DIA -1.06%, SPY -1.10%, QQQQ -.28%
10-Year Treasury, rose ¼ to yield 4.17%
Retail sales increased 1.4% last month, twice the expected increase. This led traders to conclude the Fed may increase its pace of rate increases. In addition, Wal-Mart reported weaker sales, indicating lower-income consumers are not as well off as higher-income consumers. Falling oil led the markets to focus on the negative implications on oil companies profits, bidding the energy sector down. This may signal a change in market leadership. Rallies typically occur in specific economic sectors. The energy sector has led the market higher for the past 6-9 months. However, all rallies end. From a technical perspective, the technology sector is clearly oversold, however, market participants may shy away from this sector because of the tech bubble bursting a few years ago. Daisy Colorado commented several diaries ago that the financial hangover from a bust could last decades. While I previously did not ascribe much credence to this point of view, I am beginning to think it has some merit.
The bond market rallied ¼ after the successful completion of the Treasury's $14 billion 10-year auction. Market participants were concerned today's auction might cause problems because it is the third leg of a total $51 billion refinancing occurring this week. However, the indirect participation ration was 31.4%, indicating there is still good foreign demand for US Treasury assets. Also adding today's rally was a traditional flight to quality, as stock investors fled the falling indexes for the Treasury market's safety.
Oil fell $1.91 to close at $48.54/bbl. The oil market has been in a tug-of-war between the bullish camp that sees worldwide demand outstripping supply, and the bearish camp which sees the large build in US inventories as a sign the market is overbought. Today, the bearish camp won, sending oil below the psychologically important $50/bbl price level.
The dollar rose 1.29% versus the Euro and .96% versus the Yen.The retail sales figure was the primary reason for the dollar's rally. "The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $344.9 billion, an increase of 1.4 percent (±0.7%) from the previous month and up 8.6 percent (±0.8%) from April 2004. Total sales for the February through April 2005 period were up 7.5 percent (±0.5%) from the same period a year ago. The February to March 2005 percent change was revised from +0.3 percent (±0.7%)* to +0.4 percent (±0.3%). " Currency traders have focused on the growth differential between the various economies, with the currency of stronger economies rising. Adding to the Euro's drop was an announcement that French manufacturing may be in recession.