Friday's market moves may not be as dramatic as Thursday's, but the same doubts could rattle investors going into the weekend.
Wall Street
Thursday's weak weekly jobless claims, concerns about European sovereigns, and news that the U.S. and other governments would tap strategic petroleum reserves combined to feed worries about global growth, sending stocks sharply lower. Traders continued to talk about the Fed's downgrade of the economy, and the lack of any new stimulus as its current quantitative easing program expires June 30.
The Dowat one point was down 234 points, but it staged a dramatic recovery and ended the day just 59 points lower, at 12,050. It moved higher after a late day Reuters headline that said the EU and IMF support Greece's new austerity plan. The Greek parliament votes on the plan Tuesday.
The S&P 500 was down 3 at 1283, but the Russell 2000andNasdaq both finished higher. The Nasdaq was up 17 to 2686 and the Russell 2000 was up 2 at 802.
"It was a roller coaster. Very heavy short covering. That's why I think Nasdaq went positive. They'd been playing techs from the short side. it was very very intense short covering from what I could see," said Art Cashin, director of floor operations at UBS.
Cantor Fitzgerald market strategist Marc Pado said stocks could see more selling Friday, but the late day move taking the Nasdaq and Russell to higher finishes Thursday was a healthy sign. "I think we are going to pull back a little -- the knee jerk reaction. We are in the basing process. We have weeks to wait until we get good news," he said.
Traders said Friday's rebalancing of the Russell indexes could generate some activity in REITs and other issues as investors continue to game the coming changes. The changes are to be announced after the close.
Friday's data includes durable goods and a final reading on first quarter GDP, both at 8:30 a.m. First quarter GDP is expected to be revised up to 2 percent from 1.8 percent. Europe sovereign issues will also stay a focus as EU leaders meet.
Stocks to watch include Oracle, which fell sharply on a decline in hardware sales even as it reported better-than-expected profits. Southern Union jumped in late trading after it received a competing $39 per share bid from Williams Cos , topping Energy Transfer's $33 offer.
Oil Gets Drilled
The early morning announcements Thursday by the 28-member International Energy Agency and the U.S. Department of Energy that governments would release 60 million barrels of reserves sent oil, gasoline and distillates skidding. The IEA said the move was to make up for lost Libyan oil production. The U.S. will provide 30 million of those barrels from the Strategic Petroleum Reserve.
But the announcement shook financial markets, raising concerns that the motivation was to stoke growth and that the world economy is weaker than believed. NYMEX crude fell 4.6 percent to $91.02. Brent crude, a better reflection of global oil prices, was down about 5 percent late in the day to $108.61.
The dollar strengthened and the euro tanked, dipping to $1.4125, before recovering some losses to trade above $1.42.
The move drew criticism from Republicans in Washington and from some New York market participants, who saw it as unnecessary since oil was already in decline. "In the short run, a lot of cynical people think it's an attempt to kick start the U.S. economy with an election coming up. That may be why the budget talks turned frosty," said Cashin, referring to the breakdown Thursday of bipartisan budget talks headed by Vice President Joe Biden.
Pado said he believes the motivation for the oil move is political, and both the release of reserves and the breakdown in budget talks are not surprising pre-election events. "The harder the Republicans refuse and really try to stall anything Obama tries to do, the more he is going to use avenues that don't involve them. This was a shot right across the chin. It will help headline inflation. It will be a catalyst for the economy moving forward," he said.
Deutsche Bank chief U.S. equities strategist Binky Chadha said the move did not do much to help confidence in a market that was already skittish. "It probably would have been better to let the (oil) market play itself out," he said.
Energy experts expect the move to drive already-falling gasoline prices down faster, but they do not expect prices at the pump to break the $3 a gallon national average or get close to last year's levels of about $2.74.
"I think there's more downside potential in Brent, but I think it's limited," said Michael Wittner, Societe Generale head of Americas commodities research. He pointed out that Brent was at $95 to $100 before the Libyan production went off line, and there has been no fundamental change.
"If Brent goes below $100 and appears headed to $90 with momentum , I think three things happen. One is OPEC members, maybe even the Saudis, will start talking about cutting output...you'll start to get consumer hedging coming in which is buying forward, and I think you're going to get investor bargain hunting coming in," he said.
Wittner said the IEA had issued a release May 18 warning OPEC that it should provide more oil and that it would use all the tools at its disposal. "People kind of faded it as rhetoric. The logic, which makes a lot of sense, was that it was just talk because if the IEA was going to do something, they would have done it already. That's why today was a surprise," he said.
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