MarketView for November 9

 

 

Summary 

 

Wall Street fell for a second day on Tuesday as selling accelerated into the close, led by sharp drop in bank and metal stocks. In a market that was basically overbought, sellers had a number of triggers late in the session to unload shares. The biggest negatives were a sudden decline in the euro and a late-day slump in the Treasury market.

 

Financial stocks, which were already soft, were hit harder as interest rates rose late in the day. Metals and energy stocks, which had been the standout performers, gave up earlier gains after the price of several commodities suddenly began to decline.

 

Shares of the iShares Silver Trust, an exchange-traded fund that tracks the price of silver, fell 3.7 percent on massive volume as more than 150 million shares changed hands, nearly 10 times the average daily volume over the last 50 days.

 

Earlier in the day, CME Group said it was increasing the margin requirements for silver futures contracts to $6,500 from $5,000. The price of silver fell from a 30-year high earlier in the day.

 

Early in the day, gold futures hit a record $1,424.30 an ounce. It was a fourth straight day of record levels.

 

The dollar index .DXY, on the other hand, rose about 1 percent against a basket of major currencies in late afternoon trade.

 

Financial stocks, which helped drive gains last week, led the S&P 500's decline for a second day. Bank of America fell 2.6 percent to $12.27, weighing the most percentage-wise on the Dow Jones industrial average.

 

Deal news supported shares of Yahoo, up 3.2 percent at $16.97, after a report it may be a takeout target. Elsewhere on the merger front, Atlas rose 34 percent to $42.50 after Chevron said it will buy the natural gas producer, giving Chevron a stake in the fast-growing Marcellus shale field. Chevron slipped 1.5 percent to $83.56 and was the top drag on the Dow.

 

Trading volume was about 8.9 billion shares on the New York Stock Exchange, the American Stock Exchange and Nasdaq, compared with the year-to-date daily average of 8.72 billion.

 

Crude Prices Fall

 

The price of crude oil fell on Tuesday, pressured by the dollar's rise and Wall Street's slip after inflation concerns had sent crude prices to a two-year peak. Crude had tried to consolidate above $87 a barrel after last week's monetary easing by the Fed and a better-than-expected jobs report lifted prices above the previous 2010 peak from May.

 

U.S. crude for December delivery settled down 34 cents per barrel at $86.72, retreating from an $87.63 intraday peak. In post-settlement trading crude plunged as low as $85.48. The decline snapped a string of six straight higher closes. Last week, domestic crude prices posted a 6.6 percent gain, the largest percentage weekly gain since last February. ICE December Brent crude settled down 13 cents per barrel at $88.33.

 

Amid expectations that the Fed’s actions to resurrect the economic recovery would fuel inflation and pressure the dollar, crude prices moved higher, along with gold prices. However, the dollar rose against the euro as concerns over Irish and Portuguese debt and bets against the dollar were recognized as being overdone. After crude futures settled, the euro extended its losses and the dollar its gains. Gold futures turned lower as the dollar's rise prompted heavy profit taking.

 

Oil received a lift early from the International Energy Agency's long-term energy outlook. The agency said global oil supplies will near a peak by 2035 and oil prices might exceed $100 a barrel in 2015 and $200 in 2035.

 

Oil prices had little reaction to the Energy Information Administration raising its 2011 world oil demand forecast by 33,000 barrels per day. Meanwhile, weekly inventory reports from the American Petroleum Institute late Tuesday reported crude stocks fell 7.4 million barrels in the week to November 5. The API also indicated that gasoline stocks fell 3.4 million barrels and distillate stocks fell 4.0 million barrels.

 

The closely watched EIA inventory report is set for release on Wednesday at 10:30 a.m. EST.

 

AP Stress Index Falls to 16 Month Low

 

The nation's economic stress fell in September to a 16-month low, thanks to more hiring in New England, fewer foreclosures in the mid-Atlantic and declining bankruptcy filings in the Southeast, according to The Associated Press' monthly analysis of conditions around the country.

 

Eighty percent of the nation's 3,141 counties enjoyed some month-over-month easing of economic pain, the AP's Economic Stress Index shows. So did all but six states: Alaska, Colorado, Kansas, Mississippi, Nebraska and Nevada.

 

Counties with high concentrations of farming, mining, information technology and professional jobs suffered less hardship in September. By contrast, those with heavy proportions of workers in retail and real estate endured more stress.

 

The AP's index calculates a score for each county and state from 1 to 100 based on unemployment, foreclosure and bankruptcy rates. A higher score indicates more economic stress. Under a rough rule of thumb, a county is considered stressed when its score exceeds 11.

 

The average county's Stress score in September was 10, down from 10.3 in August. The last time the average was that low was in May 2009. Just over one-third of counties were deemed stressed in September, down from 40 percent in August.

