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3 hr 29 min ago

[BRIEFING.COM] Stocks got rocked Tuesday as a growing sense that Thursday's policy directive will not provide a sense of closure for the market with respect to the Fed's likely stopping point with its tightening weighed on sentiment.

With central bankers beginning their two-day meeting to discuss monetary policy, ongoing uncertainty surrounding what the Fed policy statement will imply about the need for more rate hikes continued to act as an overhang. Couple that underlying sense of nervousness with some dispiriting news on the corporate and mixed economic data and the bears again found some incentives to keep on selling.

Among the nine economic sectors posting losses, Technology turned in the biggest disappointment on a percentage basis and was the biggest drag on stocks due in large part to a 3.8% sell-off in semiconductor. Marvell Technology Group (MRVL 44.14 -7.76) announced a $600 mln purchase of Intel Corp.'s (INTC 18.05 -0.23) communications and application processor business, which underscores the robust end-market demand for smart devices/handsets. Be that as it may, shares plummeted 15% after management said the acquisition will initially be dilutive. Intel's inability to hold onto as much as a 2.3% gain early and eventually lose 1.3% also questioned the growth prospects of the struggling semiconductor space.

Despite the defensive characteristics that typically make Health Care stocks more attractive in a down market was also noteworthy. Aside from the AMEX Pharmaceutical Index slipping into the red for the year with a 1.4% decline, the sector was hit again with continued weakness from medical device makers (e.g. BMET -6.0%, SYK -3.1%, ZMH -4.9%) following the recent issuance of Justice Dept. subpoenas.

The absence of leadership was also realized in Consumer Discretionary, which was noticeably weak across the board. The sector was in focus after Univision (UVN 34.00 +1.97) accepted a $12.3 bln takeover bid, which plays into our positive opinion surrounding the emerging growth opportunities in media. Also providing some early sector support was General Motors (GM 25.90 -1.85), which climbed as much as 2.2% early on as 35,000 hourly workers accepting buyouts better positioned the auto maker to meet job cut targets ahead of schedule. Be that as it may, the stock reversed course after management then warned of difficult year/year sales comparisons this summer and reintroduced 0% financing through early July.

Aside from GM's 6.6% slide taking a toll, oil prices eclipsing $72 per barrel for the first time in two weeks weighed on retailers while homebuilders plunged amid disappointing housing data. Within 30 minutes of the opening bell, May existing home sales fell 1.2% to a 6.67 mln annual rate, which was down 8.25% from their June 2005 peak of 7.27 mln and acted as a reminder that economic growth is slowing. Adding insult to injury, inventories of unsold homes rose 5.5%, leaving a 6 1/2-month supply at the largest level in nine years.

Even though the Treasury market took notice, embracing a cooling housing market as a reason to snap a nine-day losing streak even though the data aren't going to change Thursday's Fed decision, the fact that Fed officials have said housing is at risk of slowing more than expected prevented the rate-sensitive Financials sector from benefiting from a decline in borrowing costs. The yield on the 10-yr note closed at 5.21% while the yield on the 2-yr note closed at 5.25%, matching the projected Fed Funds rate.
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