The S&P 500 Comes Up Short

The S&P 500 fell more than 2% yesterday, recording its worst one-day drop since December.  Was it disappointment with The Fed?  A sudden realization that the market shouldn’t rise when the economy is sinking?  A “fat finger” computer glitch?

There were plenty of reasons for the fall – and collectively they do not bode well for the U.S. economy:

  •  The Philadelphia Fed Survey fell unexpectedly to -16.6 for June, registering its worst reading since August 2011.  New orders, shipments and average work hours were negative this month, suggesting an overall decline in manufacturing business.  The decline was the second in a row, as the reading was -5.8 in May.

  • The HSBC China Manufacturing Purchasing Managers’ Index fell to 48.1 in June, down from 48.4 in May.  It was the eighth consecutive reading below 50.  A reading below 50 indicates contraction.  A continuing economic slowdown in China would slow orders from china’s trading partners.
  • Moody’s Investors Services downgraded 15 global investment banks after the market’s close.  Dick Bove, Vice President of Equity Research at Rochdale Securities called the downgrade “absurd,” arguing that the American banking industry’s balance sheets have improved “dramatically” over the past four years.  He noted that liquidity as a percentage of assets is at a 30-year high, bad loans are down and reserves against them are up.
  • Goldman Sachs recommended shorting the S&P 500, with a price target of 1285, which is about 5% below where it was when Goldman Sachs made the recommendation.
  • The S&P GSCI, a commodities index dropped to its lowest level since 2010.  It’s down 22 percent from a February peak.
  • The U.S. Labor Department reported that the four-week average of applications for unemployment benefits was at its highest level since September.

That’s a lot of bad news for one day.  No wonder traders followed Goldman Sachs’ advice.

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