Market Snapshot: The Downward Trend Persists for U.S. Stocks
U.S. stocks ended the week on a downward trend, which has persisted for the duration of the week. Investors continue to display a lack of confidence in the prospects of a U.S. recovery. Although the job report revealed that the unemployment rate decreased from 9.7% in May to 9.5% in June, the announcement was not enough to sway investors. Data showing an increase in the median unemployment duration as well as a decrease in the labor force contributed to a labor report that was largely negative.
The Dow fell 0.47% with 8 out of 9 sectors yielding negative returns. Telecommunications (up 0.94%) was the only sector able to escape the red. Basic materials (down 1.08%) led the Dow’s decline followed by industrials (down 0.83%) and consumer services (down 0.68%).
The S&P 500 declined 0.47% or 4.79 points to 1,022.58. Health care (up 0.28%), telecommunications (up 0.17%), and utilities (up 0.04%) all gained on the day. However, the remaining sectors of the index yielded negative returns. Financials (down 1.03%) and consumer services (down 1.01%) spearheaded the S&P’s fall. Industrials (down 0.99%) also struggled.
In Canada, the S&P/TSX stumbled as it fell 0.87%. While consumer services (up 0.53%) and telecommunications (up 0.06%) displayed some promise, it wasn’t enough to overcome the poor performance by the remainder of the index. Basic materials (down 3.29%) struggled as did technology (down 1.81%), consumer goods (down 1.32%), and health care (down 1.28%).
In Europe, most of the major European bourses had relatively strong performances on the day. While the German DAX fell 0.87%, the French CAC 40 (up 0.21%), the London FTSE 100 (up 0.67%), the Spanish IBEX 35 (up 0.79%), and in Italy, the FTSE MIB Index (up 0.69%) gained today.
Into close, the S&P 500 index fell 4.79 points or 0.47% to close at 1,022.58.
The Dow fell 46.05 points or 0.47% to close at 9686.48.
The tech-heavy Nasdaq composite index was down 9.57 points, or 0.46% to close at 2,091.79.
On the economic calendar, the July 2, 2010, BLS report stated that the unemployment rate declined to 9.5% in June from 9.7% in May, as per the household survey. However, the decline reflects a labor force reduction of 842,000, reducing the labor participation rate to 64.7%. The employment-population ratio declined to 58.5%. The long-term unemployment rate (including marginally attached job seekers and workers who are discouraged or part-time for economic reasons) declined to 16.5% from 16.6% in May. Though the unemployment rate peaked at 10.1% in October 2009, analysts expect weak hiring to keep the unemployment rate elevated in the near term.
According to the BLS, the average workweek declined 0.1% in June 2010 to 34.1 hours from 34.2 hours in May, which is a negative for the labor market, since during recoveries firms tend to increase the work hours of existing workers before hiring new ones. Manufacturing weekly hours fell from 40.5 in May to 40 in June while manufacturing overtime hours also fell back in June. Average hourly earnings in June are down 0.1% and a mere 1.7% above June 2009. Weakness in labor income will continue to take a toll on consumer spending.
The median unemployment duration continued to increase in June 2010, rising to 25.5 weeks—a series high from 23.2 in May. Over 45.5% of unemployed workers have been jobless for six months or more, and over 60.3% of the unemployed have been jobless for three months. This raises concerns about the deterioration of human capital.
While a decline in census hiring was a drag on federal government employment, states and local governments continued to shed jobs in June 2010. In June 2010, the construction sector lost 22,000. Employment in manufacturing rose by 9,000, in private services by 91,000, in business and professional services by 46,000, and in health and education by 22,000. The financial sector lost 15,000 jobs while retail lost 6,600 jobs.
Treasury prices fell with the yield on the benchmark 10-year Treasury note up yielding 2.98%, up from 2.95% late Thursday.
In commodity markets, light crude for August delivery is down $0.50, or 0.69% at $72.14 per barrel on the New York Mercantile Exchange. In currency, EUR/USD traded at 1.2566, up from 1.2517 late on Thursday in New York, Cable was quoted at 1.5195, up from 1.5169. USD/JPY traded at 87.75, up from 87.71. USD/CHF was at 1.0627, up from 1.0601, while USD/CAD was quoted at 1.0624, up from 1.0591.
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