U.S stocks bounced between gain and loss several times on Tuesday but eventually succumbed to a little weakness, ending just below the cut line after last week’s big bounce -- the broad market is now just 1.9% below its three-year high hit on April 29.

Energy and basic materials were among the out-performing groups.  Tech and consumer discretionary shares also had a nice day.  Financials and industrials were the hardest hit areas of the market.

While stocks closed slightly lower, the CRB Index jumped 1.4% as the prices of aluminum, cocoa and sugar were on their horse yesterday and crude broke beyond that $95/bbl again to $97; wholesale gasoline closed back in on $3/gal. ($3.50-plus pump price).

On the economic front, our most recent reports on factory activity continue to post decent numbers (particularly relative to the deep declines in a number of regional reports a couple of weeks back), but overseas manufacturing has disappointed and the latest service-industry report out of the euro zone was weak. Euro-zone retail sales data fell 1.1% in May and has posted negative results for two of the past three months, which hasn’t occurred since the financial crisis was in full swing.

Market Activity for July 5, 2011

Sector Activity for July 5, 2011

Factory Orders

Factory orders for May rose 0.8%, according to the Commerce Department; although, that missed the expectation of a 1.0% increase.  The increase was unable to fully offset April’s 0.9% decline.  Excluding transportation orders, factory orders rose just 0.2%, matching April’s gain.

There are two main components to this report: non-durable orders and durables (those goods meant to last at least three years).  Non-durable orders fell 0.2% in May after  a 0.4% increase in April.

The main reason we watch factory orders is for the revision to those durable orders (that information is initially released two weeks prior to this factory orders report) as this is the main component regarding the state of the economy.  Headline durable goods orders for May came in stronger than expected, up 2.1% vs. the 1.9% initial estimate reported a couple of weeks back.  However, the ex-transportation figure rose just 0.7% after the 0.1% decline in the previous month. (Transportation orders are extremely volatile due to the commercial aircraft segment so economists use this figure as their main focus for how orders are behaving.)   Ex-transportation, durable goods orders are flat for the year.

Waiting for Jobs

The rest of the week will be dominated by job-market indicators as we get the weekly jobless claims and ADP Employment reports on Thursday (ADP provides clues for how private-sector job numbers will come in.)  By Friday we get the official payroll figures for June.  The expectation is for another weak gain of roughly 100K, which is well shy of what we need just to absorb population growth.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900