Sunday, May 8, 2011

US markets tumble on correction in commodities

US markets rose on Friday on an encouraging April payrolls report. The S&P 500 rose 5.10 points or 0.38% to 1,340.20. The Dow added 54.64 points or 0.43% to 12,638.81. For the week, the S&P 500 dropped 1.7%, while the Dow lost 1.3% in a commodities-led sell-off.


Friday's April jobs report showed an increased of 244,000 jobs, the highest in 11 months. Non-farm payrolls made gains that were better than expected. However, the unemployment rate increased from 8.9% to 9.0%.

Markets had dropped on Thursday after initial jobless claims for last week increased 43,000, the biggest jump in 2 years, to 474,000 claims. Initial jobless claims had stayed above 400,000 for 4 weeks straight, causing investors to become concerned about economic growth.

Commodities tumble

Commodities had a massive sell-off this week, caused by concerns about the end of QE2, tightening in China and weak US economic growth. For the week, silver fell 25.6% and oil fell 14.7%. Gold fell the least among many commodities, ending the week down 4.4%.

Commodities have made significant gains since the preamble to QE2 on August 27. With the strong headwinds this week, it was only reasonable that they went through a correction. However, the correction was alarming, with silver's 25.6% fall shocking investors.

Looking ahead to next week

While the markets received positive news on Friday, markets could continue to head downwards or move sideways in the week ahead. Investors might continue to price in weaker US economic growth, which would take the S&P 500 down closer to the 1,250 level.

In fact, troubles continue in the euro zone, with rumblings on Friday about a possible exit from the euro zone by Greece. China may also introduce further tightening measures in the weeks head. In addition, the US housing market has repeatedly shown lower house prices in recent weeks, indicating a double-dip.


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