Financials weigh heavy at US Market

Two better than expected economic reports fail to excite buyers

US Market kicked off the month of June on a low note today, Monday, 02 June, 2008 after the indices posted sufficient losses on the very first day of the month. Buyers did not show much interest as the month of June got underway despite two better-than-expected economic reports. The financial sector was the main laggard today as renewed angst over the possibility of further writedowns in the sector. But the decline was not just limited to the financial sector as weakness was broad-based with nine of the ten economic sectors ending the day lower. Energy was the lone gainer as oil prices crawled up marginally.

Among major economic news of the day in US, the May Institute of Supply Management (ISM) Index, a national manufacturing survey, rose 2.1% to 49.6, topping the consensus estimate of 48.5. The index suggests a slight contraction in manufacturing activity, as the number falls short of 50. Separately in another report, April construction spending fell 0.4% month-over-month, which was modestly better than the expected decline of 0.6%.

After lingering in the red for the entire day, the Dow Jones was down by more than 175 points at one point of time. But at the end, the Dow Jones industrial Average ended the day with a loss of 134 points at 12,506.82. The Nasdaq Composite Index, finished lower by 31.13 points at 2,491. S&P 500 finished lower by 14.71 points at 1,385.67.

Within the Nasdaq 100, 88% of stocks posted a loss. Apple, Qualcomm and Microsoft were the main laggards.

Concerns surrounding the weak U.S. economy and the earnings environment once again became today’s headliner. Standard & Poor's announced that it cut its debt ratings on investment banks Merrill Lynch, Lehman Brothers and Morgan Stanley. Separately, the outlook for JPMorgan Chase and Bank of America was lowered to negative from stable.

Financials were facing the most selling pressure today also after Wachovia’s board of directors ousted its CEO. On a similar note, Washington Mutual's CEO relinquished his Chairman position to an independent director.

Crude prices ended marginally higher for the second consecutive day today. Prices rose after concerns regarding demand for oil were eased. Prices also climbed because of a rally in the natural gas market, which advanced on signs that competition for the fuel will increase as the weather warms. The hurricane season in the Atlantic, which has the potential to disrupt oil and natural gas production in the Gulf of Mexico, officially began on 1 June. Crude-oil futures for light sweet crude for July delivery today closed at $127.76/barrel (higher by $0.41/barrel or 0.3%) on the New York Mercantile Exchange. Prices rose to a high of $129.35 earlier during the session.

At the currency markets on Monday, the dollar got a lift after U.S. manufacturing data were better than expected. The Institute for Supply Management's index for May improved to 49.6% from 48.6% in April, and came in above the 48.7% consensus expectation. But the dollar weakened on the heels of a decline in the broader U.S. stock market and stronger oil prices. Against this backdrop, the dollar index, which tracks the greenback against a basket of six major currencies, was at 72.910 as against previous closing of 73.107.

For tomorrow, the economic calendar features the release of factory orders data for April and the May figures for auto and truck sales. But the item of most interest will be Fed Chairman Bernanke's speech on the economic outlook at the International Monetary Conference that will be given at 9:00 AM ET. Other than that, home builder Toll Brothers is the most notable and will report its results before the start f trading.