On Friday the Dow Jones Industrial Average finished down 46 points , or 0.5%, to 9,686 its seventh day of falls, with a weekly drop of 4.5%. The S&P 500 moved down 5 points, or 0.5%, to end at 1,022, making it a 5% drop for the week. The Nasdaq Composite Index fell 10 points, or 0.5%, to 2,091, a drop of 5.9% for the week. The FTSE 100 gained 32 points or 0.7% to 4,838, but fell over 4% on the week.
The last time U.S. markets fell every day during a week was in October 2008 following the collapse of Lehman Brothers. On Friday, U.S. employment data disappointed with nonfarm payrolls falling by 125,000 in June, compared with 430,000 jobs created in May, as the number of temporary census workers dropped by 225,000. The unemployment rate fell to 9.5%, the lowest rate since July last year and down from 9.7% in May. U.S. factory orders declined in May, posting the largest drop in 14 months as transportation related orders declined heavily.Overall economic data for the week was below expectations which helped fuel the sell off. Overall investors are struggling to find reasons to buy stocks and technical investors are closely looking whether the S&P 500 will breach the key 1000 level during July.
Commodity stocks were weak for most of last week as worries about a U.S. and European double dip recession and a potentially slowing Chinese economy hit sentiment. On Friday, this negativity was partially reversed by the the Australian government’s decision to replace the resources ‘Super Tax’ with a less onerous alternative called the Mineral Resource Rent Tax (MRRT) which would apply to iron ore and coal from July 2012. Bank stocks were also moved down by renewed fears about sovereign debt in the euro zone.
The reversal in sentiment during the second quarter of 2010 has been significant with falls of around 10% in most indices wiping out gains made during the first quarter. The FTSE 100 has fallen more than 13% since the start of the year, with BP contributing a fall of 200 points in the index all by itself. Whereas investors thought the economic recovery was assured during the early part of 2010, now it all looks very different. With governments implementing tough austerity budgets to bring their deficits under control and the the effects of the Chinese stimulus package beginning to wane the rest of 2010 looks less rosy.
With all this negative sentiment, the Contrarian Investor UK portfolio has begun to find value again in some sectors. With ITV dropping below 50p, a purchase was made for the portfolio. Though positions were aggressively trimmed during Q1 to take advantage of the gains, holdings in Ithaca Energy (IAE) and Coal of Africa (CZA) have performed particularly poorly during the last 2 weeks. These remain good quality stocks were the energy and commodity sectors have been hit. Overall I am not taking an aggressive position on the long or short side but any further large falls will be seen as a buying opportunity. I would be surprised if the Dow fell below 9,000 since we are not in 2008 territory by any means.
