Stocks Fall Sharply on Global Recovery Fears

ISM Manufacturing Index fell sharply in May to 53.5 from 60.4 in April, the lowest level in the past 12 months and below the decline to 57.1 that was forecast. However the index remains above the 50 level that denotes expansion, and indicates the overall economy continues to grow. The decline came as new orders fell to 51.0 from 61.7, production decreased to 54.0 from 63.8, and employment fell to 58.2 from 62.7. While the prices paid component fell to 76.5 from 85.5, below the 81.5 forecast, the Committee that compiles the survey said that manufacturers continue to experience “significant cost pressures from commodities and other inputs.”

The ADP Employment Change Report showed private sector payrolls rose by 38,000 jobs in May, versus the forecast of economists surveyed by Bloomberg, which called for a 175,000 increase, and April’s 179,000 job gain was revised to a rise of 177,000 jobs.

Construction spending rose more than expected in April, rising 0.4% month-over-month, versus the 0.3% increase forecast by economists, but March’s initially reported increase of 1.4% was revised to a 0.1% gain. Residential spending led the advance, increasing 3.1%, more than offsetting a 0.8% decline in nonresidential spending.

The Dow Jones Industrial Average plunged 280 points (2.2%) to 12,290, the S&P 500 Index fell 31 points (2.3%) to 1,315, and the Nasdaq Composite declined 66 points (2.3%) to 2,769. WTI crude oil fell $2.53 to $100.17 per barrel, while the Bloomberg gold spot price rose $2.42 to $1,538.15 per ounce.

Personal Income And Spending Rise

Personal income rose 0.4% month-over-month in April, matching expectations of economists surveyed by Bloomberg, and March’s 0.5% increase was revised modestly downward to a 0.4% gain. Also, personal spending was 0.4% higher in April, compared to expectations of a 0.5% advance, and March’s 0.6% rise was revised to a 0.5% increase. The personal savings rate came in at 4.9% for April, matching March’s downwardly revised rate.
The PCE Price Index, which is released with the income and spending data, was up 2.2% year over year in April, inline with expectations, after March’s 1.8% increase was unrevised. The core PCE Price Index, which excludes food and energy, was up month over month 0.2%, matching forecasts, while year over year, core prices moved 1.0% higher, as expected.

The University of Michigan’s Consumer Sentiment Index, was unexpectedly revised higher to 74.3 from the preliminary reading of 72.4 for the month of May, compared to the unrevised level that economists expected. The surprising revision came as the economic conditions and outlook components were adjusted to the upside, while inflation expectations were downwardly revised.

Pending home sales fell sharply, dropping 11.6% month over month in April, compared to the 1.0% decline that economists had projected, and March’s 5.1% gain was revised to a 3.5% increase.

The Dow Jones Industrial Average rose 38 points (0.3%) to 12,442, the S&P 500 Index increased 5 points (0.4%) to 1,331, and the Nasdaq Composite gained 14 points (0.5%) to 2,797. WTI crude oil rose $0.36 to $100.56 per barrel, and the Bloomberg gold spot price advanced $16.88 to $1,536.08 per ounce. For the week, including dividends, the DJIA lost 0.6%, the S&P 500 Index fell 0.2% and the Nasdaq Composite declined 0.2%.

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Major Indices Close Lower For The Week

This week saw mostly disappointing economic data, as the Index of Leading Economic Indicators snapped a nine-month growth streak. Moreover, manufacturing activity slowed, with the Empire Manufacturing Index and the Philly Fed Manufacturing Index both decelerating by much larger amounts than economists had expected, and industrial production came in flat. Meanwhile, housing remained depressed, as housing starts and building permits, existing home sales, and homebuilder sentiment failed to improve as had been projected.


The Dow Jones Industrial Average fell 93 points (0.7%) to 12,512, the S&P 500 Index decreased 10 points (0.8%) to 1,333, and the Nasdaq Composite declined 20 points (0.7%) to 2,803. WTI crude oil closed $1.17 higher at $100.10 per barrel, and the Bloomberg gold spot price increased $20.14 to $1,513.41 per ounce. For the week, including dividends, the DJIA lost 0.7%, the S&P 500 Index fell 0.3% and the Nasdaq Composite declined 0.9%.


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Leading Economic Indicators Rise, Sharp Drop In Philly Fed Index

Philly Fed Manufacturing Index fell sharply, dropping from 43.4 in March, which was the highest since 1984—to 18.5 in April. Economists had expected the index to decline to 36.9, but the report continued to depict expansion in business activity as denoted by a reading above zero. The index fell as new orders dropped 21.5 points to 18.8, while shipments declined 5.8 points to 29.1 and prices paid declined from 63.8 to 57.1. Also, inventories decreased to 1.7 from 12.0 and employment declined 5.9 points to 12.3.

