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2 hr 34 min ago

[BRIEFING.COM] In what was a very volatile day of trading, and shaping up to be another broad-based decline amid growing concerns of more rate hikes leading to a global economic slowdown, actually ended in mixed fashion.

The Dow, which was down as many as many as 173 points (-1.6%) and 8.1% off its May 10th high early in the day, snapped a four-day losing streak by inching into the green as the closing bell sounded. Even though blue chip gains were modest at best, the idea that ongoing consolidation may be overdone left investors revisiting the possibility that Tuesday's three-month low on the Dow (10,890) may be the bottom so many bulls have been hoping for. The Nasdaq and Russell 2000 small cap index, which were down as much as 2.4% and 3.1%, respectively, also pared most of their losses in heavy trading to close just below the flat line.

Be that as it may, the market is still coming to grips with the reality that the Fed intends to raise rates enough to slow the economy significantly. To wit, fed funds futures are currently pricing in a 75% chance of another 1/4% rate hike at the June 29-30 FOMC meeting. Strength in Treasuries, regardless of how the influential PPI and CPI data come out next week, also underscored worries that policy makers will not pause. We still believe the Fed simply needs more time to assess how much impact the previous rate hikes are producing.

With regard to inflation data and economic, President Bush's Council of Economic Advisers announcing some optimistic forecasts late in the day helped counter more hawkish commentary from another Fed official. Within a couple hours after the market opened, Fed Governor Donald Kohn, who was recently nominated as the No. 2 official at the Federal Reserve and largely reflects Greenspan thinking, became the fifth central banker this week to say he's found recent inflation data somewhat troubling. That followed the ECB hiking rates for a third time in six months on the heels of central banks in South Korea, Turkey, and India also raising rates over the past 24 hours, roiling markets around the world. Nevertheless, investors took upbeat commentary from White House economists to mean that things might not actually be as bad as the market's have priced in of late. They said the U.S. economy will accelerate from last year's pace of 3.2% to 3.6% in 2006 but that inflation will remain tame, with CPI now expected to rise 3.0% this year, down from 3.7% in 2005.

In terms of industry strength, Energy recovered the most ground, closing up 0.8% to pace sector gains after nearly matched yesterday's 3.3% pullback. Even though oil prices still closed lower after confirmation of terrorist leader Abu Musab al-Zarqawi's death Turning in the next best performance was Consumer Staples, benefiting largely from a 2.8% surge in Procter & Gamble (PG 54.74 +1.50) after it backed quarterly forecasts and helped renew some confidence in the growth prospects for blue chips. Technology, though, continued to struggle as it remains to be seen if the Fed has gone too far and the market continues to rethink global economic and earnings growth prospects.
NYSE Adv/Dec 1408/1832...Nasdaq Adv/Dec 1210/1850