After rallying last Thursday and Friday on signs Greece and Italy are coming to terms with the seriousness of their fiscal problems, European and U.S. stock prices retreated today, perhaps on the realization that now comes the hard, detailed work of executing. The Bloomberg European 500 stock price index declined 0.9% Monday, and in the U.S. the S&P 500 followed suit with a 1.0% drop, which caused the big-cap benchmark to drop 0.5% below its year-end 2010 level. In the currency markets, the euro declined a little more than one cent to $1.362, while the dollar was down early against the yen but made most of it back by the close in New York. U.S. Treasury and German bonds were up slightly in price, while yield spreads in the Euro zone widened, reversing some of the more favorable bond market moves of late last week. Commodities prices were mostly lower today but generally only by minor amounts, with the exception of unleaded gasoline, which was off seven cents a gallon or 2.6%, and natural gas, which declined 3.7% to $3.45 per MCF, the lowest price in a year. Unleaded gasoline futures prices are off roughly 25% from last April’s peak, twice the decline in crude oil prices, which is noteworthy mostly because prices at the pump usually seem stickier than that on the way down.
Even with Monday’s 75-point (0.6%) decline, the Dow Jones Industrial Average is off just 6% from its end-of-April peak. The S&P 500 and NASDAQ are down more like 8%, which considering the travails of European stocks, bonds and currency this year, is something of an accomplishment. Year to date, the Dow has a total return of close to 7%, ahead of the 1%-ish returns in NASDAQ and the S&P 500. U.S. firms have largely delivered on earnings year to date and for Q3, which goes a long way toward explaining this relative performance. With third-quarter earnings reporting season mostly over, except for the retailers, Q3 earnings are on track to a 15% or so year-over-year increase. The Census Bureau’s estimate of retail sales for October is on the economic docket for tomorrow – the Street expects a 0.2%-0.3% gain – beginning a data-filled four days, which will also see October figures for the PPI and CPI (which are expected to be tame), industrial production (which is estimated at a 0.4%-0.5% increase), housing starts (more bad numbers likely here), and the Conference Board’s index of leading economic indicators (which according to Bloomberg, the Street expects to show a 0.6% rise).
Copyright © 2011 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.