Mid-Day Recap: Not Such a Hot Summer After All

Despite some optimism a few hours before the bell, markets opened lower once the first of two weekly retail sales reports came in with disappointing figures. In the first 90 minutes trading investor sentiment failed to rebound and equities extended their losses.

The Dow is leading the decline, losing 0.99% to 8243, followed by a 0.98% drop in the Nasdaq to 1770. The S&P 500 has shed another 0.87% to 890, pushing its 5-day loss to -3.94%. Meanwhile, the safety of long-term bonds is looking more appetizing to investors, who have driven the 10-year yield down to 3.49%. 

This could just be the beginning: “The second quarter earnings season officially gets underway this week, and it could be the deciding factor on which direction stocks spend the rest of the summer moving,” notes Robert Kavcic from BMO Capital Markets. “Expectations are for a 35.5% y/y decline in S&P 500 profits, the eighth consecutive annual decline—that would be the longest negative streak since the 1930s.”

Kavcic notes that forward-year earnings rose for the first time in more than a year in June, so investors will be looking for confirmation of a turnaround in the business cycle. “If not, expect to see a further correction,” he said.

In Data News: The ICSC-Goldman Sachs survey of chain store sales saw a 0.5% gain compared to this week last year, as well as a 0.1% advance compared to the previous week, but neither figure was enough to give the entire month a boost. 

“Overall ICSC Research anticipates June sales (less Wal-Mart) will be down by about 4.5% from the same month of 2008,” said Michael Niemira, chief economist at the ICSC.

Annual results were similar in the Johnson Redbook retail survey, which reported a 4.2% decline in June 2009 compared to June 2008.

Oil Still in the Headlines: Leading the stock market decline this week has been energy shares driven by the falling price of crude oil, which has fallen 30 cents to below $64 this morning. Energy shares in the S&P have fallen 2%. 

Some Optimism Above the 42nd Parallel: The Ivey PMI, a manufacturing index for Canada, shot up 20.2% in June to a score of 58.2, much higher than expectations for a 50.3 reading. On a seasonally-adjusted basis the index sits just below the 50-threshold needed to indicate growth, but even so it suggests the recession north of the border is diminishing.  

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