US Stocks Slide After Tsy Auction; Some Fincls Hold Gains Article
U.S. stocks slipped into the red midsession after a surprisingly weak auction of five-year Treasury bonds and a failed auction of U.K. bonds overshadowed promising readings of home sales and orders for big-ticket goods.
The plans of these governments to stabilize their economies depend on the ability to borrow money through these bond auctions. Now, there are signs that investors are balking.
The fear is an "inability to control interest rates by governments, which is the next unintended consequence of the huge printing, and is coming earlier than expected," said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.
"It means people don't buy government bonds ... as a result, they have to do it at higher rates."
Recently, the Chinese government signalled worries about the U.S. dollar and Treasury bonds because of the financial crisis, and the response of government spending. The Treasury Department and Federal Reserve argue that hundreds of billions of dollars of expenditure on economic stimulus and bank stabilization is the only way to get the U.S. economy back on an even keel.
The Dow Jones Industrial Average was up by more than 200 points at the high of the session, but recently dipped 70 points, to 7587. Nevertheless, the Dow is up 17% from its low in early March and is up almost 5% for the week after surging nearly 500 points Monday. In a departure from trends earlier this year, some economically sensitive and financial stocks bucked the selloff: Alcoa, JPMorgan Chase and Boeing were among the gauge's best-performing stocks.
Bank of America turned negative, and was recently off 0.4% at $7.19 after Moody's Investors Service cut its rating on some of its preferred shares. Moody's warned that deteriorating asset values could hurt BofA's capital ratio, and force it to take more "systemic support" from the government. That would likely dilute preferred and common shareholders.
The recent market rally likely reflects an inflection point, wrote a strategist at Barclays Capital. "The banking system has continued to function and liquidity in debt markets is showing improvement [albeit with considerable help]; a significant amount of counter-cyclical fiscal stimulus has been put in place; and, most importantly, consumer demand is showing signs of stability. The foundations of a bottom in the global business cycle appear to be in place, although the exact timing of a turn remains uncertain."
The S&P 500-stock index fell 1.4%, as utilities and technology companies declined, eclipsing a slight rise in its financial sector. The Nasdaq Composite Index fell 24, or 1.6%, to 1493.
Treasury prices fell after surprisingly weak demand for a record $34 billion five-year note auction. The indirect bid - demand from domestic and foreign institutions, including foreign central banks - for Treasury's $34 billion five-year note auction was 30%, compared to 48.9% in the previous auction in February and the average of 30.1% for the last 10 auctions.
Tuesday, U.S. President Barack Obama said there were "signs of progress" in the effort to tackle the recession. Some traders agree.
Recent data, particularly on housing, have hinted at a possible moderation in the recession. Data Wednesday showed new-home sales climbed for the first time in seven months in February. Earlier this week, a report said existing-home sales jumped last month.
For more than a year, market veterans have maintained the housing sector would have to stabilize before the broader economy and the stock market can.
"The key is that this wasn't just a one-off number on housing. There is improvement and we're seeing strength in industrial names. A broker could downgrade a group, and they still go up," said Kevin Kruszenski, director of equity trading for KeyBanc Capital Markets.
The housing report pushed up builders' stocks, as the SPDR S&P Homebuilders ETF rose 0.3%. The fund has gained 19% over the last month amid the wider improvement in the stock market. Toll Brothers rose fractionally and D.R. Horton was up almost 2% in recent trading.
Industrial stocks got a boost after the Commerce Department said orders for longer-lasting manufactured goods rose 3.4% in February after a revised 7.3% skid in January. Economists expected a 2% skid. Orders for non-defense capital goods excluding aircraft, a barometer of business spending, rose 6.6% after plunging a downwardly revised 11.3% in January.
U.S. stocks slipped into the red midsession after a surprisingly weak auction of five-year Treasury bonds and a failed auction of U.K. bonds overshadowed promising readings of home sales and orders for big-ticket goods.
The plans of these governments to stabilize their economies depend on the ability to borrow money through these bond auctions. Now, there are signs that investors are balking.
The fear is an "inability to control interest rates by governments, which is the next unintended consequence of the huge printing, and is coming earlier than expected," said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.
"It means people don't buy government bonds ... as a result, they have to do it at higher rates."
Recently, the Chinese government signalled worries about the U.S. dollar and Treasury bonds because of the financial crisis, and the response of government spending. The Treasury Department and Federal Reserve argue that hundreds of billions of dollars of expenditure on economic stimulus and bank stabilization is the only way to get the U.S. economy back on an even keel.
The Dow Jones Industrial Average was up by more than 200 points at the high of the session, but recently dipped 70 points, to 7587. Nevertheless, the Dow is up 17% from its low in early March and is up almost 5% for the week after surging nearly 500 points Monday. In a departure from trends earlier this year, some economically sensitive and financial stocks bucked the selloff: Alcoa, JPMorgan Chase and Boeing were among the gauge's best-performing stocks.
Bank of America turned negative, and was recently off 0.4% at $7.19 after Moody's Investors Service cut its rating on some of its preferred shares. Moody's warned that deteriorating asset values could hurt BofA's capital ratio, and force it to take more "systemic support" from the government. That would likely dilute preferred and common shareholders.
The recent market rally likely reflects an inflection point, wrote a strategist at Barclays Capital. "The banking system has continued to function and liquidity in debt markets is showing improvement [albeit with considerable help]; a significant amount of counter-cyclical fiscal stimulus has been put in place; and, most importantly, consumer demand is showing signs of stability. The foundations of a bottom in the global business cycle appear to be in place, although the exact timing of a turn remains uncertain."
The S&P 500-stock index fell 1.4%, as utilities and technology companies declined, eclipsing a slight rise in its financial sector. The Nasdaq Composite Index fell 24, or 1.6%, to 1493.
Treasury prices fell after surprisingly weak demand for a record $34 billion five-year note auction. The indirect bid - demand from domestic and foreign institutions, including foreign central banks - for Treasury's $34 billion five-year note auction was 30%, compared to 48.9% in the previous auction in February and the average of 30.1% for the last 10 auctions.
Tuesday, U.S. President Barack Obama said there were "signs of progress" in the effort to tackle the recession. Some traders agree.
Recent data, particularly on housing, have hinted at a possible moderation in the recession. Data Wednesday showed new-home sales climbed for the first time in seven months in February. Earlier this week, a report said existing-home sales jumped last month.
For more than a year, market veterans have maintained the housing sector would have to stabilize before the broader economy and the stock market can.
"The key is that this wasn't just a one-off number on housing. There is improvement and we're seeing strength in industrial names. A broker could downgrade a group, and they still go up," said Kevin Kruszenski, director of equity trading for KeyBanc Capital Markets.
The housing report pushed up builders' stocks, as the SPDR S&P Homebuilders ETF rose 0.3%. The fund has gained 19% over the last month amid the wider improvement in the stock market. Toll Brothers rose fractionally and D.R. Horton was up almost 2% in recent trading.
Industrial stocks got a boost after the Commerce Department said orders for longer-lasting manufactured goods rose 3.4% in February after a revised 7.3% skid in January. Economists expected a 2% skid. Orders for non-defense capital goods excluding aircraft, a barometer of business spending, rose 6.6% after plunging a downwardly revised 11.3% in January.
