SAN FRANCISCO -- Yesterday, while I performed my
civic duty, the stock market overcame early losses sparked by the profit warning from
Today, the market couldn't sustain early gains despite excitement over the
Once as high as 11,004.33, the
Dow Jones Industrial Average
closed down 0.7% to 10,871.62. The
shed 1.1% to 1241.60 after trading as high as 1259.75. The
lost 2.2% to 2121.66 vs. an intraday best of 2187.16.
A common denominator in recent sessions is that "people are just waiting for earnings announcements, to see if the
second-half turnaround story is for real," said Jim Volk, co-director of institutional trading at
in Portland, Ore. The interim period has led to the "manic-depressive" action of the past week or so, he said.
Another influencing factor in the past few trading days has been the parade of appearances by various
officials. Today, one participant described Fed Vice Chairman
as playing bad cop to the good cop appearances by
New York Fed
Chairman William McDonough yesterday and
In an appearance before the
Senate Banking Committee
, Ferguson threw a wet blanket of cold reality on the second-half recovery scenario promoted by both McDonough and McTeer.
Perhaps Ferguson had an advance look at the Fed's Beige Book, which declared the nation's "economic activity was little changed or decelerating in April and May."
Prior to the release of the Beige Book report, Ferguson said the economic risks remain to the downside and "there is a risk that ... with what I describe as a drumbeat of layoff announcements and unemployment gradually rising, that consumers may decide they want to pull in their horns a bit," according to wire service reports.
That drumbeat continued today, most notably with
announcement that it will eliminate 2000 jobs, or 25% of its global workforce in the next 18 months. However, consumers' horns have, thus far, remained extended: Retail sales rose 0.1% in May and 0.3% excluding autos. Almost more significantly, April's retail sales were revised to a 1.4% increase vs. 1.1%, previously.
second-in-command also said optimism about the economy, as reflected in the steepening yield curve, might be premature.
Ferguson's comments "suggest he might be trying to show members within the Fed will bring different views when they meet on June 26-27," commented Anthony Crescenzi, chief bond market strategist at
. "Not all agree the economy will rebound, as the majority seemed to after Greenspan shepherded that view" with his
speech on May 24.
Nevertheless, Crescenzi still expects the Fed will lower interest rates by 25 basis points later this month, noting fed funds futures are still just pricing in a roughly 10% chance of a 50 basis-point cut. "I think Ferguson might have felt comfortable giving his personal opinion
because markets won't think differently about the likelihood" of a 50 basis-point cut.
Perhaps that realization contributed to equities' stumble today. The long end of the bond market also fell, with the price of the benchmark 10-year Treasury note off 3/32 to 98 1/32, its yield rising to 5.27%.
But Crescenzi said the bond market was more focused on the upward revision to April's retail sales vs. the Beige Book or Ferguson's comments. With the revision, personal consumption growth in the second quarter is likely to be around 2%, he said. Given consumer spending accounts for two-thirds of economic activity, that almost assures positive
growth for the quarter, he said, even if just marginally.
The Big Lie
Notably, the only thing Ferguson said today that's consistent with recent comments from other Fed officials is that inflation remains contained. I guess the central bankers figure if they keep saying it, it might actually be true.
We'll get more insight on inflation tomorrow with the
Producer Price Index
for May and on Friday, with the
Consumer Price Index
reported import prices rose 0.3% in May, the first monthly rise since last September. Many economists were quick to note import prices fell 0.2% in May, excluding a 5.5% rise in petroleum prices.
If only if it were so easy for the rest of us to exclude higher energy prices, I'd be more sanguine about the
inflation threat. A report today showed U.K. inflation at its highest level in two years, the latest sign of inflationary pressures in Europe.
Clearly, a strong dollar has kept inflation at bay here. The price of European manufactured goods have fallen 1.5% over the past 12 months as the dollar has gained vs. the euro,
economic research department reported today. Conversely, prices from Latin America are up 4.6% in the past year as the Mexican peso has risen 4% vs. the greenback.
"The upshot is that a period of generalized dollar weakness would cause import prices to rise, putting upward pressure on U.S. consumer prices," the report concluded.
First Union does not expect dollar weakness anytime soon and thus (almost predictably) isn't worried about inflation.
However, it should be noted the U.S. Dollar Index is up 3.5% since April 12, when
The Wall Street Journal
compared the greenback to the Comp of a year ago, describing the currency as "something that rises so far so fast that the only issue is when it will come down and how fast."
Alas, Poor Yorik
resignation of editor-in-chief
The site's development as an independent voice of quality journalism would have been near impossible if not for Dave's immeasurable contributions. Personally and professionally, we all here are truly grateful for his efforts.
Even closer to home, Dave (along with
) played a key role in steering this column through a sometimes rocky birthing process nearly two years ago. For that, I am ever grateful -- as the column's current fans should be. Hopefully, nothing I've done since (or in the future) ever gave Dave cause to regret fighting that particular fight.
L'Etoile du Nord to you, Dave (assuming that means something good).
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.