

$5.9400

$5.863

6.98%

-8.12%
(per bushel)

 








Cotton 

$0.7129

0.6745

-0.78%

-22.24%
(per pound)

 








Coffee

$1.5840

1.58

-2.79%

-31.03%
(per pound)

 








Crude oil (-CL)

$84.82

$85.02

-1.98%

-14.18%
(per barrel)










 

151Comments
Jun 7, 2012 3:29PM
avatar

A cowboy named Bud was overseeing his herd in a remote mountainous pasture in Montana when suddenly a brand-new BMW advanced toward him out of a cloud of dust.

The driver, a young man in a Brioni® suit, Gucci® shoes, RayBan® sunglasses and YSL® tie, leaned out the window and asked the cowboy, "If I tell you exactly how many cows and calves you have in your herd, will you give me a calf?"

Bud l...ooks at the man, who obviously is a yuppie, then looks at his peacefully grazing herd and calmly answers, "Sure, why not?"

The yuppie parks his car, whips out his Dell® notebook computer, connects it to his Cingular RAZR V3® cell phone, and surfs to a NASA page onthe Internet, where he calls up a GPS satellite to get an exact fix on his location which he then feeds to another NASA satellite that scans the area in an ultra-high-resolution photo.

The young man then opens the digital photo in Adobe Photoshop® and exports it to an image processing facility in Hamburg, Germany ...

Within seconds, he receives an email on his Palm Pilot® that the image has been processed and the data stored. He then accesses an MS-SQL® database through an ODBC connected Excel® spreadsheet with email on his Blackberry® and, after a few minutes, receives a response.

Finally, he prints out a full-color, 150-page report on his hi-tech, miniaturized HP LaserJet® printer, turns to the cowboy and says, "You have exactly 1,586 cows and calves."

"That's right. Well, I guess you can take one of my calves," says Bud.

He watches the young man select one of the animals and looks on with amusement as the young man stuffs it into the trunk of his car.

Then Bud says to the young man, "Hey, if I can tell you exactly what your business is, will you give me back my calf?"

The young man thinks about it for a second and then says, "Okay, why not?"

"You're a Congressman for the U.S. Government", says Bud.

"Wow! That's correct," says the yuppie, "but how did you guess that?"

"No guessing required." answered the cowboy. "You showed up here even though nobody called you; you want to get paid for an answer I already knew, to a question I never asked. You used millions of dollars worth of equipment trying to show me how much smarter than me you are; and you don't know a thing about how working people make a living - or about cows, for that matter. This is a herd of sheep. Now give me back my dog!

AND THAT FOLKS IS WHAT THE PROBLEM IS ALL ABOUT

 

Couldn't have said it better. 

Jun 7, 2012 1:47PM
avatar
There is not much the FED can do.
1. FED makes credit easy.
2. Banks do not lend because they don't think they will get their money back.
3. Borrowers do not borrow because they don't think they can pay it back.
Google for DEFLATIONARY CRASH to understand how the money supply can deflate despite FED's printing press. If Bernanke does not print, it is great depression. If Bernanke prints, then eventually the scared creditors will NOT lend at low rates. Rates will go up despite Bernanke!! That will cause deflation of credit. There is no free ride folks. What was borrowed from the future will be deducted from the economy when the future arrives.
Jun 7, 2012 1:51PM
avatar
Sounds like alot of smart people here,I have asked this question quite a few times over the past couple of years  and would like to know even an educated guess on an answer.How much would the deficit be cut if there was a requirement that all PUBLIC EMPLOYEES ,fed,state and local could retire no earlier than 62 years of age to collect their pensions.I really don't think that's asking to much when everyone else has to work to 62+ for partial s.s. and 65+ to collect full s.s..
Jun 7, 2012 4:35PM
avatar
I can't believe people. I think it is great people are not borrowing as much. Maybe people are learning to live within their means and paying more with cash. Our government and other governments need to learn this.
Jun 7, 2012 2:26PM
avatar

Jimasis said,

 

The economy right now is a house of cards built on a jello foundation.

 

And that foundation is made of lemon jello, because this economy is a lemon waiting to be squezzed.

Jun 7, 2012 1:37PM
avatar

This is such a 'contrived' bunch of BS.  No volume and not one positive worthwhile bit of news to 'warrant' this in the 'markets',  For those that do not know a 'warrant' is tantamount to a piece of junk as in "worthless' and is the ultimate con piece in the financial world.  Our financial institution is entirely broken and 'propping' the markets will not assist it in the least.  In fact, it quite the opposite as future generations , in no way, will be able to endure what they have coming their way. It is disgraceful that is being allowed to happen in our Nation.  It is "sickening",  An entire revamping needs to be done to do away with the manner in which the markets and their 'cronies' operate. It is all going to the 'hit' the fan...and, it will not be pretty.  

Jun 7, 2012 3:46PM
avatar

I suppose many people have watched the movie "War Games".

