[BRIEFING.COM] Stocks closed lower Monday after CNBC reported that Fed Chairman Bernanke said the media misunderstood his congressional testimony last week.
Before the market opened, however, investors found some comfort after Wal-Mart (WMT 45.96 +0.93) reported a preliminary 6.8% rise in April same-store sales. That growth exceeded prior forecasts of 4-6% growth and set the stage for a plethora of retailers expected to report strong monthly figures later in the week. Also suggesting that high gas prices still aren't slowing down the consumer was a larger than expected 0.6% increase in March personal spending accompanied by the biggest increase (+0.8%) in personal income since September. The March core PCE deflator -- the Fed's primary inflation indicator, though, rose 0.3%. That was the largest increase since October and pushed the year-over-year increase to 2.0% from 1.8%, raising worries about mounting inflationary pressures.
More incoming economic data showed that overall construction activity had yet to slow down and that national manufacturing activity remains robust, exacerbating early nervousness among bond traders that initially failed to pour over into the equity markets since the reports only represented one month of data and reflected underlying economic strength. Nevertheless, renewed uncertainty over Fed policy going into the close, fueled by CNBC reporting that Bernanke said the market should see him as being "flexible, not dovish," lent some credence to our skeptical view about further tightening and that there is still no clear end in sight to the uptrend in interest rates.
Like we mentioned last week, we believe the market got too excited by Bernanke's testimony for the simple reason that a "pause" implies that there will be a subsequent rate hike. When it was all said and done Monday, the yield on the 10-yr note (-20/32) was near 4-year highs at 5.137%, weighing heavily on overall sentiment, especially the influential Financial sector. Without leadership from the rate-sensitive Financials, further consolidation in Technology, and the only significant buying support coming from two less influential sectors -- Energy and Materials -- that were also buoyed by rising commodities prices, concerns which play into our Neutral market view, the indices were unable to hold onto modest intraday gains. NYSE Adv/Dec 1469/1788...Nasdaq Adv/Dec 1139/1903
DOW Price at posting:
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