US Markets Fall Into Correction Territory on Disappointing Jobs Reports

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U.S. markets tumbled on Friday on disappointing jobs reports from the U.S. and the euro zone. The S&P 500 fell 32.29 points or 2.46% to 1,278.04; the Dow dropped 274.88 points or 2.22% to 12,118.57. For the week, the S&P 500 lost 3%, while the Dow dropped 2.7%. The S&P 500 is now in a correction, after falling 10% from its April 2^nd highs. The index also closed below its 200-day moving average for the first time in 2012 on Friday.

Disappointing Jobs Report from the U.S. and euro zone

On Friday, the U.S. May jobs report showed a gain of only 69,000 non-farm positions, which was far lower than the 165,000 that economists expected. In addition, the unemployment rate rose for the first time since July 2011, to 8.2%.

Meanwhile, the unemployment rate in Spain, France, Italy and Portugal also rose in May, causing the unemployment rate in the 17-member euro zone to reach 11%.

Troubles in Spain Continue

On Friday, Spain's central bank announced that in the first quarter, $97 billion euros were pulled from the country's financial sector. The amount is approximately 10% of Spain's GDP. In addition, the yield on 10-year Spanish debt reached 6.63%, as it continued to head towards the dangerous 7% level. Spanish 5-year CDS, which reflects the probability of a default, reached 615 basis points, a historical high.

U.S. Manufacturing Weakens

On Thursday, U.S. first quarter GDP was adjusted downwards to 1.9%. In addition, initial jobless claims was higher than expected, increasing by 10,000 to 383,000. May Chicago PMI fell to 52.7, close to the 50 mark and its lowest level since September 2009.

Looking Ahead to Next Week

A sustained rally in the market in the coming weeks would likely require stimulative measures from the US Federal Reserve. The Fed is scheduled to meet on June 19-20, and an extension of Operation Twist or an introduction of QE 3 would send markets higher by double digits over several months. Some analysts expect the Fed to take action at a later date, in August.  Ben Bernanke is expected to testify before Congress on Thursday, and he might give a hint of how the Fed intends to act.

In the coming week, if euro zone leaders announce concrete measures and few bad news emerge from the euro zone, markets could get an upward bounce as a result of bargain hunting. Regardless of the direction of the market in the coming week, the magnitude of its movement, either upwards or downwards, will likely be large, as volatility increases.

U.S. Markets Fall Ahead of Long Weekend on Spanish Bank Troubles

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U.S. markets fell on Friday on a relatively uneventful day before the long weekend. The S&P 500 fell 2.86 points or 0.22% to 1,317.82. The Dow dropped 74.92 points or 0.60% to 12,454.83. For the week, the S&P 500 ended higher, breaking the index's streak of consecutive declines at 3 weeks. For the week, the S&P 500 gained 1.7%, while the Dow rose 0.6%. The S&P 500 has fallen 5.7% since the beginning of May, but is still up 4.8% for 2012.

Spanish Bank Bankia Seeks Expanded Bailout

On Saturday, Spanish bank Bankia requested $19 billion euros of additional bailout funding from the Spanish government, which was twice as large as what the market expected. As a result, S&P downgraded Bankia and two other banks to a “junk” rating. On Thursday, the Spanish government had decided to completely nationalize Bankia by injecting $9 billion into the bank. However, that amount was determined to be inadequate by Saturday. In addition, the Spanish government injected $4.5 billion euros into Bankia in early May, which brings the entire bailout to a total of $23.5 billion euros.

EU Leaders Meet But Produce No Results

On Tuesday, EU leaders began to meet for a summit in Brussels to resolve the euro zone debt crisis. French President Hollande pushed for the issuance of Eurobonds, which Germany resisted. The market doubted that the meeting would produce any significant results. In addition, Reuters reported that EU officials were instructing EU member nations in preparing for Greece to exit the euro zone. As a result, the Dow fell around 160 points in early trading on Wednesday. Meanwhile, the euro fell to its 21-month low of US$1.2615. By Friday, Germany and France were unable to come to an agreement on Eurobonds, and simply suggested 3 measures to help economic growth.

Facebook Shares Tumble In Second Week of Trading

On Monday, Facebook shares tumbled 11% after Friday's disappointing IPO. The shares closed down $4.20 at $34.03. By the end of the week, FB closed at $31.91, after losing 3.4% on Friday. It hit a intraday low of $30.94 on Tuesday.

Looking Ahead to Next Week

With elections in Greece to be held on June 17^th, it is likely the situation in the country has stabilized until then. While the possibility of Greece exiting the euro zone will provide a negative overhang for stocks, its effect could be small until the election occurs. Meanwhile, most of the euro zone concerns will be focused on Spain, as a result of the Bankia bailout. Investors will be watching to see whether Spain's other banks also require bailouts.

