Insights

Market Wrap – A Down Week with Fridays losses making All the Difference

The Dow dropped 76.79 points today turning the week from a 28 point gain into a loss for the week of 48.67 points (-0.5%).  The S&P 500 would have gained 2.25 points for the week but after Friday’s trading took back 8.63 points the week clocks in at -6.38 points (-0.6%).  The Nasdaq 100 was no different losing 17.07 on the day going from up 9 points on the week to a loss of 7.91 (-0.5%) points for the week of August 10-14, 2009.

In last Friday’s Market Wrap, I commented on the 4-up-down cycle we were in.  With this week being week 13, we had a 4 week up run, then 4 weeks down with the last 4 weeks all being up.  We just completed week 13 as a down week and the market seems to be continuing this cycling 4×4 pattern.

8:30 a.m. saw the release of the Consumer Price Index which came in unchanged or 0.0%.  A consensus number of 0.1% was expected and last months number was +0.7%.  With all the fear whirling around out there about the budget deficit and government spending growth sparking inflation this is a number the market would seem to like.

At 9:15 a.m. the industrial production number was released showing an increase of 0.5% with 0.6% expected.  The capacity utilization rate increased from 68 to 68.5 as expected showing an expansion in manufacturing.  The increase was led by motor vehicle and parts manufacturing which was up over 20% with the ex-auto number up just 0.2%.  Overall a decent number and figuring that some auto plants were idled as Chrysler was being bailed out, auto industrial activity should stay higher than the previous month but, the Cash-for-Clunkers program, which cannibalized other retail sales, did provide an artificial non-recurring stimulus that was captured in this number.  This does not bode well for another increase next month.

The market traded lower off the open but at 9:55 a.m. the Reuters/University of Michigan preliminary index of consumer sentiment was released and the Dow dropped 100 points over the next 25 minutes turning the small gain on the week to a loss.  The index was expected to increase 2.5 points to 68.5 showing an increase in how positively consumers view the economy.  The number that came in was down 2.8 points to 63.2.  This number trumped the benign numbers turned in by the other two economic releases today and is regarded seriously by some as consumer spending composes 70% of the economy.  If Joe Shopper feels poor or unstable economically and clams up that wallet, the stores are in trouble.  Less sales means tax receipts go down for the government blowing up the deficit but even worse it means that suppliers that sell to the stores get less orders causing the suppliers to make less money and maybe lay off a few workers, then the newly out of work consumers buy less and clam up their wallets, etc… as the vicious cycle continues.

New York Spot Gold dropped $7.10 an ounce ($947.80, -0.74%, 4:27 p.m.) as the dollar strengthed on the consumer sentiment number.  The PowerShares Dollar ETF (NYSE: UUP), which was trading lower after the open, gapped up at 9:55 after the release of the sentiment number and gained 0.38% on the day.  What could have caused this reversal in the dollar was that the stock market sold off on the news as after the 4 week run we just had, traders immediately shifted into profit taking mode.  At the same time the Treasury market was rallying and money could have been shifting from stocks to bonds in a flight to safety as well as piling into a rallying market while jumping off the ship that had sailed up for 4 weeks.

NYMEX Crude lost $2.97 a barrel (-4.21%, $67.55, 3:57 p.m.) as traders booked profits.  A less confident consumer means less spent everywhere – including the gas station and cutting out any travel that could guzzle oil, i.e. flying.  Usually the airlines rally when oil falls as fuel is their number one cost.  Today the airlines dropped with market as controlling your fuel costs becomes a minor problem compared to flying planes with no passengers.  This breaking of the oil-down/airlines-up pairing, shows that the market sell off was a direct result of the economic weakness indicated by that sentiment number.

The Dow was down below 9260 with 30 minutes to trade but staged a nice rally in the last half hour cutting the loss on the day by 64 points.  Whether or not this was short covering or squaring positions on the week is not known.

The economic numbers that could move markets next week will be the PPI and Housing Starts on Tuesday at 8:30 a.m., MBA Purchase Applications at 7:00 a.m. Wednesday, Jobless Claims Thursday at 8:30 a.m. and Existing Home sales at 10:00 a.m. Friday.  the bond issuance calender is relatively light next week.

So what, we had a down week.  It was not a big down week as we lost less than a half percent.  Go enjoy your weekend.