Stocks Continue Relentless Decline

Without any prodding from economic reports or corporate catalysts, stocks began the day and the week on a lower footing and spent the entire session in a protracted, broad retreat. If there's any better signal that stocks are on a negative bias, it's a big down day in the absence of news.

Not surprisingly, energy stocks, financials and raw materials were the biggest losers on Monday. These are the same sectors which investors had pumped to extraordinary gains in recent weeks.

The major indices hit their lows of the day around 1:30 pm, but no serious attempt at a rally ever materialized as stocks drifted, closing at or near their lowest levels of the session. The broadest measures - the NYSE Comp. and NASDAQ - were the hardest hit, suffering losses in excess of 3%.

Dow 8,339.01, -200.72 (2.35%)
Nasdaq 1,766.19, -61.28 (3.35%)
S&P 500 893.04, -28.19 (3.06%)
NYSE Composite 5,725.07, -209.17 (3.52%)

The number of advancing issues was dwarfed by declining ones, 5526-961, and new lows surpassed new highs for the 7th straight session, 69-33. Volume was once again a non-factor, remaining at generally sluggish recent levels, though marginally better than last week's levels.

NYSE Volume 6,119,741,000
Nasdaq Volume 2,238,124,250

Commodities responded to the downturn in equities by selling off sharply. Crude oil contracts for July delivery were down $2.62, to $66.93, a two week low. Gold was off $14.70, to $921.50, while silver lost 50 cents, to $13.71.

The declines in both equities and commodities reflects a complete change of sentiment from just a week ago, when all the talk concerned inflation. It seems investors had gotten a bit ahead of themselves regarding not only prospects for a recovery, but for inflationary forces, as well. Deflation remains dominant, as businesses struggle for pricing power. Slack demand across the board, due to stagnant wages, generalized fear of the future and excess household deb burdens, has kept a lid on prices and will likely do so for some time, no matter how much money the Fed attempts to pump into the economy.

A report by the World Bank, which sees the global economy shrinking by 2.9% may have contributed to the dour tone on Wall Street, though european bourses were already trading lower prior to the release. The general mood is one of resignation that the recession will continue through most, if not all, of 2009, and recovery will be tepid, at best.

Noting that, prospects for individual companies are being reassessed. The process of unwinding the gains tacked on from March through June is now well underway. The Dow has shed 460 points since closing at 8799 on June 12, a span of just 6 sessions.