US markets decline on Eurozone debt fears

US equity markets began to wobble during May amid concerns Greece might default on the payment of its debts and this sentiment went on to fuel fears other highly indebted countries might find themselves in a similar situation.

Congress put the finishing touches to the most sweeping reform of US financial regulation since the Great Depression of the 1930s. Measures include rigorous limits on banks’ scope to take excessively speculative bets on financial markets, and the creation of a consumer financial protection bureau.

Europe’s debt crisis continues to affect investor sentiment amid fears lower economic growth there might stifle demand for US exports. Meanwhile, closer to home, investors are concerned that state government budget cuts might hamper the US economic recovery.

According to a report by the National Governors Association and the National Association of State Budget Officers, US state governments intend to reduce general expenditure by 6.8% during 2010. The US economy expanded at 2.7% year on year during the first quarter of 2010 – a slower rate than previous estimates of 3% growth.

The unemployment rate fell to 9.5% during June, according to the Labor Department. The US Federal Reserve said the labour market is “improving gradually”, but that consumer spending “remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit”. The Fed went on to warn that bank lending has continued to contract over recent months. Consumer confidence is low and high levels of unemployment have hampered growth in consumer spending.

Wages grew by 0.4% during May, according to the Commerce Department – indeed, wage growth is outstripping consumer spending, which grew by 0.2% during the month. This imbalance should help the population to save money while still spending to support the domestic recovery, particularly as interest rates remain at an extremely low level. Inflation rose by 2% in May on an annualised basis

The manufacturing sector received positive news during the month, as the Institute for Supply Management-Chicago announced its business barometer fell to 59.1 during June. A number over 50 represents growth in the manufacturing sector.
The S&P 500 index registered a decline of 11.9% over the second quarter of 2010, and 7.8% over the first half of the year. North America was the fifth-best-selling IMA sector during May for retail investors, but was one of the worst-performing sectors during the month – although smaller companies slightly outperformed the broad US equity market.