Thursday, July 2, 2009

Stocks Hammered on Unemployment Data

Taking its queue from another back-sliding non-farms payroll report, stocks sold off right from the opening bell and finished with a loss rivaling the June 15 and June 22 losses of 28 and 22 points, respectively, the difference being that those prior losses occurred on Mondays, opening weeks, whereas this one ended a week, and was leading into a holiday weekend to boot, an ominous sign.

The data from the Bureau of Labor Statistics (BLS), released an hour prior to the market's opening bell, showed a worsening condition in the labor market, with a loss of 467,000 jobs for the month of June. Expectations were for many fewer job losses, in the range of 385,000. May job losses of were revised positively, to -322,000, from -345,000. The unemployment rate rose to 9.5%. True unemployment, including those whose unemployment insurance had expired without securing a new job, was estimated at 16.5%.

First time claims came in at 614,000 for the most recent week, another blow to the recovery crowd.

President Obama called the numbers, "sobering," while many others were calling the increased unemployment predictable and Obama's recovery plans ineffective. The administration is facing increased pressure to right the economy, as most average Americans are not seeing any improvement in their standards of living, better job prospects or assistance meeting mortgage and credit obligations.

Major indices fell for the third consecutive week, confirming beliefs that the market has made a short term negative turn. The Dow, NASDAQ and S&P all finished within support ranges - 8300, 1800 and 900, respectively.

Factory orders were up 1.2% in May after a revised gain of 0.5% in April, but the employment numbers overshadowed those marginally improved results.

Dow 8,284.21, -219.85 (2.59%)
NASDAQ 1,796.52, -49.20 (2.67%)
S&P 500 897.04, -26.29 (2.85%)
NYSE Composite 5,779.64, -174.37 (2.93%)

Losers beat gainers by a huge margin (5206-1155) and new lows overtook new highs, 59-29. Perhaps the most "sobering" figure was that of the day's volume of trade, which hit levels so low as to ring the liquidity alarm. Markets are so turgid and corrupted, that, in addition to the normal summer slowdown, trading volumes have hit multi-year lows. If US markets cannot be relied upon as providing some degree of flexibility and volatility, traders will seek out more pliant markets.

It is quite possible that the low volume levels are reflective of net outflows from US equities into other markets. This was the fear in Treasuries, though the poor liquidity scenario may have struck Wall Street instead. If that is the case, one could hardly blame an investor for seeking safer havens offering better returns. As the new high-new low indicator has been relevant throughout the market's decline, now volume is becoming more intriguing by the day.

NYSE Volume 626,027,000
NASDAQ Volume 1,955,272,000

Sentiment from the unemployment numbers spilled over into the commodity market, where crude oil stumbled badly, off $2.58, to $66.73. Gold slipped $10.30, to $931.00, with silver finishing lower by 35 cents, at $13.41.

Earnings reports will begin to fill the news hole next week. Judging by current data, some expectations may have to be lowered and the start date for recovery pushed back to a more realistic date, some time next year.

Enjoy the 4th, remembering that the holiday is all about FREEDOM.

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