Stocks ended on a sour note Tuesday, but still managed to deliver their best quarter since 1998.
The Dow Jones Industrial Average lost 82.38, or 1 percent, to close at 8,447 as a drop in consumer confidence rekindled worries about a recovery. The S&P 500 fell 0.9 percent, while the Nasdaq shed 0.5 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, ticked up to 26.35.
The S&P 500 jumped 15 percent in the second quarter, its best quarterly performance since the end of 1998. The Dow gained 11 percent in the quarter and the Nasdaq shot up a whopping 20 percent.
Much of those gains were logged in April and May, as the Dow slipped 0.6 percent in June. The S&P rose 0.02 percent for the month and the Nasdaq gained 3.4 percent.
The S&P is now up 36 percent from its March low. Equity strategists largely believe that the market won't retest March lows — but they're going to need to see some hard evidence that a recovery is underway. According to a recent Reuters survey of more than 150 equity strategists from New York to Sydney, the S&P 500 is expected to rally another 8 percent by year end.
European stocks are expected to gain 3 percent, while the Nikkei is expected to end the year flat around 10,000 and the Australian market, up 6 percent. (Remember, Australia has been weathering the economic storm better than much of the globe.) Most other Asian markets are expected to recover next year, with Hong Kong's Hang Seng Index projected to be up 26 percent by mid-2010 and the Nikkei up 15 percent by that time.
"Equity markets have entered a phase of reality checks, during which the expectation-driven rise from the March lows has to be beefed up by hard economic data," Gerhard Schwarz, head of global equity strategy at UniCredit, told Reuters.
Financials were the best performer in the second quarter, up 35 percent, followed by information technology and industrials.
The three worst-performing sectors this quarter were telecoms, health care and utilities.
Among individual stocks, Bank of America , American Express and Alcoa were the top performers on the Dow this quarter, while Wal-Mart , Chevron and AT&T were the worst.
Rattling investors today was a report from the Conference Board's consumer-confidence gauge slipped to 49.3in June from 54.8 in May but State Street's measure of institutional investor confidence rose for a sixth straight month in June, rising to 115.5 from 108.5 last month.
Meanwhile, the slide in home prices eased up a bit in April. An index of single-family home prices in 20 metropolitan areas slipped 0.6 percentin April after a 2.2-percent decline in March. Year-over-year, prices were down 18.1 percent in April.
General Motors slipped 4.8 percent today as CEO Fritz Henderson told a U.S. bankruptcy court that "business is better"but if a deal isn't approved by July 10, it would be forced to liquidate.
Rival Ford gained 5 percent after the automaker said June sales would show it is gaining market share and plans to increase production in the third quarter.
Auto sales are due out tomorrow, Wednesday, and they're expected to show that June was the best month of 2009for automakers. Ford is expected to fare the best, with a decline of just 10 to 20 percent.
In the banking sector, Ladenburg Thalmann analyst Dick Bove expects JPMorgan to post a loss of 10 cents a share as the bank pays back the government. He also slashed his full-year earnings estimate to $1.23 a share from $1.61 a share.
This came after Bove slashed his forecast for Goldman Sachs on Friday.
Still, Bove said on CNBC Tuesday that his picks in the sectorinclude JPMorgan and Goldman, as well as Morgan Stanley .
He advised staying away from regional banks, exposed to home- and auto-loan losses, such as KeyCorp and Marshall & Ilsley .
In deal news, Emulex shares slid more than 10 percent after the chipmaker's board of directors asked shareholders to wait before making moves on an offer from Broadcom to buy the company for $11 a share.
Broadcom on Monday sweetened its offer to buy Emulex from an initial $764 million to $912 million, a 66 percent premium from Emulex's closing price on April 20, the day before Broadcom announced its bid.
Broadcom shares slipped 0.5 percent.
Apollo Group rose 7.8 percent as the stock continued to get a boost from its earnings beat on Monday.
Abbott Labs skidded 1.6 percent after the pharmaceutical company was ordered to pay Johnson & Johnson $1.67 billion dollars in a patent case.
A day after Bernard Madoff was sentenced to 150 years in prison, a judge revoked alleged Ponzi schemer Allen Stanford's bail and ordered him held without bail until trial. Earlier, Britain's Serious Fraud Office has frozen $100 million in assets linked to Stanford.
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Still to Come:
WEDNESDAY: Weekly mortgage applications; ISM manufacturing index; construction spending; pending-home sales; weekly crude inventories; Fed's Evans speaks
THURSDAY: Weekly jobless claims; May jobs report; factory orders
FRIDAY: All U.S. financial markets closed for the Independence Day holiday
Send comments to cindy.perman@nbcuni.com.
