Commodity and consumer groups suffer steep falls

US stocks dropped sharply on Monday as commodity prices weakened and investors worried about the pace of economic recovery.

Commodity stocks surged during the first four sessions of last week, as the price of oil rose and the dollar dropped amid rising fears of inflation.

EDITOR’S CHOICE Overview: Fears for financial system cut risk appetite - Jun-15

However, they fell back on Friday and continued to give up those gains on Monday. ConocoPhillips lost 2.9 per cent to $43.10 while Schlumberger dropped 2.8 per cent to $58.59.

Steelmakers, which were some of last week’s biggest beneficiaries, also dropped sharply. AK Steel gave up 8.1 per cent to $18.32 while US Steel declined 5.7 per cent to $37.10.

Commodity producers were hampered by a strengthening dollar, which was boosted when the Russian finance minister said there was “no alternative” to the dollar as a reserve currency.

Data showing that manufacturing in the New York area was falling much more than expected during June and that sentiment among homebuilders had dipped exacerbated the falls.

These factors added to cautious words over the weekend from Dominique Strauss-Kahn, head of the International Monetary Fund, who warned that discussions about “exit strategies” from stimulus plans might be premature.

Paul Ashworth, senior US economist at Capital Economics, said: “Things are so weak we would expect them to continue to improve for quite a few months, but in some cases the improvement is petering out already, which is quite disappointing.”

The benchmark S&P 500 index closed 2.4 per cent down at 923.72 points. The Dow Jones Industrial Average fell 2.1 per cent to 8,612.13 points and the Nasdaq Composite index dropped 2.3 per cent to 1,816.38 points.

The Vix index, a measure of implied volatility known as Wall Street’s fear gauge spiked nearly 10 per cent back over the 30 level. Consumer stocks also suffered. Wal-Mart fell 2.8 per cent to $48.46, hurt by a downgrade from Goldman Sachs, which said sales growth at the retailer would begin to fall.

Although Goldman said investors could move into more discretionary stocks as the recovery continues, others warned that the consumer sector would continue to suffer.

“People are starting to realise that even when the economy recovers, certain sectors such as consumer spending are going to remain under pressure,” said Barry Knapp, head of US equity portfolio strategy at Barclays Capital. “This is a realisation stage for the markets.”

There were negative signs on the amount of loan losses that financial companies still face. Capital One, the credit card lender, said the number of card defaults had risen in May compared with April. Its shares lost 2.3 per cent to $23.40.

Richard Bove, an analyst at Rochdale Securities, warned that Bank of America was experiencing “horrific” loan losses. BofA shares fell 2.8 per cent to $13.33. Also in the sector, shares in Lincoln National dropped after the company became the second large insurer, after Hartford Financial, to say it would take government bail-out money and raise further capital by issuing shares.

The company said it would sell up to $900m of new stock, and its shares dropped 10.8 per cent to $15.83 on fears of dilution.

Housebuilders were some of the day’s biggest fallers after the homebuilder confidence figures. Centex sank 3 per cent to $8.23 while KB Home, which also suffered a downgrade by Goldman Sachs, dropped 6 per cent to $13.24. There was further bad news for the airline industry after executives at European aircraft maker Airbus warned that output at its European factories could fall by as much as a quarter over the next two years.

Shares in Airbus’s US rival Boeing fell 3.7 per cent to $49.52 but shares in other major airlines were worse affected, as research suggested business class flights on Delta Air Lines and American Airlines had halved in price.

Delta lost 4.7 per cent to $6.10, while AMR, the parent company of American Airlines, gave up 2.6 per cent to $4.43.

OBAMANOMICS=DEATH TO ECONOMIC LIBERTY.

INDIVIDUAL LIBERTY WILL BE THE NEXT TO DIE.

2 posted on 06/15/2009 6:26:41 PM PDT by Recovering_Democrat (I'm SO glad I no longer belong to the party of Dependence on Government!)

I believe that oil has gotten ahead of itself with speculators doing a dollar and inflation and "green shoots" play, but if inventory reports continue to show builds, then we'll see another sell off. I say we can see $50 per barrel again in the next couple of months, no sweat.

In the long term, oil will be much higher.

Won’t need much oil for the little Fiats being offered at the Goldmansucks vending machine.

"Won’t need much oil for the little Fiats being offered at the Goldmansucks vending machine."

They didn't need much behind the Iron Curtain, either.

During trading hours on Monday was the story that The Messiah would announce sweeping new regulations in the Financial area on Wednesday. A contributor to this decline? - I certainly think so.

When hyperinflation kicks in you will see the smart money going into commodities.

7 posted on 06/15/2009 6:59:11 PM PDT by SVTCobra03 (You can never have enough friends, horsepower or ammunition.)

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