Despite Strong Financials, Stocks Remain Stuck in Choppy Trade

JUNE 25, 2010
Michael A. Doran
A positive reaction to the financial reform bill has helped financials trade with strength for the entire session, but the broader market has spent the better part of the day stuck in choppy trade.

Banks and financial services stocks displayed strength for the entire session. Their strength follows the finalization of the financial reform bill, which will prohibit banks from making risky bets with their own money, but allows room for some firms to participate in hedge funds and private-equity funds. The bill is expected to be passed in coming weeks and removes an element of uncertainty for the sector -- but there are still uncertainties about its implications.

Market participants showed a brief negative reaction to the final U.S. gross domestic product reading for the first quarter. GDP grew at a slower-than-expected annual rate of 2.7 percent in the quarter, down from a revised estimate of 3 percent in May (which itself was down from the original estimate of 3.2 percent). Personal consumption growth was also revised downward to reflect a softer-than-expected increase of 3.0 percent.

One positive from the report was an upwardly revised 0.7 percent increase in core personal consumption expenditures. The GDP report had little lasting effect on the mood of the market, but stocks did see some buying interest surface after the final June Consumer Sentiment Survey from the University of Michigan came in at a slightly improved 76.0, which is not only above the 75.5 that many had anticipated, but is also the best reading since January 2008.

In earnings news, Oracle Corp. (NASDAQ: ORCL) posted an upside surprise for the latest quarter and issued solid guidance. However, Research in Motion Ltd. (NASDAQ: RIMM) issued a relatively mixed outlook that overshadowed an upside surprise of its own. The contrast in the reports has left the technology  sector, which is the largest by market weight, mired with moderate weakness.

The broader market's inability, or unwillingness to be inspired by the financial sector's 1.5% gain has made for mixed action overall this session. In turn, the stock market continues to chop along. The directionless trade makes it uncertain whether stocks will log their fifth straight loss, which would make for the stock market's longest losing streak of 2010.

While action in the broader market remains lackluster, the Russell 2000 Small Cap Index is up a sharp 1.1%. Its strength comes ahead of the annual reconstitution of the Russell averages after the close.
 
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