 

At the end the show the WOPR computer decides that the only way to win the

Tic Tac Toe and  war games is not to play.

 

Well, the only way the politicans and the American people will ever win

the game of politics is not to play. 

 

We must start electing the kind of people that will not play the political game.

 

 

Jun 7, 2012 1:47PM
avatar
The economy right now is a house of cards built on a jello foundation.
Jun 7, 2012 2:18PM
avatar
Deflationary Crash: very good of you to bring this up. Andrew Dickson White refers to it in his book: Fiat Money Inflation In France. A lecture to Congress in 1876 comparing the economy of that time to France's Revolution Era. When you print money without a coordinating Index and allow financiers to use it for paper, you destroy the actual economy. It's like telling the farmer that 10 pounds of his potatoes will be sold for $1 but it costs $2 to grow them. The workforce is displaced, imports take the place of local product and business covers excessive financial grubbing by spiking prices for common goods and necessities on a wholesale basis. Only those equally pushing paper avert the compression in deflation... that's is until one day there is no actual or fiat cash liquidity and no one working on Main Street to generate a revenue stream. It is highly unlikely that our big businesses can survive a Euro failure. The news says they will suffer by not being able to export. Europe's imports are Asian. What the news really means is that both the business and financial sectors are buried deeply in junk bonds and can't get out now that many nations are completely unable to generate revenues. I'd rather be told the truth and deal with it, then to hear more Bernanke hokum. He printed the paper that deflated us. We cannot recover without restoring middle class jobs and middle aged asset stability. Plain out, we either bite that bullet here and now or many times more on a go-forward basis.
Jun 7, 2012 2:49PM
avatar
All of our markets are manipulated by a few, very wealthy individuals.
Jun 7, 2012 3:30PM
avatar

Bernanke has no bullets left. QE 1&2 were a failure and he realizes that more QE will just be more of the same.

China is now doing the same thing by making money cheap. The results will be the same.

The global sowdown is simply a lowering of demand for all products in all countries.

The only thing that all of this easy money is going to result in is hyperinflation which will just lower deamnd even more.

Let the markets decide what money is worth-Not the government and things will normalize-All this meddling is just making this last longer.

Jun 7, 2012 4:48PM
avatar

If the fed was eliminated tomorrow and we (the govt by the people and for the people) did not have to borrow money from it but actually controlled and owned it's own money would save us the taxpayers hundreds of billions of dollars a year in "interest" payments.

 

Eliminate the fed.

Pay off foreign debt

Bring our jobs back home

Live within our means 

Crack down on illegal immigration with a vengance

Never ever return to the mindset that a global economy is a good thing.

avatar

Don't you people understand the game is over???

 

As we are waiting for the Federal Reserve to just prints more monies and hand to the stock market.

 

The BRICS have just concluded a treaty with 20 countries that allow them to trade with each other without having to go thru middle men to exchange their money to dollars then to exchange the dollars to the money their trading partners use.

 

This is going to be a huge saving to the BRICS people and a huge blow to the US dollar.

 

Pretty much China and Russia have declared economic war on the US which we are so ill prepared to fight. What are we going to do attack countries that don't use the dollar to trade with???

 

Soon no one will take our dollars in trade and then we will have to go to their money exchangers and turn our monies into their monies at rates and fees they set not us.

 

DOESN"T ANYONE OUT THERE UNDERSTAND WHAT THIS MEANS???

 

Jun 7, 2012 1:46PM
avatar
China    call for your money the U.S. owes and do not give them any more. 
Jun 7, 2012 1:21PM
avatar
Same story different day. We should set up a pool here and choose the day the lies run out and the house of cards comes crashing down.
Jun 7, 2012 3:39PM
avatar
"But the market gives up some of its gains......" after the Fed said they will not breast feed the wall street parasites this quarter...... typical 3:00-3:30 daily drop  - WAFJ  
Jun 7, 2012 2:20PM
avatar

The US government knocked Gold n Silver down again the Federal Reserve Banking Cartel does NOT want to compete with real MONEY GOLD and SILVER.

Jun 7, 2012 3:43PM
avatar
Bernanke said nothing and the market jumps. Who'd a thunk it? Think he'll learn to keep his mouth shut?
Jun 7, 2012 2:32PM
avatar

Just think if the market rallys again today we might be back to break even from the start of the year.  We are going to get another rally or two until after the Greek elections in a few weeks.  I would advise everyone to sell into these rallys, raise some cash and sit on the sidelines for the summer.  There is going to be some good buying opportunities in August before Bendover starts the presses up again.

 

Don't buy into the myth that this market is up on news from China, Eurpoe or anything else, the rally is strictly from old Bendovers Operation Twister that is due to end this month. 

Jun 7, 2012 4:17PM
avatar
Bernanke to Congress:  It's your turn to act!     Well they have been acting.......like a bunch of children at Romper Room. 
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