Stock Market News for May 18, 2012

The Dow and S&P 500 extended their losses into a fifth-straight day and the Nasdaq also took a hammering, as discouraging domestic economic data added to the woes of lingering Greek concerns. The mid-Atlantic region witnessed its first drop in manufacturing activity in eight months and the outlook for US economic growth showed a declining trend for the first time in six months. With these concerns sinking the benchmarks, the Dow suffered its 11th decline in the past 12 sessions and ended at its lowest level since January this year.

The Dow Jones Industrial Average (DJI) dropped 1.2% and ended significantly lower at 12,442.49. The Standard & Poor 500 (S&P 500) slumped 1.5% to finish yesterday’s trading session at 1,304.86. The tech-laden Nasdaq Composite Index crashed 2.1% and closed at 2,813.69. The fear-gauge CBOE Volatility Index (VIX) shot up almost 10% to settle at 24.49. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 8.35 billion shares, sharply higher than the daily average of 6.81 billion. Decliners drubbed the advancing stocks on the NYSE; as for 84% of the decliners, only 13% stocks could move higher. The remaining stocks were left unchanged.

European political uncertainty has taken a toll on global as well as US benchmarks. France has a new government in place and Greece is yet to finalize on one. Germany’s Angela Merkel too has lost a poll recently, which she termed as a "bitter, painful defeat”. All through this week Greek concerns have dampened sentiment overshadowing positives such as encouraging economic readings.

The concerns which have dominated the week are clearly reflected in the performance of benchmarks. So far this week, the Dow, S&P 500 and Nasdaq are down 3.0%, 3.6%, and 4.1%, respectively. Additionally, this was the second near 10% jump for the VIX this week. On Monday, the VIX had jumped precisely 9.95% and has followed it up with an uptrend since then. Yesterday it jumped 9.97% and subsequently the VIX hit its highest level since late December last year.

Amidst ongoing Greek concerns, economic readings have been the only saving grace, though they have failed to rescue markets from their consistent slump. However, yesterday even economic readings were a big disappointment and that ensured a heavy fall for the benchmarks. The Philadelphia Federal Reserve's business conditions index showed a declining trend and was at its lowest level since September last year. The Business Outlook Survey for the month of May noted: The survey’s broad indicators for general activity fell into negative territory for the first time in eight months. Indicators for new orders and employment also suggested slight declines from April”. According to the report, the ‘measure of manufacturing conditions, the diffusion index of current activity,’ was down to ‐5.8 in May from a positive 8.5 in April. This was also contrary to consensus estimates of a reading of 9.4.

Separately, The Conference Board Leading Economic Index contracted 0.1% last month to 95.5. This was the first decline in six months. In March it had rose 0.3% and had registered a 0.7% increase in February. The 0.1% fall was in absolute contrast to the 0.1% uptrend predicted by consensus estimates. Ken Goldstein, economist at The Conference Board, said “The indicators reflect an economy that’s still struggling to gain momentum. Growth is slow, but choppy, and consumers, executives and investors are looking for more progress”.

Meanwhile, first-time claims for unemployment benefits remained unchanged over last week. The U.S. Department of Labor reported: “In the week ending May 12, the advance figure for seasonally adjusted initial claims was 370,000, unchanged from the previous week's revised figure of 370,000”. Consensus estimates had expected initial claims to be around 367, 000.

As for the sectors, the Technology Select Sector SPDR (XLK) slumped 1.5%. Among the tech stocks, Apple Inc. (NASDAQ:AAPL), SanDisk Corporation (NASDAQ:SNDK), Seagate Technology PLC (NASDAQ:STX), Google Inc (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO), and Oracle Corporation (NASDAQ:ORCL) plunged 2.9%, 3.3%, 5.2%, 0.9%, 2.7% and 1.8%, respectively.