MarketView for June 1

Summary  

Wall Street began June on a negative note as share prices collapsed under the downward pressure of energy stocks. The latest failed attempt to halt the oil spill in the Gulf of Mexico and an announcement by the government that it was initiating a criminal probe into the disaster scared investors, who in turn punished the shares of companies directly involved with the spill. At the same time, losses accelerated as the closing bell drew near on the news of the criminal investigation.

BP, which owns the well, tumbled 15 percent. The losses signaled growing frustration over the difficulty of sealing off the worst oil spill in U.S. history.

BP's American Depositary Receipts have now lost about $75.03 billion since the April 20 rig explosion, and the stock has the lowest price-to-earnings ratio of any of the major oil companies as a result of the fall. Halliburton Co, which performed some work on the well, lost 14.8 percent after Goldman Sachs removed the company from its "conviction buy list. Transocean, which owns the rig, slid 11.9 percent to $50.04.

Markets were choppy throughout the day and had earlier found support from data that showed manufacturing expanded for a tenth straight month in May. In addition to the stronger-than-expected manufacturing data, construction spending recorded its largest gain in nearly 10 years in April, government data showed.

Despite the positive economic data, there is concern what the impact of the euro zone's debt crisis will have on global economic growth. Adding to the day’s apprehension was data indicating a more sluggish pace in euro zone manufacturing, while the rate of China's factory output eased.

On the upside, Apple closed 1.5 percent higher at $260.83 after a successful international launch of its iPad prompted the Street to offer up new earnings and sales estimates.

In merger news department, ev3 rose 17.4 percent to close at $22.22 after Covidien Plc agreed to buy the maker of stents and other vascular devices for $2.6 billion. Covidien’s shares slipped 2.7 percent to $41.24.

Regarding the oil spill investigation, the FBI and other federal agencies, will participate.

"If we find evidence of illegal behavior, we will be forceful in our response," U.S. Attorney General Eric Holder said in New Orleans.

Economic Data Continues to Point to Expanding Economy

The economic data released on Tuesday continues to point to an expanding economy with the manufacturing sector growing for a 10th straight month in May and construction spending reaching its fastest pace in nearly 10 years during April. Therefore, it is a pretty good bet at this time that the economy will add jobs and weather Europe's debt storm.

While the expansion in manufacturing was a touch slower than the prior month, the report on Tuesday indicated that the underlying strength in the sector continues as the employment measure reaches its highest level in six years. At the same time, there are fears that spending cuts in Europe, that are needed to address huge budget deficits, could reign in global demand and curb U.S. exports to the region, potentially slowing the our own recovery.

Meanwhile, the Institute for Supply Management's index of national factory activity slipped to 59.7 from 60.4 in April, but was above market expectations for 59.0. Any reading above 50 indicates expansion in the sector. Export orders were the highest since December 1988.

Separately, the Commerce Department reported on Tuesday that construction spending in April rose 2.7 percent, the largest advance since August 2000. That number was well above market expectations for a flat reading and gains were broad-based.

Manufacturing has largely led the economy's recovery from the longest and deepest recession since the 1930s. Consumers are now stepping forward as the labor market improves. A measure of manufacturing employment last month rose to its highest level in six years, boding well for May's closely watched employment report due on Friday.

Economists are upbeat on the labor market's prospects and noted the rise in manufacturing employment, a sector not usually associated with jobs growth, underscored the strength of the sector's recovery.

Factory activity in the euro zone expanded at a more sluggish pace in May from the prior month. In China, manufacturing grew for a 15th straight month, but the rate of expansion slowed from April.

New orders and production at domestic manufacturers held steady last month and inventories fell. However, the backlog of orders increased, which should keep factories busy.

Adding to the positive economic note, construction spending increased across the board in April, with investment in private construction rising for the first time since October. Investment in private construction surged 2.9 percent, the largest increase since July 2004, after declining 0.5 percent in March, the Commerce Department report showed.

Spending was lifted by a 4.4 percent rise in private home building, the biggest gain in six months. At the same time, both new home and nonresidential construction were a drag on first-quarter growth.

Home construction activity picked up in recent months in response to a popular tax credit which required prospective home buyers to sign contracts by April 30 and close them by June 30. A lull is expected in the months ahead.

Private non-residential spending saw its largest increase since September 2008 and investment in public construction was the biggest in 14 months. Spending on state and local government construction projects was the fastest in just over a year. Federal spending on construction projects increased for a fourth month in April.