Stocks Fall As Investors Digest A Slew Of Economic Data


Market Commentary

Stocks closed lower as investors digested a slew of economic data. Volume, a critical component of institutional demand, was mixed compared to Monday’s levels; higher on the Nasdaq and lower on the NYSE. The higher volume on the Nasdaq marked a distribution day for that exchange but the lower volume on the NYSE helped those indexes avoided that fate. Decliners led advancers by over a 21-to-17 ratio on the NYSE and by over a 16-to-11 ratio on the Nasdaq exchange. There were 12 high-ranked companies from the Leaders List making a new 52-week high and appearing on the BreakOuts Page, higher from the 41 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Banks Under Pressure-Again

Stocks opened lower after five of China’s largest banks told regulators they plan on raising additional capital. This led many people to question the health of the economic recovery. In other news, the Managing Director of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said that financial institutions have revealed only about half of their losses from last year’s economic crisis which put additional pressure on the financial sector.

Economic Data

Elsewhere, the Commerce Department said the US economy grew at a +2.8% annual rate last quarter which was less than the government’s initial reading last month. The downtick is due to a strained consumer and leads many to question the strength of the upcoming holiday shopping season. The government released a separate report that showed that US consumer spending, which accounts for over +70% of the world’s largest economy, increased at a +2.9% pace in the third quarter. This was lower than the +3.2% increase expected by economists.

Investors digested more data from the troubled housing market. The S&P/Case-Shiller home-price index for 20 cities rose +0.27% in September from the prior month on a seasonally adjusted basis. In September, the reading plunged -9.36% from September 2008 which was the smallest year-over-year decline since the end of 2007. Another economic report was released by the Conference Board’s consumer confidence index. The index unexpectedly rose to 49.5 in November which was higher the Street’s estimate of 47.3.

Looking At The Market:

Looking at the market, the fact that the market has been holding up rather well in recent weeks and refuses to go down is a very positive sign of institutional sponsorship. However, high quality leadership remains very narrow which is a serious concern for this somewhat unconventional rally. Ideally, one would like to see leadership expand over the next few weeks as the major averages advance.


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