The Conference Board’s Leading Economic Indicators for March rose slightly more than expected, increasing 0.4% month-over-month, compared to the 0.3% rise that economists expected, following an upwardly revised 1.0% gain in February. This was the ninth straight monthly advance for the index, led by increases in building permits, pace of deliveries, and a favorable yield curve.

The Dow Jones Industrial Average gained 52 points (0.4%) to 12,506, the S&P 500 Index was 7 points (0.5%) higher at 1,337, and the Nasdaq Composite added 18 points (0.6%) to 2,820. WTI crude oil rose $0.84 to $112.29 per barrel, and the Bloomberg gold spot price increased $3.25 to $1,505.65 per ounce. For the week, including dividends, the DJIA and the S&P 500 Index were 1.4% higher and the Nasdaq Composite gained 2.0%.

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Major Indices Close Lower After S&P Downgrades US Debt Outlook

Standard & Poor’s downgraded its credit rating outlook on the US from stable to negative, due to uncertainty the US will agree on addressing its deficit challenges. S&P said, “We believe there is a material risk that US policy makers might not reach an agreement on how to address medium-and-long-term budgetary challenges by 2013.”

The Dow Jones Industrial Average lost 140 points (1.1%) to 12,202, the S&P 500 Index was 15 points (1.1%) lower at 1,305, and the Nasdaq Composite declined 29 points (1.1%) to 2,735. WTI crude oil fell $2.54 to $107.12 per barrel, and the Bloomberg gold spot price increased $9.45 to $1,496.33 per ounce.

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Core Consumer Prices Lower, Manufacturing & Sentiment Improve

The Consumer Price Index showed prices at the consumer level were up 0.5% month-over-month in March, matching the forecasts of economists. The core rate, which strips out food and energy, was 0.1% higher month-over-month in March, compared to the estimate of a 0.2% increase, which was the rate of increase seen in February. On a year-over-year basis, consumer prices were 2.7% higher in March, up from 2.1% in February, and the core CPI was up 1.2%, after rising by 1.1% in February.

The Empire Manufacturing Index, a measure of manufacturing in the New York region, rose in April to a level of 21.70, compared to the estimates of economists, which expected a decrease to 17.00, from the previous month’s level of 17.50. The index moved further into expansionary territory depicted by a reading above zero.

March industrial production grew at a faster pace than expected, rising 0.8%, after an upwardly revised 0.1% increase seen in February. Capacity utilization, rose from 76.9% in February to 77.4% in March—the highest level since August 2008, but remained 3.0 percentage points below its average from 1972-2010.

The Dow Jones Industrial Average rose 57 points (0.5%) to 12,342, the S&P 500 Index was 5 points (0.4%) higher at 1,320, and the Nasdaq Composite increased 4 points (0.2%) to 2,765. WTI crude oil rose $1.28 to $109.39 per barrel, and the Bloomberg gold spot price increased $12.98 to $1,487.13 per ounce. For the week, including dividends, the DJIA was 0.3% lower, while the S&P 500 Index and the Nasdaq Composite both lost 0.6%.


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4Q GDP Revised Higher & Consumer Sentiment Lower

The final look at 4Q Gross Domestic Product, the broadest measure of economic output, showed a larger-than-expected rate of expansion, as it rose at a 3.1% annualized rate of growth, compared to the 2.8% increase previously reported, and the 3.0% growth that was forecast. Personal consumption rose 4.0%, down slightly from the 4.1% that was previously reported. The GDP Price Index rose 0.4%, unrevised from the preliminary reading and inline with what economists anticipated, and the core PCE Index, which excludes food and energy, increased 0.4%.

The final University of Michigan Consumer Sentiment Index was revised lower than expected, adjusted to 67.5 from a 68.2 initial reading for March, and compared to the modest decline to 68.0 that economists forecast. The deterioration in the index came as the economic outlook and current economic conditions components were both adjusted downward.

The Dow Jones Industrial Average rose 50 points (0.4%) to 12,221, the S&P 500 Index increased 4 points (0.3%) to 1,314, and the Nasdaq Composite gained 7 points (1.4%) to 2,743. WTI crude oil fell $0.20 to $105.40 per barrel, while the Bloomberg gold spot price decreased $2.60 to $1,428.05 per ounce. For the week, the DJIA gained 3.1%, the S&P 500 Index rose 2.7% and the Nasdaq Composite added 3.8%.

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