Wall Street Get Smacked Again – Post-Trading Commentary

U.S. stocks sank, with the Standard & Poor’s 500 Index falling to its lowest level in four months, as slower-than-estimated jobs growth spurred concern the economic recovery may not be as robust as forecast. The S&P 500 Index declined 3.4 percent to 1,064.88. It was the biggest drop on the day of the U.S. Labor Department’s monthly jobs report since at least 1998, according to data compiled by Bespoke Investment Group LLC. The Dow sank 324.06 points, or 3.2 percent, to 9,931.22.

“Those who had been expecting a more robust recovery might be cutting down their projections.”

James Dunigan


The S&P 500 erased its weekly advance after the Labor Department said today that payrolls increased by 431,000 in May, trailing the median economist forecast in a Bloomberg News survey that called for a gain of 536,000. Private employers added 41,000 positions, 139,000 less than estimated.

“The jobs report puts a damper on the growth story,” said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia.

“It’s a victim of the uncertainty that we’ve seen over the last months especially regarding the European situation. Those who had been expecting a more robust recovery might be cutting down their projections.”

Mohamed A. El-Erian, whose firm runs the world’s biggest mutual fund, says stock investors should brace for higher volatility after the jobs report.

“Investors should keep their seat belts on and tight,” El-Erian, chief executive officer of Pacific Investment Management Co, wrote in an e-mail to Bloomberg News.

“The disappointing jobs report is further evidence that drivers of self-sustaining private consumption growth are facing structural problems that result in slow income growth, reduced credit availability and lower ability to monetize wealth.”

The Euro sank below $1.20 for the first time since March 2006, to $1,19550,  amid speculation the European fiscal crisis may be spreading into the financial system.

A Defining Moment

“Every now and then, what starts out as an apparently isolated incident of tragedy or stupidity turns out to be one of those defining events in history. A morning in September at the start of the decade turned out that way, when what seemed, at first, to be an errant act of navigational aerial stupidity turned out to be an initial salvo of terrorism.”

“Now, we have what started out as a human tragedy, the loss of life aboard an offshore rig, turning into a defining moment for the oil industry, national security and domestic oil supply. The BP disaster has turned offshore drilling into a political quagmire, and has destroyed one of our nation’s pillars of domestic oil supply,” analysts at Cameron Hanover writes in a post-trading commentary Friday.

Here’s the rest of the market summary:

“From our perspective, Friday’s biggest story was the Baker‐Hughes report, released after the market closed, which showed half of our nation’s offshore rigs idled. The number fell from 46 to 23, its lowest figure since August, 1993. The moratorium on deepwater drilling gave us our first decline in the rig count in six weeks, and saw it plunge by 29 to 1,506. Gas rigs dropped by 2.1%, or by 20 rigs, to 947. No one has been talking about a “gas spill,” but gas is just the first of what we expect to be many collateral damages.”

“The rig count was not Friday’s motivating force, despite the importance we may read into it. Oil prices dropped steeply, as traders reacted to a collapse in equities, a decline by the euro to less than $1.20, its lowest exchange rate against the US dollar since March, 2006, and an unemployment report which showed much less of an increase in non‐farm payrolls than had been expected. These three factors worked hand‐in‐glove together to generate the huge decline in oil prices.”

“On the charts, crude oil prices had been threatening to break above resistance up to $75.72 on Thursday, but had fallen short of that. Heating oil prices had broken over 203.92, but they finished one point beneath that level, which makes Friday’s decline a technical failure on the charts. That realization seemed to add another element of selling to the mix.”

“From the popularly‐held perspective, Friday’s decline came as the result of the May unemployment figures being disappointing, with a gain in non‐farm payrolls of 431,000 against estimates for a gain of 515,000. Many of the jobs that did materialize came from census bureau positions that are temporary. The euro fell more quickly and sharply after the numbers were released, but it had already been on the ropes because of concerns over Hungarian debt. This was tucked in beside the problems experienced by Greece and others earlier in May. And the US stock market plunged, losing 323.31 points to end at 9,931.97, below the psychologically important 10,000 level.”

“The upshot of this week’s volatile trading is this: US oil demand has increased in recent weeks, but is under pressure by unemployment, which continues to be the millstone weighing around the economy’s neck. Any gains made by the US are being balanced by concerns over European sovereign debt, which has become a can of worms, now that it has been opened. And any hope that consumers might feel cheered by anything has taken a hit with the DJIA breaking below 10,000, a psychologically significant level that leaves investors feeling less wealthy. Oil prices seem to be on the verge of a fresh round of losses. Recent gains now seem to have been part of a rally in a market that is still weak.”

Note: When we do rally or advance for real, the loss of offshore drilling and recent gains in demand now seem likely to lead prices higher. We need to get past everything else, though, first.”

Here’s a copy of the commentary, incl. charts and figures from Cameron Hanover.

Related by the Econotwist:

Rosenberg: “Statistical Illusion Of Recovery”

S&P 500 Drops 3.4% On Disappointing Job Report

Oil Spill Makes Waves

Why Optimists Are Wrong About The Euro Zone

BP Is Drowning In Its Own Oil Spill

Goodbye Keynes – Hello Ricardo!

U.S. Stock Market: Worst Week Since 1940

Merkel, Obama, Sarkozy Have Investors Shitting Their Pants

European Banks: “Leman Times Ten”

Welcome Back to Earth, Mr. Market

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