Sam Collins

Is the Rally Really Over?

by Sam Collins   08/06/09

With Q2 earnings mostly behind them, investors focused on several economic reports yesterday, and didn't like what they saw.

The ADP Employment Report showed that the labor force was reduced by 371,000 jobs, which exceeded a forecast of 350,000 jobs. With that report on investors' minds, stocks opened lower, and then held until the next bombshell.

The ISM Services Index for July unexpectedly slipped to 46.4 from 47 in June, and was expected to show 48. Anything under 50 for the ISM is considered to show a contracting economy. This was the 10th straight sub-50 report, and appeared to cancel out the factory orders report that showed an increase of 0.4% in June where a 0.8% dip was expected.

The poorer-than-expected economic reports dampened the broad market but failed to halt a run on the financial stocks. For the second day in a row, financials outperformed, and this time it was by a large margin.

American International Group (AIG) rose more than 62% on rumors of a sale of its aircraft leasing business and better results for its earnings report on Friday. CIT Group (CIT) rose 41%, and Fannie Mae (FNM) and Freddie Mac (FRE) gained 30%.

At the close, the Dow Jones Industrial Average (DJI) was off 39 points to 9,281, the S&P 500 (SPX) fell 3 points to 1,003, and the Nasdaq (NASD) lost 18 points, falling to 1,993.

The NYSE traded 1.88 billion shares with decliners ahead of advancers by 8-to-7. The Nasdaq crossed 717 million shares with decliners ahead by about 8-to-5.

Crude oil (September contract) settled at $71.97 a barrel, up 55 cents, and the Energy Select Sector SPDR (XLE) fell 52 cents to $51.35.