Posted by: Howard Silverblatt on May 21, 2010
The market opened the week with little action and sectors trading on their own merits. Tuesday, however, is when the turmoil began, and grew as the week progressed. The accumulating concerns over growth, currencies and debt, combined with current statistics on jobs, the impact of the falling Euro, and new potential financial regulation, to over whelm investors, institutions and hedge funds. In comparison to the Flash Crash, selling was controlled, but the lack of both new money stepping in to buy and little bottom fishing, was no match for the selling, with the market declining 3.90% on Thursday. Friday saw the market open lower, but quickly reversed itself within the first hour and half, as some buyers came back into the market, and the day ending with a 1.50% gain. It was an encouraging close, given that investors typically close out positions over the weekend, and therefore depress prices near the close, but in this case the last half-hour of trading saw the market go up. The damage however was done, and the week ended off 4.23%, with only 39 issues advancing. The loss of 10.65% from the April 23 high now classifies this as the first official correction of the current Bull market, which began on March 9, 2009 (a correction is defined as a 10% decline from the previous high, based on the close). The expected slower growth and stronger US Dollar continued to push down oil, which closed at US $70, a 20% decline from the $87 April month-end close. The lower oil cost will help keep US inflation low, and keep product costs lower (especially for imported Euro component parts), as well as keep gasoline prices down for consumers. Gold, one of the traditional alternatives in declining markets, pulled back to 1178, after running up to 1231 last week, as U.S. Treasures emerged as the flight-to-safety preference. Other news served more as background items, sometimes sparking market reactions, including a poor first-time jobs claim report, an FDIC report that 10% of U.S. banks are classified as troubled, an escalated estimate of the Gulf of Mexico oil spill’s economic and ecological damage, and the likelihood of additional regulatory limits on banking activities. There were positive items as equity analysts increased their 2010 earnings estimates, corporate capital expenditures picked up, and surveys showed that more companies planned to hire this year. Uncertainty, appreciation for risk, and protecting profits, however, ruled the market this week, and most likely will continue to do so for a while.
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