US Stock Market Fails to Sustain Rally, Dow Drops Amid Strong Economic Growth

Strategic Insights -

The US stock market experienced a sharp decline yesterday, failing to sustain its strong rally on Monday. The Dow Jones industrial average dropped 15.86 points to 3669.64 at the close, primarily due to a sell-off in the bond market. This decline in the bond market coincided with the release of a report from the Conference Board, which showed consumer confidence at its highest level for four years. Additionally, a separate government report indicated economic vitality, as sales of new homes rose 4.2% in May, despite rising mortgage rates.

Key Takeaways:

  • The Dow Jones industrial average dropped 15.86 points to 3669.64 at the close, due to a sell-off in the bond market.
  • The bond market sell-off sent long-term rates up to 7.53% from 7.45% late Monday.
  • Consumer confidence reached its highest level for four years, according to a report from the Conference Board.
  • Sales of new homes rose 4.2% in May, despite rising mortgage rates, as indicated by a separate government report.
  • The dollar came under pressure, dipping below the 100-yen level to 99.97 yen and falling to 1.5783 German marks, closing at 99.95 yen and 1.5791 marks.
  • Some analysts predict a fall to as low as 95 yen and below 1.55 marks before interest rate increases spark recovery.
  • The futile intervention of 17 central banks last Friday, when they spent $5 billion to prop up the US currency, has left the Fed as the last line of defence for the dollar.
  • US Treasury Secretary Lloyd Bentsen stated that a weakened dollar would be on the agenda at the forthcoming G-7 economic summit in Naples.

Statistics:

  • The Dow Jones industrial average dropped 15.86 points to 3669.64.
  • Long-term rates rose from 7.45% to 7.53% late Monday.
  • Consumer confidence reached its highest level in four years.
  • Sales of new homes rose 4.2% in May.
  • The dollar dipped to 99.97 yen and 1.5783 German marks in early afternoon trading.
  • The dollar closed at 99.95 yen and 1.5791 marks.
  • Some analysts predict a fall to 95 yen or below 1.55 marks.
  • The $5 billion spent by 17 central banks on Friday was aimed at propping up the US currency.

Sources:

  • THE US
  • Conference Board, "Consumer Confidence Reaches Highest Level in Four Years"
  • US Treasury Department, Lloyd Bentsen statement on the G-7 economic summit
  • Bloomberg, "US Stock Market Falls Sharply Amid Strong Economic Growth"