Next week, investors will be watching a long list of economic data to be released in the U.S. Consumer confidence, GDP and May non-farm payrolls reports will be released. Better-than-expected economic data from the U.S. could send markets higher next week, if few negative news emerge from the euro zone.

U.S. Markets Tumble on Greece Euro Zone Exit Concerns

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The S&P 500 fell for a 6^th consecutive day on Friday on euro zone worries, and posted its worst week since November. On Friday, the S&P 500 fell 9.64 points or 0.74% to 1,295.22. The Dow lost 73.11 points or 0.59% to 12,369.38. For the week, the S&P 500 tumbled 4.3%, while the Dow fell 3.5%. The S&P 500 has fallen 7.3% so far in May.

Facebook Records Lackluster Performance After IPO

After its IPO on Friday, shares of Facebook initially rose 10% in early trading. However, it closed just 0.6% above its issue price of $38, at $38.23. The shares almost fell below the $38 level, but were supported by its underwriters.

16 Spanish Banks Downgraded as Euro Zone Concerns Spread

On Friday, Moody's downgraded 16 Spanish banks by 1 to 3 notches, as concerns about Greece spread to other PIIGS nations. Meanwhile, with the increasing threat of Greece leaving the euro zone, S&P downgraded Greece on Friday, from B- to CCC.

Spanish Debt Yields Hit Record Highs

On Thursday, Spain auctioned $2.5 billion of 3- and 4-year government bonds. The yield on the 4-year bonds was 5.106%, much higher than the 3.374% at the last auction. As a result, the yield on 10-year Spanish bonds rose to 6.38%, and its spread versus German debt rose to 500 basis points.

Greeks Rush To Withdraw Deposits from Banks

With the increasing threat of Greece leaving the euro zone, Greeks have been rushing to withdraw money from banks. On Monday, Greeks withdrew $700 million euros from Greek banks. The situation was similar on Tuesday. This caused the euro to fall to US$1.2688 on Wednesday, and the yield on Spanish 10-year debt to hit 6.51%.

Looking Ahead to Next Week

With the severity of the euro zone crisis increasing, markets will likely continue to fall until the situation in Greece is resolved, either with a temporary solution by the ECB/EU/IMF or through exiting the euro zone. G8 leaders have been meeting this weekend, and investors will look to see if there are any concrete measures announced next week. Meaningful action by the G8 would provide markets with a boost. Investors will also be looking at the German, French and euro zone PMIs to gauge the health of the euro zone economy. In addition, Germany's Ifo for business sentiment will shed light on the strength of Europe's leading economy.

 

U.S. Markets Post Biggest Weekly Drop of 2012

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U.S. markets tumbled on Friday on a weaker-than-expected jobs report, and weak economic data from the euro zone. On Friday, the S&P 500 dropped 22.47 points or 1.61% to 1,369.10. The Dow tumbled 168.32 points or 1.27% to 13,038.27. For the week, the S&P 500 fell 2.4%, for its worst weekly performance in 2012.

Disappointing April Jobs Report

The jobs data responsible for Friday's market tumble was the U.S. April jobs report, which showed a gain of only 115,000 jobs. It was 55,000 less than the 170,000 jobs that economists expected. In addition, job gains decreased for the third month in a row. Even though the unemployment rate fell to 8.1%, it was due to 342,000 people giving up looking for work.

Euro Zone PMI Disappoints

On Friday, the Eurozone Services PMI from Markit showed a reading of 46.9 in April, which was significantly lower than the 49.2 in March. It indicated a deeper recession for the euro zone. In addition, France and Greece were heading into elections in the weekend, which added to the uncertainty in the markets.

Yields on Spanish Debt Remains Elevated

On Thursday, 3-year Spanish debt was auctioned at 4.037%, much higher than the 2.89% in the previous auction. Meanwhile, 5-year debt was auctioned between 4.752% and 4.960%, higher than the 4.319% previously.

ADP Shows Weak Private-Sector Hiring

On Wednesday, the ADP jobs report alluded to the disappointing April jobs numbers. The ADP report showed a gain of only 119,000 private-sector positions, much lower than the 177,000 the market expected. In addition, U.S. factory orders in March fell 1.5%, its biggest fall in 3 years. This caused the U.S. markets to open lower on Wednesday.

ISM Data Better Than Expected

Not all economic data this week was weaker-than-expected. On Tuesday, the April ISM reading was 54.8, better than the 53 the market expected. As a result, the Dow rose almost 100 points in early trading.

Looking Ahead to Next Week

Investors will be watching data from China next week, when the country releases inflation, retail and factory numbers. In addition, investors will pay attention to March readings on industrial output in Germany, France, Italy and Spain for a measure of how deep the euro zone recession will be.

