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Disappointing economic data combined with concerns over Greece to drag the markets lower yet again, on Wednesday. This development significantly diminishes the possibility of benchmarks avoiding their seventh straight week of losses. Financials, materials and energy dragged the indices lower while S&P 500 drags closer to dropping below its March low of 1,250.
The losses on Wednesday nearly washed out the gains of the previous day and investors’ fears of the benchmarks posting their losses for seven consecutive weeks for the first time in ten years resurfaced yet again. The Dow Jones Industrial Average (DJIA) receded below the psychological level of 12,000 as it shed 1.5% to settle at 11,897.27. The Standard & Poor 500 (S&P 500) declined 1.7% and the Nasdaq Composite Index dropped 1.8% to finish the day at 1,265.42 and 2,631.46, respectively. The fear-gauge CBOE Volatility Index hit its highest level since March as it soared 17% to settle above 21. However, it has still a great distance to cover to reach 30, a level that signifies investor fear. On the New York Stock Exchange (NYSE) consolidated volumes were 4.2 billion shares, with 92% of shares declining.
The benchmarks recorded their biggest drop since the 1st of June and the S&P 500 inched closer to the March low of 1, 250. All the 10 industry groups in the S&P 500 traded in the red and none of the 30 components of the Dow ended in the green. Just a day after investors drew optimism from a better-than-expected economic report, data on manufacturing and the housing sector dampened investor sentiment.
The monthly survey of manufacturers in the State conducted by the Federal Reserve Bank of New York highlighted further fears about a slowdown in the economic recovery as it reported that the New York Empire State Manufacturing index had fallen to -7.79 in May. The report contradicted economists’ expectation of a reading of 12.1 and therefore the economic surprise was -164.38 %.
Separately, the Federal Reserve reported a 0.1% rise in industrial production in May, lower than expectations of a 0.2% increase. The report termed it as “the second consecutive month with little or no gain. It also stated: “In May, manufacturing production rose 0.4 percent after having fallen 0.5 percent in April. The output of motor vehicles and parts has been held down in the past two months because of supply chain disruptions following the earthquake in Japan.
Meanwhile, the Labor Department reported the quickest pace of increase in consumer inflation in nearly three years in May. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) jumped 0.2% in May and the all items index jumped 3.6% over the last year. Excluding food and energy, the index recorded its largest increase since July 2008, increasing 0.3% in May.
The housing sector also added to investor concerns after the National Association of Home Builder's sentiment survey dropped 3 points this month to 13. Bob Nielsen, the Chairman of the NAHB said: "Roofing, copper, wallboard, vinyl siding and other components have made it extremely difficult to construct a new home and sell it at a price that covers the costs".
Turmoil in Greece also adversely affected the domestic markets. While European officials struggle to forge an aid deal for the country, violence broke out in protest against the new austerity measures for the debt-stricken economy. The ECB said: "The euro area faces a very challenging situation that comes mostly from the interconnection of the sovereign debt crisis and the situation of the banking sector. Greek Prime Minister George Papandreou urgently needs to initiate a five-year program of tax hikes, spending reduction and state property sell-offs so that the nation can continue to receive aid and avoid default. The protestors are seeking a renegotiation of the bailout terms. Euro-zone ministers are scheduled to meet next week to reach an agreement. George Panpandreou said he will be forming a new government on Thursday and will seek a vote of confidence from parliament.
The US Energy Information Administration reported: “U.S. crude oil refinery inputs averaged about 14.9 million barrels per day during the week ending June 10, 243 thousand barrels per day below the previous week’s average. The drop in crude inventories hit crude prices and U.S. light, sweet crude fell $4.56 to close at $94.81 per barrel. This was its lowest settlement since 22nd February and consequently the energy sector traded significantly lower. Among the decliners in the sector were, Chevron Corp. (NYSE:(CVX - Analyst Report), Exxon Mobil Corporation (NYSE:(XOM - Analyst Report), BP plc (NYSE:(BP - Analyst Report), Marathon Oil Corporation (NYSE:(MRO - Analyst Report), Hess Corporation (NYSE:(HES - Analyst Report) and ConocoPhillips (NYSE:(COP - Analyst Report) and they shed 2.2%, 2.1%, 3.5%, 2.4%, 3.2% and 1.8%, respectively.
The financial sector was also affected and the Financial Select Sector SPDR (XLF) fund was down 2.2%. Among the stocks that declined were Bank of America Corporation (NYSE:(BAC - Analyst Report), JPMorgan Chase & Co. (NYSE:(JPM - Analyst Report), Citigroup, Inc. (NYSE:(C - Analyst Report), Wells Fargo & Company (NYSE:(WFC - Analyst Report) and they were down 2.8%, 2.2%, 2.0% and 1.7%, respectively.
Materials declined 2.3% and stocks that were down in the sector included Alcoa, Inc. (NYSE:(AA - Analyst Report), Freeport-McMoRan Copper & Gold Inc. (NYSE:(FCX - Analyst Report), General Moly, Inc. (AMEX:GMO), Thompson Creek Metals Company Inc. (NYSE:TC) and HudBay Minerals, Inc. (NYSE:HBM) and they shed 2.9%, 2.7%, 6.3%, 2.1% and 2.0%, respectively.
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