Market Commentary

07/01/10

Stocks started moving lower near the end of yesterday’s session and today’s data are contributing to increased momentum to the downside.  Bond yields have resumed their daily journey to new lows, the U.S. government now able to borrow money at less than 3% for ten years.  While Treasury yields are at lows, yields could move lower on further economic and equity weakness. 

Lowlights from today’s numbers:

• Initial jobless claims rose to 472,000, or 17,000 more than expected. 
• Continuing jobless claims rose to 4.616 million, 66,000 more than expected and the highest in four weeks.
• The ISM manufacturing survey was weaker than expected at 56.2.
• The prices paid component of the ISM survey unexpectedly fell over 20 points (you’d think lower prices would be a good thing, but lower prices are reflective of decreasing demand).
• Pending home sales fell 30% from prior month.  Expiration of the tax credit is to blame; nevertheless this is an ugly number.

Manufacturing growth in China and Europe also declined in June.  Commodity prices are lower on weaker demand.  Previous stimulus efforts are running their course and next steps are more likely to be austerity rather than increased stimulus.  Austerity is a bitter pill to swallow but many (governments, corporations, and individuals) are realizing that getting their fiscal house in order is the next sensible step.    

Treasury yields at 11:00am EST are as follows:  2-year note 0.60%; 3-year note 0.96%; 5-year note 1.75%, 10-year note 2.89%, and the 30-year bond 3.84%.  The employment report is tomorrow morning at 8:30 EST.  

Dave Filby, CFA