Mixed Open Expected After Spending Report
Futures pointed to a mixed open on Wall Street as a better-than-expected report on personal spending helped offset jitters about financials and oil's rise above $140 a barrel.
“It feels to me that we’re within days of a bottom," Art Cashin, director of floor operations at UBS, told CNBC, citing three things: 1) All 30 Dow stocks are below their 50-day moving average, 2) the S&P broke through the low end of its range and 3) A large percentage of Nasdaq stocks have recently made new lows.
"All of those things are usually followed by capitulation within days," Cashin said.
And, if history is any guide, that day could be Tuesday.
"We may be looking at what they call the Thursday syndrome," Cashin said, which goes as follows: Selling on high volume on Thursday, followed by mediocre trading on Friday, very heavy selling on Monday followed by capitulation on Tuesday, with a reversal in the afternoon.
Personal spending rose 0.8 percent, more than expected, in May as the stimulus checks helped put a few more dollars in household budgets. The increase was double April's 0.4-percent rise and was the largest increase since November. Personal income climbed 1.9 percent, the largest increase since September 2005, after a 0.3-percent gain in April.
Shares of KB Home tumbled in pre-market trading after the homebuilder reported its loss widened to $255.9 million from $148.7 million a year earlier. Revenue plunged more than 50 percent to $639.1 million as the number of homes sold dropped by 41 percent and the average price fell 17 percent.
Financial shares looked to be under pressure early on, with Merrill Lynch off more than 3 percent in premarket trading after sources inside the firm told CNBC that writedowns will likely be between $3 billion and $5 billion.
Earlier, Lehman Brothers had estimated that Merrill would write down as much as $5.4 billion and lowered its price target on Merrill stock.
Today is expected to be one of the heaviest volume days of the year, with the annual Russell rebalancing taking effect. The Russell 3000 will delete underperforming stocks and add stronger companies, moves that often generate huge trading amounts on companies that otherwise draw relatively little attention.
Oil hit a fresh record high near the $142 per barrel, before pulling back below $141 a barrel, despite the House of Representatives voting tocurb speculation in the energy markets, as falling stock markets triggered a flight to safety into commodities.
Several strategists say now's a good time to short stock markets. Marc Faber, editor and publisher of "The Gloom, Boom & Doom Report," told CNBC that investors should be buying gold, not oil.
The Federal Reserve has "misled" the markets by not acting to curb the fall in the dollar, triggering inflation, and it should let the big investment banks fail or risk failing itself, Faber added.
Also on a pessimistic note, the global economy will struggle more than people now think, as the credit crunch spreads beyond housing and financials, Gerald Hassell, Bank of New York Mellon president, told "Squawk Box Europe."
Asian stocks plummeted, with China's stock market down more than 5 percent on market talk that the central bank may increase the interest rate as soon as the weekend, while European stocks fell on worries over the corporate outlook.
In mergers and acquisition news, InBev has filed a lawsuitto confirm that Anheuser-Busch shareholders can remove the U.S. brewer's entire 13-member board without cause, a move expected to turn its $46.3 billion takeover bid hostile. That came as Anheuser-Busch's board formally rejected InBev's $65-per-share offer to acquire the company, saying it's financially inadequate.