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Saturday, May 29, 2010

The Dow Bears The Pain Of Spain

DJIA Suffers Worst May Performance in 70 Years

News out of Spain helped propel U.S. stocks higher on Thursday, as traders cheered the government's approval of new austerity measures. However, the jubilation was short-lived -- bright and early this morning, Fitch Ratings slashed Spain's long-term foreign and local currency issuer default ratings to "AA+" from "AAA." In a note accompanying the downgrade, Fitch pointed to "Spain's unemployment rate, the legacy of its construction boom, and its high level of indebtedness" as near-term concerns, and also cited "the risk that economic growth will fall short of the government's projections." With this negative note effectively negating any newfound confidence in the euro zone's economy, stocks finished the month of May with a resounding thud. Meanwhile, on the home front, disappointing reports on consumer spending and Chicago-area business activity only served to exacerbate the bleak mood. In fact, the Dow Jones Industrial Average tumbled 7.9% for the month, marking its worst May performance since 1940.

By the close, the Dow Jones Industrial Average (DJIA – 10,136.63) was sitting on a deficit of 122.4 points, or 1.2%. Only three of the Dow's 30 components muscled higher today: Coca-Cola (KO), Merck (MRK), and Procter & Gamble (PG). Meanwhile, Walt Disney (DIS) and Bank of America (BAC) paced the 27 decliners.

The S&P 500 Index (SPX – 1,089.41) didn't fare much better, ending the day on a dip of 13.7 points, or 1.2%. The SPX quickly surrendered its footing above its 10-day moving average, and mimicked the Dow by breaching its 10-month trendline for the first time since May 2009.

Finally, the Nasdaq Composite (COMP – 2,257.04) outperformed both its peers. The tech-rich index shed 20.6 points today, or 0.9%, but it's still positioned above both its 10-day and 10-month moving averages.

The Dow shed just 0.6% for the week, but couldn't erase its monthly loss of nearly 8%. Following weeks of turbulent trading, the Dow suffered a monthly finish below its 10-month moving average for the first time since June 2009.

The SPX gained 0.2% for the week, but gave up 8.2% for the month.

The COMP wrapped up the week on a gain of 1.3%, but swallowed a monthly drop of 8.3%.

Crude futures fell in sympathy with stocks today, as Fitch's downgrade of Spain put a damper on Wall Street's appetite for risk. As traders fled stocks and oil in favor of safe-haven investments, crude quickly erased its early gains.

However, July-dated crude wrapped up the session on a relatively modest loss of 58 cents, or 0.8%, at $73.97 per barrel.

The front-month contract added 5.6% for the week, but persistent macroeconomic concerns helped push black gold to its steepest monthly drop since December 2008, ending the month of May on a deficit of 14.1%.

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