Investors have that queasy, sinking feeling again, akin to being on a roller coaster ride that never ends. Within 60 minutes of the market opening on Tuesday, the Dow Jones Industrial Average fell 275 points while the benchmark 10-year Treasury bond yielded a paltry 1.939% return for “safe haven” investors.
Yes, last Friday’s weak U.S. employment number probably fed a lot of anxiety on Wall Street this morning. Investors have had the long weekend to digest what a zero-growth jobs environment means to the economy, and the news isn’t good.
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A weak jobs market means lower disposable income for consumers, and thus lower sales for U.S. businesses and lower tax revenues for local, state and federal governments. Any investor who looks at that scenario and sees a buying opportunity in stocks right now is taking a huge risk — and stock market momentum isn’t fueled by investors taking huge risks. Investors, highly emotional by nature, treat severe risk like a five-year-old treats broccoli. They head for the hills when they see markets behaving this badly.
But aside from the toxic unemployment report, what else is moving the financial markets today? Here are a few key themes right off the bat:
1) Bank stocks are down. Another key piece of news from Friday was overshadowed by the jobs report, as federal regulators filed lawsuits against 17 big banks. The government claims that the banks knowingly sold billions of dollars worth of mortgages to Fannie Mae and Freddie Mac that plummeted in value when the housing market collapsed. By midday on Tuesday, Bank of America stock was down 4%, Wells Fargo was off 1.75% and J.P. Morgan Chase was down 4%. Rochdale Securities analyst Dick Bove told CNBC this morning that the lawsuits, however well-intended, are a lit match in a tinderbox as far as the U.S. economy goes.
“At one point the four largest banks in the United States had 50 percent of the assets of the banking industry, and the government wants to break up those banks,” said Bove. “The government doesn’t want those banks to exist in that fashion any longer. It wants to see a spreading of, if you will, the risks across the banking industry. … Removing credit progressively from the United States economy is going to force this recession to occur.”
2) The Eurozone debt hangover continues. Like a tiresome houseguest that never leaves, the Europe debt picture continues to drag on global financial markets. Deutsche Bank CEO Josef Ackermann said at a Frankfort conference today that sovereign debt threatened to swallow numerous Eurozone banks, a comment that helped send European and U.S. markets spinning downward. “We should resign ourselves to the fact that the ‘new normality’ is characterized by volatility and uncertainty,” he said. “All this reminds one of the autumn of 2008.”
3) Bond yields are at 50-year lows. The rush to safety has pushed 10-year Treasury notes down below 2%, to 1.939%, on Tuesday morning. That’s the lowest level for the 10-year bond since 1962, according to the Federal Reserve Bank of St. Louis. It’s also a big sign that investors have no confidence in the U.S. economy or stock market.
There doesn’t seem to be any buffer or breaker that can stop the stock market decline, short of President Obama’s big speech on jobs on Thursday. With confidence low, expect the stock market to absorb further beatings this week, as more investors rush headlong to the exits.