MarketView for June 22

Summary  

With virtually no economic news to support prices and the Federal Reserve beginning its two day open Market Committee meeting on Tuesday and a negative report on world growth from the World Bank, it was no surprise when share prices turned in their worst one-day loss in two months. The S&P 500 found itself back in negative territory for the year, the result of a broad-based sell-off, as investors reconsidered the health of the economy. Shares of economically sensitive sectors such as financials, energy and materials led the decline.

A sharp drop in crude oil futures and other commodities hit shares of companies sensitive to those prices, including Exxon Mobil, which lost 3.1 percent to close at $68.84, and Chevron, which closed down 3.4 percent at $65.76.

While lower crude oil prices tend to be a positive for the broader stock market, they often hurt shares of energy companies by giving investors a reason to unload some holdings in that sector.

Crude oil prices fell $2.62, or almost 4 percent, to settle at $66.93 a barrel.

Share prices have been trading sideways in recent weeks and many investors have speculated that more obstacles were in store for stocks. Underscoring worries about the economy's outlook, the World Bank said prospects for the global economy remain "unusually uncertain" as it cut 2009 growth forecasts for most economies.

Meanwhile, it was the worst day for the three major equity indexes since April 20 when results from Bank of America reignited concerns about the banking industry. Metal prices also slid, dragging down shares of resource companies. Freeport-McMoRan Copper & Gold closed down 11.3 percent to $45.18.

On the Nasdaq, big-cap technology stocks led the decline. Apple's shares fell 1.5 percent to $137.37 even as it said it had sold more than 1 million of its newest iPhone in the first three days of its launch, exceeding expectations.

Adding to a glum economic outlook, Walgreen posted weak quarterly results as consumers focused on buying only necessities. The drugstore chain's stock fell 5.7 percent to close at $29.64.

Crude Oil Prices Down Sharply

Domestic sweet crude oil futures for July delivery fell nearly 4 percent to below $67 per barrel on Monday as the dollar firmed and concerns about the possibility of an economic rebound weighed on the market. The World Bank said prospects for the global economy remained "unusually uncertain" as it cut 2009 growth forecasts for most economies, adding to concerns of a slower turnaround.

Domestic crude for July delivery, which expires on Monday, settled down $2.62 per barrel at $66.93. Brent crude settled down $2.21 per barrel at $66.98. The dollar gained against the euro on worries over the euro zone's economic and fiscal outlook. A stronger dollar can limit the appeal of commodities to investors.

Further weakness came as economic concerns dragged down equities. Optimism over a potential economic rebound had lifted stocks in recent months and helped push crude up from $32.40 in December.

Some support came after Nigeria's main militant group said on Sunday it had attacked three oil installations belonging to Royal Dutch Shell, widening a month-old offensive against the OPEC nation's energy industry.

Data showed implied oil demand in China, the No. 2 consumer, rose 6 percent in May over a year earlier, its fastest growth since August 2008. Surging demand in China and other emerging economies sent oil and other commodities on a six-year rally that peaked when crude topped $147 a barrel last July.

Iran's hard-line Revolutionary Guards threatened to crack down on street protests in the OPEC producer after opposition leader Mirhossein Mousavi called on supporters to stage more demonstrations over the disputed June 12 election.

The American Petroleum Institute will release its weekly stockpile data on Tuesday, while data from the U.S. Energy Information Administration comes out on Wednesday.

Yen and Dollar Move Higher

The yen rose broadly to hit one-month peaks against the euro and Australian dollar as investors kept cutting riskier assets including higher-yielding currencies. The dollar also gained versus the euro and most other major currencies after a broad sell-off in U.S. stocks as doubts grew about a nascent economic recovery, highlighted by a gloomy World Bank report which dampened market sentiment.

Commodity-linked currencies such as the Aussie fell against the dollar and the yen as oil prices remained on the defensive in Asian trading. Traders hesitated to go into two-day Federal Reserve policy meeting this week short on the greenback and ahead of a record sale of U.S. Treasury two-year notes later on Tuesday which could add to market volatility.

The dollar fell as low as 95.19 yen on trading platform EBS, a three-week low, before trading at 95.54 yen, down 0.3 percent from late New York trade on Monday. The euro fell as low as 132.00 yen on EBS, its lowest since late May, and now at 132.32 yen, down 0.4 percent. The euro slid 0.1 percent to $1.3848.