Relatively Speaking, Things Are Not Looking Up

The shares of KeyCorp fell 10.4% today, hurt by news of a doubling of loan loss estimates and a downbeat outlook from Ohio’s third-largest bank. That weighed on the bellwether KBW Bank Index, which fell 1.7%, and the S&P financial sector, which lost 0.7%. Even so, financial shares in the U.S. and around the globe remain above the lows they hit back in mid-March. In comparison to other shares, however, the sector has been steadily losing ground. The benchmark MSCI World Financials Index, for example, is now trading at its lowest level in relative terms since August 2000.

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Yesterday, the Census Bureau reported that single-family home sales rose at a better-than-expected 3.3%, though the year-on-year pace hit a dismal -42%, the lowest level since the fall of 1981. However, relative to sales of existing homes, new home sales have actually fallen to a record low. Moreover, based on the following chart, the recent sharp fall in the ratio also appears to show that recession is upon us.

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Since the Nasdaq-100 index (NDX) made its closing low on March 10th, the NDX has gained 19%. Yet the rally has been anything but broad-based. One stock, Apple, has accounted for almost a third of the move. Three of Jim Cramer's four "Horsemen of Technology" -- Apple, Google and Research in Motion -- have been responsible for half. Nine stocks have accounted for two-thirds of the gain. That’s not exactly a strong foundation.

Name3/10/2008 Close5/28/2008 CloseNet Change in PointsNet Change in %% of Overall Move in NDX% Weight in NDXCumulative % of Overall Move
Nasdaq 1001673.031990.87317.8419.00%
Apple Inc119.69185.8266.1355.25%30.01%13.42%30.01%
Research In Motion93.59137.1543.5646.54%9.05%4.53%
Gilead Sciences46.1353.287.1515.50%2.42%2.87%
Intel Corp20.1223.223.1015.41%2.33%2.77%
Adobe Systems31.9442.6810.7433.63%2.15%1.36%

Finally, the results from two sentiment surveys were announced this week. Both the monthly Conference Board Consumer Confidence Index and the weekly ABC Consumer Comfort Index came in below expectations. More revealing, perhaps, is the picture you see when you look at how they (and the equally well-known University of Michigan Consumer Confidence survey) have fared when they are all converted to the same scale. Any way you measure it, confidence has been in a free-fall.

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Stocks finished modestly higher. A late-day turnaround in crude oil futures, which closed up $2.18 at $131.03 per barrel, boosted heavily-weighted energy shares, overshadowing weakness in financials on KeyCorp’s warning.

At the close, the Dow Jones Industrial Average rose 45.68, or 0.4%, to 12,594.03. The S&P 500 Index gained 5.49, or 0.4%, to 1,390.84. The Nasdaq Composite Index tacked on 5.46, or 0.2%, to 2,486.70.

August gold ended $7.80 lower at $905.00, while the U.S. Dollar index drifted slightly higher. Ten-year Treasury bond yields rose 8 basis points to 4%, the highest level since the year began.

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