Stocks are struggling to build on their midweek bounce thanks to a soaring consumer savings rate. Consumer sentiment came in better than expected. Banks and energy stocks were some of the worst performers. Crude oil was sliding due to news out of Nigeria. The U.S. dollar was slipping yet commodities failed to rally on the dollar weakness.
Asian markets continue to show relative strength. The Japanese NIKKEI gained 0.8% on Friday and is up more than 20% for the quarter. The NIKKEI is on track for its best quarter since 1995. Investors ignored news out of Japan's government that said the consumer price index (CPI) fell 1.1%. This is the third monthly decline in a row and raises serious concern that Japan is slipping back into deflation. May's -1.1% drop in the CPI was the biggest decline on record. Meanwhile the Chinese Shanghai index gained 0.1%. The Hong Kong Hang Seng continues to rally and rose 1.7%. Over in Europe gains were elusive. The French CAC-40 lost 1%. The German DAX slipped 0.5%. The English FTSE closed down 0.2%.
Here at home the big news today was the savings rate. The Commerce Department reported that personal income, spending, and savings all rose in May. Incomes rose 1.4%. Spending edged up 0.3%. Yet savings soared from 5.6% in April to 6.9% in May. This is a 15-year high and it's very bad news for the economic rebound. For years the American consumer ran a negative savings rate. Now consumers are hoarding cash because they are secretly worried about the future. Nest eggs have been destroyed and their biggest asset, the home, continues to decline in value.
Consumer spending is more than two-thirds of our economy. If consumers are saving more than they have in years what's that going to do to the embryonic economic rebound? It may not kill it but it could seriously stunt its growth. That's why stocks are slipping today. Oddly enough the retail sector is higher with the RLX retail index up 0.4%. Another Friday curve ball is the consumer sentiment numbers. The Reuters/University of Michigan survey of consumers released their final read for June, which came in better than expected. Economists were expecting sentiment to be flat in June (about 69.0). The final reading rose from 68.7 in May to 70.8 in June. Normally a "confident" consumer spends more money. A rising consumer sentiment number doesn't seem to mesh well with a spiking consumer savings rate. There could be a disconnect between what Americans are saying in the survey and what they're really doing with their money.
In other news the U.S. dollar was sinking. Normally with the dollar lower commodities rise. That wasn't the case today. Copper prices were lower. Gold was flat. Crude oil futures were sinking. The August futures fell more than a dollar or 1.5% toward $69 a barrel. There was news to explain the weakness in oil. Violence in Nigeria, one of the world's largest exporters of oil, is expected to decline. The government is offering amnesty for Henry Okah, rebel leader of the Movement for the Emancipation of the Niger Delta (MEND). The deal isn't final and Nigerian officials would not say when Okah may be freed but a cessation of violence and sabotage takes some of the risk premium out of the price of oil.
Currently the S&P 500 index is off less than 4 points at 916.50. The 920 level has been short-term support and resistance in the past few weeks. The NASDAQ composite continues to be the leader and today it's up another 0.2% to 1833. The Dow Industrials are down about 46 points to 8426 and still hovering under the 200-dma. The small cap Russell 2000 is up less than one point as it flattens out under the 510 level.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Scanning the OptionInvestor.com play list we still have some movers. ACL, which broke out from its consolidation yesterday, is up another 1.4% today. DECK is challenging its earlier June highs. If shares of DECK pull back from here look for a dip near $70.00 as a new entry point. Drug-maker TEVA is up 1.1% and rising toward its mid June highs. UPS has bounced into the $49.50-50.00 zone and we had a trigger to buy puts at $49.50.