briefly

Stock Ticker


[BRIEFING.COM] Stocks got rocked Monday after hawkish commentary from Fed Chairman Bernanke late in the day exacerbated early weakness that was sparked by mounting tensions with Iran.

Before the market opened, the absence of notable earnings and economic data placed extra emphasis on surging oil prices. Crude oil futures hit three-week highs near $74 a barrel after Iran's supreme leader Ayatollah Ali Khamenei indicated that a "wrong move" against its nuclear facilities could "seriously endanger energy flow in the region." However, even as oil prices eased a bit and were trading near session lows mid-day, ongoing concerns about the pace of economic growth and whether the Fed can keep inflation under control without going too far with its tightening continued to weigh on sentiment, especially ahead of testimony from Bernanke to the American Bankers Association today about international monetary policy.

At 2:15 ET, the Fed Chairman acknowledged that the "anticipated moderation of economic growth seems now to be under way," which plays into our Neutral market view. Adding insult to injury, though, Bernanke said consumer spending has "decelerated noticeably" in recent months and he also delivered some sobering comments on inflation trends that swayed the market to believe that a tightening at the June 28-29 FOMC meeting is likely. Due to such "unwelcome developments," Bernanke continued by saying, "the Committee will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained."

Prior to Bernanke's remarks hitting the wires, the market was pricing in roughly a 50% probability of another rate hike in June. After Bernanke's comments, the probability increased to as high as 76% and the spread between the 2-yr and 10-yr note yields narrowed to its tightest level since early April, about 5 basis points. The yield on the 10-yr note (-06/32) closed at 5.01%. Further underscoring the nervousness behind the day's drubbing was a 19.3% surge in the VIX (CBOE Volatility Index) -- the "investor fear gauge," which suggested investors are cautiously buying options to hedge against further declines in equities.

Every notable index posted a loss of at least 1.8%, with the Russell 2000 Index suffering the largest blow (-3.2%). Of all 10 sectors losing ground, Energy and Materials paced the way with declines of nearly 3.0% while a 2.0% sell-off in Industrials further underscored profit-taking in this year's best performing areas. The influential Technology sector, amid further deterioration in semiconductor, and the hardware grouping turning negative for the year, was also a drag on the proceedings. Consumer Discretionary was also in focus and nearly halved its 3.5% year-to-date performance after Standard Pacific (SPF 27.39 -2.61) became the latest home builder to discuss softening demand and indicated that it expects to lower its full-year EPS and delivery outlook. The PHLX Housing Sector Index extended its reach into the red for the year and hit a new 52-week low.

Until the Fed Chairman's prepared speech was released, though, investors also found little comfort from the day's only economic report. At 10:00 ET, the May ISM services index dipped to 60.1 from 63.0 in April. This level still reflects solid expansion, but the market was bothered nonetheless since it reflected a deceleration from the prior month. It didn't help matters either that the prices paid component spiked to 77.5, rivaling the all-time high of 78.4 in September 2005. The latter fed into inflation concerns and offered investors no assurance about the Fed's ability to accurately assess the impact of recent rate hikes. The only bright spot on a very dark day for stocks was renewed interest in Office REITs, which paced the way among only a couple of SnP industry groups to trade higher after Brookfield Properties' (BPO 31.16 +0.18) $8.9 bln bid for Trizec Properties (TRZ 28.68 +4.08).
NYSE Adv/Dec 690/2567...Nasdaq Adv/Dec 664/2391

4 hr 19 min ago