A Down One More Time

Driven by a weaker than expected retails sales report stocks opened lower right away. The market was stuck briefly in a sideways range but continued its trend down within an hour after the opening. Multiple bouts of selling forced stocks lower throughout the day. At the end of the session the Dow was down -185.58 points or -2.19 %

The broader market performed worse than the DOW. The S&P was down 24.41 points or 2.69 %.

The big report for the day was Retails Sales for April. Analysts had on average expected an unchanged number. Unfortunately though the consumer pulled back again...to the tune of -0.4 % for the month of April.

Any type of economic recovery will be dependent upon the consumer opening their pocketbook and spend. The fact that retails sales declined now for a second straight month casts a shadow over any economic expansion ideas.

Since personal income was slightly up last months the retail sales number is yet the first indication that the consumer has started saving for the first time in years. The consequences of that are potentially serious.

Should the US consumer truly get into a savings mood it will be a while before we see a meaningful stabilization in GDP declines. It is to early to tell but the retail sales number definitely has to be viewed as a warning sign in that context.

To the surprise of analysts foreclosure filings in April hit yet another high. One out of every 374 households was served with a foreclosure filing in April. The number was about 32 % bigger than the corresponding number from April 2008. If anything it makes clear that the housing market has a long way to go before a real recovery sets in. Record inventory of homes combined with record foreclosure filings (meaning additional supply down the road) makes it clear that it will be a while before we see a meaningful stabilization in prices.

Clearly...today's declines in the market were driven by a set of economic news, all of which were either bad (=worse than expected) or just not good enough to "overpower" other news items.

Perhaps more important...the recent news (not only today's but also reports relating to trade, personal consumption, housing prices, trade deficit, all of which were released over the past couple of days) serve as a little bit of a wake up call.

After the greatest 2 months advance in prices the US stock market has ever seen, the question which seems to surface now is whether the market might have been to aggressive and perhaps gotten ahead of the fundamentals.

I have been neutral stocks / slightly bearish for about 10 days now and I will not change my opinion. I expect further declines and those of you who are sitting on Puts ... good for you. Ride them a while longer.

There might very well be additional declines tomorrow or Friday. Let's see what happens.

Until then,

Steve Benger