Stock Market News for June 7, 2011

Investor sentiment continued to remain bearish for the fourth straight trading day on Monday, as weak economic data dragged the indices to hit 2.5 months lows. Financials, energy and airline stocks dropped modest points and benchmarks may record their longest losing streak since 2002 if indices close in the red for the week.

The Dow Jones Industrial Average (DJIA) declined 0.5% to settle at 12,089.96. The Standard & Poor 500 shed 1.1% to close at 1,286.17. After losing 479.83 points over the last four trading days, the Dow has now posted its biggest four-day drop since May 2010. Meanwhile, the S&P 500 closed below the 1,300 level for the first time since March 23, 2011. The Nasdaq Composite Index dropped 1.1% to finish the day at 2,702.56. On the New York Stock Exchange, AMEX and Nasdaq, consolidated volumes remained tight at 6.8 billion shares, below the daily average of 7.61 billion. On the NYSE, for every four stocks that declined, only one stock managed to move up. The fear-gauge CBOE Volatility Index (VIX) fell below 18.

Among the 30 Dow components, 23 of them failed to climb up. The seven stocks that managed to gain included Walt Disney Co. (NYSE:DIS - Analyst Report), Intel Corporation (NASDAQ:INTC - Analyst Report), McDonald's Corp. (NYSE:MCD - Analyst Report), Microsoft Corporation (NASDAQ:MSFT - Analyst Report), Procter & Gamble Co. (NYSE:PG - Analyst Report), United Technologies Corp. (NYSE:UTX - Analyst Report) and Wal-Mart Stores Inc. (NYSE:WMT - Analyst Report) and they jumped 0.1%, 0.5%, 0.2%, 0.4%, 0.1%, 0.6% and 0.2%, respectively.

Markets have been down for five weeks now and much of the damage has been brought about by weak economic data. Investor sentiment has remained bearish and no significant data has been released to provide optimism about the economy. With jobs market looking significantly discouraging and the housing sector reflecting a dismal performance, a rapid economic recovery looks unlikely. The next earnings season is more than a month away and for the markets to move up, there is a strong need for encouraging economic data. Volumes have been low for some time now as investors have refrained from showing their faith in the markets.

Meanwhile, commenting on the latest job data reports, Philadelphia Federal Reserve Bank President Charles Plosser said that the weak report does not alter the outlook for the economy and monetary policies may be tightened by year end. He said: “Certainly, the employment numbers that came out in the United States on Friday were disappointing..... But I'm not seeing anything fundamental has changed in my view of the medium term outlook”.

Separately, on Monday, reports of higher capital requirements weighed heavy on the financial markets and also indicated a pullback for the broader markets. In a statement last week, Federal Reserve board member Daniel Tarullo said that the Fed is considering raising the capital requirements and banks will have to keep capital worth 8.4% to 14% of their assets. Most likely, the new decision will attempt to discourage the creation of larger banks through mergers and acquisitions. Confirm these reports, Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable commented: “"It will have a chilling effect on merger activity, especially at the top but also for the smaller guys". A report in the Wall Street Journal paraphrased Tarullo saying: “The biggest financial firms with the deepest roots in the economy should face the steepest additional capital requirements as federal regulators look to discourage mega-mergers and make the broader financial system safer”.

The financial sector was the second worst performer in the S&P 500 and the Financial Select Sector SPDR (XLF) fund shed 1.9%. Among the declining stocks were Bank of America Corporation (NYSE:BAC - Analyst Report), JPMorgan Chase & Co. (NYSE:JPM - Analyst Report), Morgan Stanley (NYSE:MS - Analyst Report), Wells Fargo & Company (NYSE:WFC - Analyst Report) and Citigroup, Inc. (NYSE:C - Analyst Report) and they shed 4.0%, 2.5%, 2.6%, 2.2% and 4.5%, respectively.

Airline stocks also took a beating following a downgrade for industry profits by an international trade group, citing weakening demand and surging fuel prices. Stocks like Delta Air Lines Inc. (NYSE:DAL - Analyst Report), AMR Corporation (NYSE:AMR), United Continental Holdings, Inc. (NYSE:UAL - Analyst Report) and Southwest Airlines Co. (NYSE:LUV - Analyst Report) plunged 3.0%, 3.7%, 3.3% and 2.8%, respectively.

U.S. light, sweet crude shed $1.21 to settle at $99.01 per barrel and the Energy Select Sector SPDR (XLE) fund lost 2.3%. Energy stocks like Valero Energy Corp. (NYSE:VLO - Analyst Report), National Oilwell Varco, Inc. (NYSE:NOV - Analyst Report) and Halliburton Company (NYSE:HAL - Analyst Report) dropped 4.7%, 2.9% and 4.5%, respectively.

Read the full analyst report on DIS

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Read the full analyst report on WMT

Read the full analyst report on BAC

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Read the full analyst report on MS

Read the full analyst report on WFC

Read the full analyst report on C

Read the full analyst report on DAL

Read the full analyst report on AMR

Read the full analyst report on UAL

Read the full analyst report on LUV