Sunday's election defeat of Nicolas Sarkozy in France and the ruling parties in Greece will cause investors to become concerned about how determined the euro zone is in carrying out austerity measures. These election defeats will add to the uncertainty in the markets. With the disappointing jobs data from Friday continuing to weigh on markets, stocks will likely head lower in the beginning of next week. With earnings season winding down, investors will turn their focus back to the euro zone. With uncertainty in the euro zone increasing and what appears to be a deeper recession, U.S. markets will likely head lower next week.

 

U.S. Stocks Record Best 1st Quarter in 14 Years

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U.S. markets ended the quarter on a positive note on Friday. Data showed U.S. consumer spending rose by the most in seven months, while consumer confidence in March reached its highest level in 12 months. On Friday, the S&P 500 rose 5.19 points or 0.37% to 1,408.47. The Dow climbed 66.22 points or 0.50% to 13,212.04.

For the first quarter, the S&P 500 rose 12%, while the Dow gained 8%. It was the best first quarter since 1998 and the best quarter overall since 2009.

Consumer Spending and Consumer Confidence Both Rise

U.S. February consumer spending rose 0.8% from January, higher than the 0.6% increase that the market expected. Meanwhile, the Reuters/University Michigan survey showed consumer confidence in March increased to 76.2, an increase of 0.9%.

Initial Jobless Claims Encouraging

On Thursday, weekly initial jobless claims fell 5,000 from last week to 359,000. It was the lowest level since April 2008, and was another week the figure has remained under the critical 400,000 level.

Housing Market Still Weak

On Tuesday, the S&P/Case-Shiller index fell for the 9^th month in a row, to its lowest level since 2003. However, many market watchers believe the housing market is nearing its bottom.

Ben Bernanke Hints at More Easing

On Monday, while attending a forum, Federal Reserve Chairman Ben Bernanke said that despite the improving job market, much of the improvement has been from companies decreasing the number of people they are cutting, rather than increase in hiring. Thus, the job market has not been keeping up with the improvement in the economy. Analysts believe that Bernanke's statements indicate a possibility that he would conduct further quantitative easing.

Looking Ahead to Next Week

After a very strong first quarter for stocks, markets are experiencing a pause in the rally. Investors will focus next week on the March nonfarm payrolls number. In the subsequent week, the direction of the markets will likely be determined by the earnings season. Investors will likely look at company guidance for effects of Europe's entry into a recession and slowing growth in China on US corporate earnings.

With strong gains in the first quarter, further gains would only materialize if there are strong results during earnings season. In addition, the high price of oil (Brent at $122.88/barrel while WTI at $103.02/barrel on Friday) will likely limit gains in the coming week.

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U.S. Markets Rebound on Euro Strength and Energy Sector

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 U.S. stocks rose on Friday on a stronger euro, as well as strength in the energy and base metals sectors. The S&P 500 gained 4.33 points or 0.31% to 1,397.11. The Dow rose 34.59 points or 0.27% to 13,080.73. For the week, the S&P 500 fell 0.5%, while the Dow dropped 1.2%. It was only the second week this year that the S&P 500 had a down week.

China Growth Concerns Drag Markets

For much of the week, concerns about economic growth in China dragged on markets. On Monday, China's Department of Finance announced that in the first two months of this year, revenues at state-owned companies fell 10% versus 2011. This resulted in sharp losses in the Hang Seng index in Hong Kong and indices in China.

On Thursday, HSBC's China PMI showed a reading of only 48.1 for March, which was lower than the 49.7 in February. It was also the lowest reading in 4 months. Within the index, new orders in March had a reading of only 46.1, lower than the 48.5 in February. Meanwhile, new export orders in March was also below 50, with a reading of 48.7, but was higher than the 47.5 in February. The PMI reading pushed U.S. markets lower on Thursday.

Looking Ahead to Next Week

The relief rally that North American markets experienced since the start of 2012 is clearly over. The market is either in a pause or a pull-back. Markets will likely continue to be dragged lower next week by news from China. On Saturday, China's banking regulator told banks that they had incorrectly classified around 20% of their loans to local governments into the safest category of loans. The re-classification of these loans would require more loan-loss provisions to be set aside, reducing the net income of banks. Thus, that would push banks' share prices and Chinese stock indices lower.

In addition, high energy prices will likely neutralize gains in the US market. On Friday, Brent crude settled at above the $125 mark, at $125.13/barrel (up $1.99). Meanwhile, WTI rose $1.52 to settle at $106.87/barrel. With the summer driving season around the corner, the effect of high energy prices on the economy will be more clearly felt in the coming weeks.