Fundamentals

U.S. Equities Break Key Support Amid Euro Zone Budget Concerns

U.S. Session Key Developments

•    Dow Jones Industrial Average Closes Below 10,000 Level
•    Group of Seven Meeting Ends With No Greek Bailout
•    Upgrades To Disney And Home Depot Do Little To Soothe Concerns

US markets were choppy in today’s session as investors debated whether to place more weight on analyst upgrades or European government finance concern.  Eventually the latter prevailed sending equity markets lower and allowing the Dow Jones Industrial Average to close below 10,000 for the first time in three months.  With no notable US economic releases and mixed earnings reports, price action was driven by the news on the macro environment.  A JP Morgan analyst’s upgrade of Walt Disney Co. and a Morgan Stanley upgrade of Home Depot Inc. initially provided equity markets with some support.  The upgrade of two members of the Dow blue-chip index provided reassurance that the economic revival would continue.  That support eventually gave out as sellers looked towards Europe and the growing budget concerns of its member nations.  Sellers had been worried that a G7 meeting in Canada over the weekend would yield a bailout of Greece and possibly Spain, the European Union member states with the worst budget concerns.  Instead, Finance Ministers from other EU member nations noted only that they would continue monitoring the situation.  European Central Bank President Jean-Claude Trichet added that he is “confident” that Greece will cut its deficit below the limit of 3 percent of GDP by 2012 from 12.7 percent.

Commodities were able to maintain their earlier gains despite the downturn in equity markets and the revival in the dollar’s rally.  The dollar index, which had been 0.4 percent lower earlier in the day, rallied in late trading to limit its loss to just 0.1 percent.  Nonetheless, the CRB Commodity Index closed the day 1.2 percent higher.  March crude finished the day up 0.72 percent at 71.70 and gold spot was unchanged at $1,062 per ounce.  Looking ahead to tomorrow, another insignificant US economic slate will probably leave investors continuing to digest macroeconomic headlines and should make for continued choppiness in trade.

DJIA 30                     9,908.39                      -103.84                       -1.04%
The blue-chip index closed below the psychologically significant 10,000 level for the first time in three months.  Though the index had traded below the level several times last week, a close below the level could send renewed selling signals to bearish investors.  The Dow was led lower today by Bank of America Corp. which was down 3.47 percent on the day.  American Express Co. was right behind it, losing 2.8 percent.  Home Depot Inc. was one of only two components that were up, after the company was upgraded by a Morgan Stanley analyst.

S&P 500                     1,056.74                       -9.45                            -0.89%
Financials and Basic Materials stocks led the broader Standard and Poor’s 500 Index lower today as there was one advancing issue for every four that declined and all ten subsectors of the index were in the red.  Basic Materials stocks were 1.53 percent lower despite today’s rise in commodity prices.  Meanwhile, Financials fell 2.06 percent amid continued talks of a sovereign debt crisis in Europe.

NASDAQ                    2,126.05                       -15.07                          -0.70%
Tech stocks were down 0.69 percent sending the tech heavy Nasdaq Composite into negative territory.  The index was led lower by tech giants Microsoft Corp. and Oracle Corp. which were both down over one percent amid renewed threats to an economic recovery.  Nasdaq OMX Group Inc., the company that runs the index that bears its name, slid 4 percent for the biggest drop on the S&P 500.  The company announced today its forecast for 2010 operating expenses, which exceeded one analyst’s estimate by as much as $25 million.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com