U.S. stocks continued to decline for a second straight session, led by financial shares, as a prominent banking analyst cautioned that bank earnings won’t improve for the second-half of the year. Jitters ahead of the Fed’s statement Wednesday also added to negative sentiments and investors dumped financials as the sector suffered from a number of troubling developments. A record 10th straight monthly decline in wholesale inventories added to woes that a recovery in the economy is not likely to be smooth. With S&P almost 50% up from its March lows, many investors are also worried that stocks may be overdue for a correction. Nevertheless, stocks managed to end the day off session lows.
Financials, as a group, retreated 3.5% as CIT Group’s (NYSE:CIT) delayed quarterly filing and a JP Morgan Chase downgrade of insurer MBIA Inc. (NYSE:MBI) kept the sector under pressure. Defensive plays like government debt and consumer staples found favor with investors. Treasuries rallied after Tuesday’s $37 billion three-year note auction met with strong demand. The 10-year note rose 26/32 and its yield declined to 3.672%. The 30-year jumped 1 16/32 as its yield dropped to 4.45%. Today, the government auctions $23 billion in 10-year notes.
On Tuesday, the 30-stock Dow Jones industrial average declined 96.50 points, or 1.03%, at 9,241.45. The broad Standard & Poor’s 500-stock index fell 12.75 points, or 1.27%, to 994.35 and the tech-heavy Nasdaq index shed 22.51 points, or 1.13%, to 1,969.73. On the New York Stock Exchange, advancing issues were ahead of decliners by almost three to two on volume of 1.2 billion shares.
The two-day Fed meeting concludes today. Although the central bank is expected to hold interest rates steady, investors would closely scrutinize Fed’s statement on the economy. Investors are also worried that the Fed could be inching towards raising interest rates. However, of key importance is whether there will be a mention of an exit strategy and/or a timetable for unwinding.
CIT Group (NYSE:CIT) plunged 19% to $1.20 after it delayed filing its quarterly report with the Securities and Exchange Commission, saying it is continuing talks with its bondholders on a restructuring plan. MBIA (NYSE:MBI) declined 13% after JP Morgan downgraded the stock to “neutral,” saying the company could face steep credit losses from bad debt. Declines in stocks were broad based with 26 of the 30 Dow components ending in the red. Leading the Dow average lower was Bank of America Corp. (NYSE:BAC). The bank declined 5% to $15.85.
All ten S&P500 industry groups finished in the red. Financials led the decliners, off 3.5%, as analyst Richard Bove claimed bank profits unlikely to improve in the third or fourth quarter of 2009. Concerned about the possibility of dramatic increases in non-performing assets in the third quarter, Bove advised taking short-term profits in the banking shares.
Today’s post on June trade data is expected to show the US trade deficit widened for the third time in four months to $28.7 billion, from $26 billion in May, largely a result of the gains in energy prices. The weekly EIA petroleum status report is expected to show crude inventories expanded last week. OPEC yesterday advised global demand likely to hold lower this year.
