Troubling signs point to more losses

Don't be surprised if Wall Street racks up a seventh consecutive week of losses as the likelihood of more poor economic data and other disconcerting signals outweigh any thoughts that stocks are cheap. After closing at its highest level in nearly three years on April 29, the S&P 500 has tumbled nearly 7 per cent on the back of a barrage of soft economic data, sparking the debate over whether the economy is headed for a double-dip, or has merely hit a soft patch in its recovery. The benchmark S&P 500 recorded its sixth straight weekly decline on Friday and volume has picked up, as it typically does, on down days. Another week of selling will mark the longest stretch of weekly losses for the index since 2001. Red flags, including ugliness in the junk bond market, options activity and the ease with which support levels have been broken suggest more selling ahead. "You have to be realistic. You've got to have some sort of correction to go into this marketplace just for the healthiness of the market," said Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors in Savannah, Georgia. As stocks have declined, both investment-grade and high-yield risk premiums in the bond market have slumped as investors sought safe-haven assets. That's troublesome since the stock market often moves in sympathy with the junk bond market because rising borrowing costs crimp corporate profits. The CDX HY16 North America index for high-yield bonds, which conversely falls as risk appetite decreases, closed below par for the first time this year on Wednesday. The CDX IG16 North American investment grade index, which investors use to hedge against bond losses, hit its highest level since November 30, according to Tradeweb. In another signal of skittishness about the market's footing, Ally Financial, an auto and mortgage lender majority owned by the US government, delayed a $6 billion (Dh22.06 billion) initial public offering (IPO) due to bad market conditions, two sources familiar with the situation told Reuters. Stocks have also been easily passing through technical support levels, with the S&P 500 most recently taking out the April 18th low of 1,294.70, leaving analysts to eye the 1,250 level as the next area of support. And the daily volume put/call ratio for equity options on the Chicago Board Options Exchange (CBOE) hit an 18-month high on Wednesday, indicating that investors are significantly bearish on the stock market. On top of all that, data expected this week, including the Producer Price Index, the Consumer Price Index, May retail sales, manufacturing surveys for New York and Philadelphia as well as the index of leading indicators of economic activity are forecast to mostly show a struggling economy. From / Gulf News