U.S. stocks and exchange traded funds (ETFs) are starting the week off in negative territory as investors are pessimistic on the health of the economy and the strength of an economic recovery.
Positive news came out of the service sector this morning as the Institute for Supply Management’s services index indicated that the sector contracted less than expected in June, reaching its highest level in nine months. The index read a 47, up from the 44 it was at in May and higher than the 45.5 forecast by experts. The index is still below 50, indicating that the sector is contracting, but it is at the best showing since September.
In the automotive world, a judge ruled that GM could sell its assets to a new company, potentially clearing the way for the automaker to emerge out of bankruptcy protection, stating that it is in the best interests of both GM and its creditors. Unfortunately, law experts say that GM is not in the clear and the probability of appeal is extremely high.
Worries about the economy further trickled down to the commodities markets and sent black gold to below $64/barrel in electronic trading on the New York Mercantile Exchange. A weak jobless report, stagnant demand for crude oil and a rise in the U.S. dollar kept black gold from gaining any ground.
The volatility of the commodity is unprecedented and, as a Deutsche Bank analyst said that “crude oil has appeared to have been divorced from the underlying fundamentals of weak demand, ample supply and ample inventory.” Unite States Oil Fund (USO) was down 3.6% in morning trading.
Second quarter earnings may remain tough for earnings season. Record levels of unemployment are keeping consumers wary of spending both here in the United States and abroad. Earnings season begins on July 8, and we’ll get a better feel of the economic situation then.
President Barack Obama is in Russia this week, and already it’s been productive. Obama and President Dmitri A. Medvedev have announced a deal to cut back on their respective stockpiles of nuclear weapons, report Clifford J. Levy and Peter Baker for The New York Times.
Emerging markets continue to remain attractive as soft-drink giant Pepsi Co. (PEP) announced it will team up with its largest bottle maker, Pepsi Bottling Group (PBG), to invest $1 billion in Russia over the next three years. Pepsi Co. sees a bright future for Russia and feels that international sales can help make up for declines in domestic sales. Despite the uplifting news, the Market Vectors Russia ETF (RSX) was down 4.9% in morning trading.
All three major U.S. indexes were down in morning trading with the Nasdaq leading the way declining by 1.3%, followed by the S&P 500 down by nearly 1% and then the Dow Jones Industrial Average dropping nearly 0.7%.
Kevin Grewal contributed to this article.