MarketView for April 10

Summary

Ouch! It was one of those days on Wall Street that is best relegated to a dim memory. The selloff  accelerated on Tuesday, as both the Dow Jones Industrial Average and the S&P 500 indexes fell for a fifth consecutive day, with the pullback coming on the cusp of earnings season. The major equity indexes each fell more than 1.5 percent, pushing the S&P 500 below its 50-day moving average of 1,372.30, an area viewed as a significant support level that will make or break the current uptrend. Furthermore, the sell-off was the S&P 500's worst since December 8.

Nonetheless, the S&P 500index is still up 8 percent so far this year, as compared with its gain of 12 percent at the end of the first quarter. However, it has fallen 4 percent in the past five sessions, its worst streak since November, as investors questioned the economy's strength and the Fed's inclination to keep easy money flooding into the market.

The declines by the indexes were the largest losses this year in terms of both points and percentage drops. Suffering the most were the industrial and materials names. About 80 percent of shares listed on the NYSE and the Nasdaq ended the day lower. The Nasdaq also slid below its 50-day moving average and closed below 3,000 for the first time since March 12.

Concerns about European debt have resurfaced and could be a catalyst for further declines as the yields on riskier Italian and Spanish debt climbed. Banco Santander fell 3 percent to close at $6.51. On a more cheerful note, Dow component Alcoa saw a 5.4 percent gain to $9.82 in extended trading after the company reported its quarterly results.

With 5 percent of the S&P 500 components having already reported, profits are seen rising 3.1 percent in the quarter, according to the Thomson Reuters Director's Report.

Volume was higher than average, with about 8.18 billion shares changing hands on the three major equity exchanges, a number that was well above last year's daily average of 7.84 billion shares.

The CBOE Volatility Index rose 8.4 percent to 20.39, and was up for the eighth straight day, its longest streak of consecutive gains in nearly nine years. At its session high, the VIX touched 21.06 - up almost 12 percent for the day. 

Friday's soft payrolls report added to the market's uncertainty and recent losses that originated with last Tuesday's minutes from the Fed's March policy meeting. The Fed's minutes were interpreted as showing the central bank was less than keen to implement additional stimulus programs.

Apple fell after reaching a new high of $644 per share to briefly top a $600 billion market capitalization. Its stock later ended the day down 1.2 percent to close at $628.44.

Supervalu closed up 15.2 percent at $6.13 after the third-largest supermarket chain reported better-than-expected earnings and issued a full-year profit forecast above Wall Street's consensus.

Best Buy saw its share price hit its lowest point since December 2008 after Chief Executive Brian Dunn resigned. Dunn is a 28 year veteran with Best Buy. The shares ended the day down 5.9 percent at $21.32, not far above the intraday low of $21.21.

Job O Job Openings Increase

The Labor Department reported on Tuesday that the number of unemployed workers for every job opening fell in February to its lowest since late 2008, pointing to ongoing healing in the still-weak labor market. According to the report, the number of jobs waiting to be filled rose by 21,000 in February to 3.498 million.

Job openings at the end of the month - unfilled, posted vacancies that employers plan to fill within 30 days - help describe demand for labor in the United States. February's data showed that on average there were 3.66 unemployed workers available for every opening. The ratio had shot up to nearly seven in mid-2009 when the economy still languished in recession.

Still, despite the progress made since then - the ratio in February was its lowest since November 2008 - the data shows the labor market's healing process still has a long way to go. The number of unemployed workers per job opening was 1.7 just before the 2007-2009 recession began.

Wholesale Inventories Higher

Wholesale inventories rose solidly in February as petroleum recorded the biggest increase in a year, prompting analysts to raise their estimates for first-quarter economic growth. According to Tuesday’s report by the Commerce Department, total wholesale inventories increased 0.9 percent to a record $478.9 billion after an upwardly revised 0.6 percent rise in January.

Inventories are a key component of gross domestic product changes and the rise in wholesale stocks in February and upward revisions to the prior month's data, saw economists, including those at Goldman Sachs and Barclays, lift their forecasts for first-quarter gross domestic product growth.

"The result implies more inventory building in the first quarter than we had previously assumed," Goldman Sachs wrote in a research note. "We therefore raised our tracking estimate of Q1 GDP growth by two tenths to 2.3 percent annualized. We now expect that inventory accumulation added a small amount to overall GDP growth during the quarter."

Inventories accounted for much of the economy's annual 3 percent growth pace in the fourth quarter. The concern was that businesses would have little appetite to continue adding to stocks, holding back GDP growth in the first three months of 2012.

Data next week on overall business inventories for February could shed more light on how much of a boost restocking will be to first-quarter GDP. First quarter GDP growth estimates now range between 2.2 percent and 2.6 percent.

The value of petroleum stocks jumped 5.6 percent in February, the largest gain since February 2011, after rising 2.8 percent in January. Automobile inventories fell 0.9 percent in February, reflecting strong demand for motor vehicles, after rising 0.6 percent in January.

Even though growth is expected to have slowed in the last quarter, there are no signs of an unwanted piling up of goods, with sales at wholesalers rising broadly in February. Overall sales rebounded 1.2 percent after being flat in January.