 

Once again, Nevada had by far the worst Stress score: 21.93. It was followed by California with 16.15. Florida (15.86) overtook Michigan for the third spot. Michigan (15.76) and Arizona (14.9) rounded out the top five.

 

North Dakota remained the economically healthiest state with a score of 3.75. Following along was South Dakota (4.78), Nebraska (5.73) and Vermont (5.89). New Hampshire leapfrogged over Wyoming for the No. 5 spot with a score of 6.79.

 

Hopeful signs have emerged that the lower stress in some sections of the country in September broadened to other areas in October. On Friday, the government said the economy added a surprisingly strong 151,000 jobs last month. That isn't enough to drive down unemployment. But it suggested the economy is making steady progress.

 

Also last week, the Federal Reserve announced a plan to try to invigorate the economy by buying $600 billion more in Treasury bonds. The purchases are intended to force interest rates even lower and start a chain reaction that generates more jobs.

 

A glaring exception to the lower distress in much of the country in September was Nevada. It led the nation in unemployment with a 14.4 percent rate and also was No. 1 in foreclosures: Six percent of homes there were in some stage of the foreclosure process in September. Nevada was also the leader in bankruptcy filings with nearly 3 percent of its taxpayers in the bankruptcy process.

 

Still, some hints suggest the worst is nearing an end in Nevada. Gaming revenue has enjoyed a small upswing. And while Nevada's housing market shows no signs of picking up, prices are starting to stabilize, said Stephen Brown, an economist at the University of Nevada, Las Vegas.

 

Even as the national unemployment rate remained at 9.6 percent in September, New England states benefited from more hiring. Except for Rhode Island (Stress score: 12.08), New England has been recovering from the recession better than much of the nation.

 

The mid-Atlantic states of New Jersey, Maryland, Delaware and New York led the nation in declining foreclosure rates in September. The mid-Atlantic never suffered from the housing crisis as some other regions did and doesn't face the same high hurdles to recovery.

 

The Southeastern states of Tennessee, Kentucky and West Virginia, plus Nevada, saw the sharpest month-to-month declines in bankruptcy filings in September. Those states are among the leaders in bankruptcy filings.

 

The most-stressed counties with populations of at least 25,000 were Imperial County, Calif. (34.04); Yuma County, Ariz. (29.22); Lyon County, Nev. (26.21); Nye County, Nev. (25.56); and Yuba County, Calif. (24.33).

 

The least-stressed were Ward County, N.D. (2.95); Burleigh County, N.D. (3.52); Brown County, S.D. (3.78); Brookings County, S.D. (3.86); and Sioux County, Iowa (4.04).

 

Could Inventory Rise Mean Trouble Ahead

 

According to a Commerce Department report released on Tuesday, wholesale inventories increased by 1.5 percent in September after an upwardly revised 1.2 percent gain in August, suggesting output will remain soft through year-end as businesses try to trim inventories. The increase in inventories in September matched a July gain that was the biggest percentage increase in more than two years.

 

A rebuilding of inventories from record low levels has been a key driver of the economy's recovery from the worst recession since the 1930s, but as the economy cooled over the summer, inventories began piling up on businesses shelves. The government last month said inventory building contributed 1.4 percentage points to the economy's annualized 2 percent growth in the third quarter.

 

It is possible that inventories may have contributed even more to growth than previously estimated, implying a slight upward revision to GDP. However, the relatively high inventory levels suggests that producers may be more inclined to hold the line on output as 2010 winds down since businesses will be better able to meet demand with goods they have on hand.

 

A separate report showed that small businesses in October planned to cut inventories and keep workforces trim. Despite an uptick in optimism, small businesses remained braced for a sluggish economy, the report from the National Federation of Independent Business showed. The business lobby group said its small business optimism index rose 2.7 points to 91.7 in October, the third straight monthly rise.

 

"Unless consumer spending picks up, the demand for new inventory will remain weak," the group said.

 

Sluggish sales lay behind September's inventory gain, with wholesale sales increasing a smaller-than-expected 0.4 percent. The inventory-to-sales ratio, which measures how long it would take to clear shelves at the current sales pace, rose to 1.18 months' worth at September's sales rate, up from 1.17 months in August and the highest in 10 months.

 

A loss of momentum in the U.S. recovery prompted the Federal Reserve last week to launch a controversial $600 billion round of bond buying to provide additional stimulus.

 

Economists anticipate the world's largest economy will grow at an annualized 2 percent pace in the fourth quarter and expand at a sluggish 2.3 percent next year, measured fourth quarter over fourth quarter. More broadly, growth prospects across the world were also unchanged after the U.S. central bank's intervention.

 

Critics of the Fed's hotly debated policy say it will do more to lift already rapidly rising asset prices than growth.