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Stock Market News for June 1, 2012

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Benchmarks on Thursday ended with losses once again guided by the same old European debt woes. Markets suffered their sharpest monthly decline in two months and the month-long trend of hovering in the negative zone also erased most of the Dow’s gains so far this year. Additionally, domestic economic readings were largely discouraging, which further weighed on investor sentiment. However, the benchmarks recovered from the days low as a report hinted that the International Monetary Fund (IMF) was conducting internal talks over providing rescue funds to Spain.

The Dow Jones Industrial Average (DJI) dropped 0.2% to close at 12,393.45. The Standard & Poor 500 (S&P 500) also lost 0.2% to finish yesterday’s session at 1,310.33. The tech-laden Nasdaq Composite Index closed 0.4% or 12.02 points lower at 2,827.34. The fear-gauge CBOE Volatility Index (VIX) slipped 0.3% to settle at 24.06. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were roughly 8 billion shares, far higher than this year’s daily average of 6.83 billion. Declining stocks edged past the advancers on the NYSE; as for 50% of stocks that traded lower, 47% stocks ended in the green.

The benchmarks did not lose out heavily yesterday, but that was enough to extend the month’s losses. With May’s losses for the Dow reaching 6.2% and the S&P 500 and Nasdaq suffering losses of 6.3% and 7.2%, respectively, the benchmarks recorded their worst performance in many months. While the S&P 500 suffered its worst month since last September, the Dow and Nasdaq had their worst monthly performance since May 2010. The month’s losses also washed away a lot of the gains the benchmarks had made so far in 2012. More particularly, May’s losses erased three-fourth of the Dow’s first quarter gains and the Dow is just up 1.4% for the year now. Meanwhile, the S&P 500 and Nasdaq are up 4.2% and 8.5%, respectively for the year so far.

Markets have suffered such a gloomy month primarily due to European debt concerns. The month started with a shift in political dynamics in France and Holland and thereafter Greece struggled to form a government throughout the month. Greece will be going to polls once again on June 17 and would look to form a government thereafter. The country is in dire need of a bailout and these political uncertainties have taken a heavy a toll even on global markets. This is because the country now increasingly faces the prospect of exiting the euro. These heightened fears kept investors around the globe wary about the devastating consequences. During this month, a G8 meeting and the meet of European leaders at Brussels failed to deliver anything concrete regarding the region’s debt issues.

European concerns lingered on even yesterday, and thus the benchmarks were left languishing  in the red. Amidst the worries, investors were reminded that Spain itself is in need of a bailout while the country announced plans last week to bailout one of the largest lenders in Spain, Bankia.

Meanwhile, a report from The Wall Street Journal noted that the IMF was holding internal regarding bailout funds for Spain. The report stated: “Discussions are underway within the European department of the International Monetary Fund to determine the amount of rescue loans Spain could require in the event that the country fails to find the funds needed to bailout its third-largest bank by assets, Bankia SA, people involved in the handling of the Spanish crisis said Thursday”.

However, soon after the IMF rubbished the report and fund spokesman Gerry Rice commented: “The IMF is not drawing up plans that involve financial assistance for Spain, nor has Spain requested any financial support from the IMF”. Additionally, IMF Managing Director Christine Lagarde said: “There is no such plan. We have not received any request to that effect and we are not doing any work in relation to any financial support”.

The media report and the denial that followed subsequently guided US markets. This helped the benchmarks pare a large chunk of the day’s losses, but obviously could not prevent their ultimate decline as European concerns were joined by disappointing economic readings on the home front.

The U.S. Department of Labor reported that the advance figure for seasonally adjusted initial claims had increased by 10,000 for the week ending May 26 from the previous week's revised figure of 373,000 to 383,000. The inflated figure for first-time unemployment benefit claims was obviously a big negative for the labor market and the broader economy. Moreover, the reported figure was significantly higher than the consensus expectation of 371, 000.

Separately, according to the "second" estimate released by the Bureau of Economic Analysis the nation’s GDP expanded at a slower pace during the first quarter 2012 compared to the earlier quarter. The report noted: “Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.9 percent in the first quarter of 2012 (that is, from the fourth quarter to the first quarter…In the fourth quarter of 2011, real GDP increased 3.0 percent”.

Additionally, a report compiled by the Purchasing Managers Association of Chicago said business conditions in the Chicago region was down to the lowest level since September 2009. The Institute for Supply Management-Chicago business barometer was down to 52.7 in May from 56.2 in April. This was well behind consensus estimates of a reading of 56.9.

Coming to the sectors, the financial sector luckily ended higher with Financial Select Sector SPDR (XLF) climbing 0.6%. Among the companies, Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS) and Wells Fargo & Company (NYSE:WFC) jumped 2.1%, 2.0%, 0.6%, 1.2%, 2.1% and 1.1%, respectively.

However, the tech sector was not as lucky and the Technology SPDR (XLK) was down 0.4%. As for the tech shares, Apple Inc. (NASDAQ:AAPL), Dell Inc. (NASDAQ:DELL), Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) dropped 0.3%, 1.8%, 1.3% and 0.5%, respectively.

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