Stocks plunge Friday, but end up positive for May

Stock plunge in final hour could be due to portfolio rebalancing and automated trading of stocks, analysts say, which could have exaggerated the market's losses. Also this week in the economy: GDP disappoints, jobless claims rise, but consumers are upbeat.

Richard Drew/AP
Trader Jonathan Corpina, left, and specialist Michael Pistino work on the floor of the New York Stock Exchange, Friday, May 31, 2013, in New York. Stocks plunged in the final hour of trading, with the Dow losing nearly 209 points.

Stocks plunge in final hour of trading: The stock market was directionless for most of Friday until the last hour of trading, when it sank like a stone. The Dow Jones Industrial average lost 100 points in the final 15 minutes alone. Some traders blamed end-of-the month rebalancing of portfolios; others pointed to automated trading programs for kicking in and exaggerating the loss. In the end the Dow was down nearly 209 points, or 1.4 percent, its biggest one-day decline since April. The Standard & Poors 500 index also fell 1.4 percent and the tech-heavy Nasdaq declined 1 percent.

Despite the late plunge, and the old adage about getting out of the stock market in May, stocks were still up for the month. That's the sixth month in a row for the venerable Dow.

Government bond yields rose, with the benchmark 10-year Treasury note edging up to 2.13 percent, its highest level in more than a year. Mortgage rates, which usually move in tandem with the 10-year note, also are up to their highest levels in a year. 

Personal income unchanged in April, but consumers are upbeat: Personal income among US households went unchanged in April. Consumer spending dipped slightly, falling 0.2 percent, according to data from the US Commerce Department. Both reads were slightly below analysts’ expectations, and some see it as a sign that the spending cuts stemming fro the “sequester” in Washington finally may be catching up with consumers.  We believe consumer spending is slowing in lagged response to the large decline in real disposable income in [the first quarter of 2013], which owed to the tax increases, as well as some income shifting into [the last quarter of 2012] to get ahead of those tax increases,” Barclays Research economist Dean Maki wrote in an e-mailed analysis.Analysts also take the slowdown as a hint that the Federal Reserve won’t slow its asset purchases, but warn that such a decision will likely hinge more on the labor market than anything else. “On a more fundamental basis, labor market conditions will be the key factor for the consumer, and evidence concerning job growth therefore will remain the paramount economic variable for some time,” Josh Shapiro, US economist for MFR, Inc. in New York, wrote in his analysis of the numbers.

Consumers themselves, meanwhile, are feeling good about the economy, at least according to one survey:. The Conference Board’s Consumer Confidence Index increased for the second month in a row, reaching its highest level in over five years. A separate survey, the University of Michigan Consumer Sentiment Index, reached its highest level since 2007.

GDP revised downward: The US economy grew at a 2.4 percent annualized rate in the first quarter of 2013, according to the Commerce Department. That figure was revised downward about 0.1 percent from the initial estimate. “While the dynamics for consumer spending remain strong (job gains, wealth increases, improving consumer confidence etc.), the strong growth in the first quarter—financed by a draw-down of savings—is not sustainable. Instead, growth of 2% to 2.5% is likely for the rest of this year,”  IHS chief economist Nariman Behravesh wrote in his e-mailed analysis. He predicted, too, that the sequester’s deepest effects on economic growth will likely be felt in the current quarter.

Another round of good housing data:  Home prices increased 10.9 percent over last year in March ,their biggest annual increase since April 2006 [LINK:] according to Case-Shiller’s 20-city index of home prices. Sales volume is also on the rise, according to the National Association of Realtors, and the backlog of foreclosed or distressed homes in certain cities is starting to shrink. Still, prices and sales are still a long way from pre-bust levels, and the full recovery could take years.  That said, the recovery shows little sign of a slowdown 

Jobless claims rise:  The number of people applying  for unemployment benefits rose modestly but unexoectedly last week. Initial jobless claims jumped by 10,000 claims to 354,000. Analysts had expected claims to drop to about 340,000. "Unemployment claims are not unfriendly for the economic outlook," economist Chris Rupkey told the LA Times, "But they are not overly friendly either."

Hands-free Whopper holder comes to Burger King: To celebrate its 50th anniversary doing business in Puerto Rico, Burger King gave away 50 hands-free Whopper holders. The device  hangs from the neck, much like a harmonica holder.

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