[BRIEFING.COM] Stocks closed at their worst levels of the day, snapping a three-day winning streak and positioning the broader market for its worst monthly performance in nearly two years as renewed inflation fears prompted broad-based consolidation. All 10 economic sectors lost at least 1.0% as the Nasdaq paced the way lower among the majors with a decline of 2.0% that pushed the tech-heavy index back into the red for the year.
With the market still extremely sensitive to weak economic data since the Fed's last rate hike on May 10th, Wal-Mart (WMT 48.41 -1.24) attributing higher gas prices to a May sales gain of only 2.3%, which was at the low end of a previously guided range of 2-4%, piqued concerns about the pace of consumer spending. Even though weak economic data recently had some positive implications on the hopes that it might lead the Fed to end their rate hike cycle, weak data today were taken at face value for their bearish implications for earnings growth.
Playing into concerns about consumption was a 6% drop in May Consumer Confidence -- the biggest decline since last September. Although the index does not correlate well with consumer spending and had little initial impact on stocks, investors were bothered by the idea that the report's detail showed a much less-confident outlook for the next 6 months -- concerns we've echoed since lowering our market view rating to Neutral in February.
Despite another decline in the greenback, which typically makes dollar-denominated commodities more attractive, the Materials sector turned in the day's worst performance as falling gold and copper prices sparked more profit-taking. The dollar chalked up its biggest loss against the euro in six weeks amid uncertainty as to whether or not Goldman Sachs Group (GS 149.91 -3.03) CEO Henry Paulson, who was tapped by President Bush this morning to replace John Snow as Treasury Secretary, can tactfully defend the Bush administration's dollar policy without undermining investor confidence.
Benefiting from the weaker dollar, though, was oil, which closed above $72 a barrel amid continued nuclear tensions with Iran but fueled concerns about escalating gas prices, especially now that the summer driving season has begun. Further underscoring the nervousness was the Energy sector's inability to take advantage of oil's 1.1% surge, which merely exacerbated the sense of uncertainty behind the sustainability of recent market gains. Even as Oil & Gas Storage turned in the day's best performance amid reports that an investment group is bidding to take Kinder Morgan (KMI 100.30 +15.89) private for about $13.4 bln, Energy's long-term prospects failed to renew the enthusiasm which has lifted the sector to a year-to-date leading 10.3%.
Consumer Discretionary was also in focus after valuation concerns prompted Deutsche Bank to downgrade General Motors (GM 26.57 -1.51). The year's best performing Dow component, up 48% year-to-date on Friday, relinquished nearly half of last week's upgrade-induced 14% surge. Aside from Autos, Homebuilding was another weak spot for the sector as weakness in the Treasury market lifted the 10-yr yield to 5.08%. Bonds were weak across the yield curve following hawkish remarks from Chicago Fed President Moskow, who told CNBC that inflation is near the upper end of the Fed's comfort zone, at about 2%. NYSE Adv/Dec 761/2519...Nasdaq Adv/Dec 724/2314
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