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Stocks Take a Break Amid Cloudy Current Conditions - Money Matters for 11/28/05
Investors came back from Thanksgiving in more of a serious tone as retail sales from "Black Friday" and announced layoffs from drug-maker Merck took some of the froth off the holiday cheer.
Analysts were not impressed with the first weekend of holiday retail sales, with deep discounts the norm for retailers, and barely any increases in traffic and sales from last year.
Adding to the market woes was Merck's announcement of layoffs of 7000 workers and five plants over the next few years. The layoffs are part of a major restructuring for the firm that has been hammered by the impact of lawsuits stemming from arthritis-drug Vioxx, which was recalled in 2004.
Though today's declines were nothing to be alarmed about, they point up the difficulties which lie ahead for the US economy. Over in the bond pits, traders have had their eyes on the potential for interest rate inversion for months and today seemed to signal a tipping point as the 2 and 3-year yields on Treasuries fell into equilibrium at 4.30% and the 5-year note yield was a mere 1 basis point higher at 4.31.
This marks the closest point in yield for these bonds and the spread between the 2 year and 10 year also reached a low point of 10 basis points today.
There's a definite disparity of opinion between stock and bond traders. as the stock indices are nearing or at 4 1/2 year highs, bond traders are looking at a flat - and potentially inverted - yield curve and possible recession just around the corner.
Investors have been generally ebullient while bond traders have had to deal with lowered yields for years and now are signaling caution. There is a 100% correlation between an inverted yield curve and recession and bonds are nearer to that point than they have been in many years.
This all bears close watch as we head into the final four weeks of trading for 2005. The coming year could be one of the most tumultuous in recent memory with high energy costs, government debt and shrinking consumer demand the leading causes for concern.
Dow Jones: -40.90; 10,890.72 close
NYSE Advancers: 1136
Nasdaq Advancers: 917
NYSE New Highs: 131
Nasdaq New Highs: 115
Gold: +6.20; 502.60 close
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