Nervous investors with lingering concerns over the European Union’s $1 trillion bailout of its weakest members drove stocks sharply lower on Friday. Some tried to put a “good face” on the week saying that despite the broad selling on Friday, the market had “solid gains for the week.” But for most of the day, the Dow Industrials were down more than 200 points.
Last week, both European stocks and the euro suffered sharp losses, and by week’s end, the euro was trading at $1.2359. The U.S. Dollar Index soared to a new 52-week high with a gain of 0.9% for the day. Friday’s euro selling was mostly blamed on a new report on Spain showing that core inflation for the country had turned negative, which could make it more difficult to work out its debt problems.
The stock markets in Europe were hard hit with the broad-based Stoxx off 2.1% and Germany’s DAX down 3.1%. France’s CAC fell a whopping 4.6%, influenced by rumors that France could lose its AAA status.
All 30 of the Dow Industrial stocks lost on Friday, and 98% of the S&P 500 stocks fell. Financial stocks were hard hit, off 2.7%, and small-cap stocks were rocked with a 2.2% loss.
At the close, the Dow Jones Industrial Average (DJI) was down 163 points to 10,620, the S&P 500 (SPX) fell 22 points to 1,136, and the Nasdaq (NASD) lost 48 points to 2,347.
The NYSE traded 1.5 billion shares with decliners ahead of advancers by 7-to-1. The Nasdaq crossed 725 million shares, and decliners there were ahead by more than 5-to-1.
Crude oil for June delivery fell $2.79 to $71.61 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell to $56.24, off $1.14. After hitting a new all-time high of $1,249.70 an ounce, the June gold contract closed at $1,227.80, off $1.70. The PHLX Gold/Silver Sector Index (AMEX: XAU) rose $1.04 to $183.80.
What The Markets Are Saying
The bulls may want to cling to last week’s paltry gain to bolster their case, but the charts, the indicators, and the foreign markets just don’t support a recommendation to buy stocks now.
Technically last week’s rally failed at its most crucial and most visible line of resistance, the 50-day moving average. And each major index had roughly the same result. After pounding the 50-day for four days, buyers capitulated on Friday, driving down not only the Dow, the S&P 500 and the Nasdaq, but the Russell 2000 (RUT), as well. The Russell, a measure of small-cap performance, fell 2.2% on Friday, and lost 6.3% for the week. The stocks, many of which are technology companies, had been leading the market to new highs, and now they are taking it on the chin. Investors should be worried since it is almost never a good sign to have the leading sector of stocks hit this hard. It usually points to a more serious correction.
As we enter the summer months with “sell in May and go away” ringing in our ears, there is another factor to consider: Q2 earnings season, with its many pleasant surprises, is coming to a close. So the most influential positive on the market this year — earnings — will have to give way to economic, U.S. government and world political news to bolster the markets.
How many of you think we will see a positive impact on stocks from those sources? Waiting for the hobgoblins of October before we make major investments may be the most prudent course for investors since they aren’t nearly as scary as that troubled trio.
Today’s Trading Landscape
Earnings to be reported before the opening include: China Distance Education, Lowe’s and Perfect World.
Earnings to be reported after the close include: Agilent, Giant Interactive and Sina.
Economic reports due: Empire State Manufacturing Survey (the consensus expects 30), Treasury International Capital (TIC) and the housing market index.
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