Markets turn cautious (again) ahead of economic data deluge

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Wall Street returned to normal Monday -- selling stocks and buying government bonds.

The Dow Jones industrials lost 140.92 points, or 1.4%, to 10,009.73, taking back most of the 164.84-point gain Friday that followed a better-than-expected (though still lousy) report on second-quarter economic growth.

The stock market Friday also may have felt a little better after Federal Reserve Chairman Ben S. Bernanke sought to assure the nation that the central bank wouldn’t sit idly by if another recession threatened. That wasn’t exactly a surprise, but it seemed to soothe some nerves for a day.

On Monday, though, stocks couldn’t get any traction from the government’s report that consumer spending in July was up 0.4% from June, the fastest pace of increase since March. The same report showed that overall income growth in July rose a modest 0.2%, which made the spending gain appear unsustainable in an already weakened economy.

But it’s hard to tell if anyone was really paying attention: New York Stock Exchange trading volume slowed to the lowest level of any session this year. Investors and traders may have been watching on their BlackBerrys from the beach, but most weren’t inclined to do anything.

With stocks falling, the knee-jerk reaction was to move money back into Treasury bonds. The 10-year T-note yield, which had jumped from 2.49% on Thursday to a two-week high of 2.65% on Friday, fell back to 2.53% on Monday.

Nothing succeeds like success, and success this year has been owning bonds. With one trading day to go in August, the biggest bond mutual fund -- Pimco Total Return Bond -- is up 1.25% for the month and up 8.5% year to date, including interest earnings and share-price appreciation.

By contrast, the Standard & Poor’s 500 stock index is down 4.6% for the month and down 4.7% year to date, including dividends.

The markets will have to cope with a barrage of economic data the rest of this week, including Case-Shiller data on June home prices and the Conference Board’s August consumer confidence index (both due Tuesday), August manufacturing sector data (Wednesday) and the all-important August employment report (Friday).

Attention vacationing investors: Keep those BlackBerrys fully charged!

-- Tom Petruno