After the two-way drama of last week, which in the course of the last three days of the week saw the Dow undergo both its second largest one-day decline of the year and its second-largest one day advance of the year, things sort of cooled off yesterday. With first-quarter earnings season over and no economic reports, things were influenced on days like this by outside events, and even these were scarce.

The Dow began with a fast 42 point advance right out of the starting gate, which was perhaps a little left-over enthusiasm from Friday’s upside jobs report moonshot. From these early highs, it fell to what turned out to be its worst level of the session with a nominal 37 point decline at 10:15am, from which it just sort of chopped around aimlessly in a narrow range of between a 30 point gain to a 25 point loss before pushing a little bit better to finally end with a closing 9 point decline.

The S&P fell by a nominal one-half of a point while the Nasdaq and the Russell 2000 Index of small stocks did better, the former courtesy of good gains in AMZN, GOOG, PCLN, plus old-timers INTC and ORCL. On the other hand, homebuilders, who did so beautifully earlier in the year on the improving housing market, sold off once again on the perception of higher interest rates slowing down mortgage applications, and industrials declined on ostensibly weaker manufacturing news from China.

Going contrary to the other high-priced technology stocks was AAPL, acting the way it usually has on so many occasions this year, as after their presentation at the developer’s conference in San Francisco, the stock turned an early 7 point gain into a closing decline of 3, which had to be a completely demoralizing event for its now long-suffering shareholders who must resign themselves to the fact that this one is not going anyplace for the near future, certainly not until its next earnings report in late July, and will probably just continue to drift in this harmless current range with little moves up and down within that range, frustrating both the bullish and bearish contingent in this one and ultimately causing the most pain for its large weekly group of call buyers who inevitably end up holding worthless merchandise.

Breadth numbers were slightly negative all day even when the major averages were in nominally positive territory and ended at a 14/17 downside ratio. The VIX, which has certainly been feeling its oats lately, continued to move higher as it rose by .30 to 15.44, once again by much more than it should have relative to the closing changes in the averages. This push higher off of its yearly lows back in March at 11.30 is probably a function of the increased volatility that has been forced upon us after the now infamous May 22nd completely contradictory comments from Fed Chairman Bernanke and various Fed officials who issue statements that make it appear that they are looking at two different economies in terms of when the current stimulus programs might start to be wound down. This has had the effect of unnerving investors and even today is a wonderful example of people getting all bent out of shape because of a statement from the Bank of Japan governor and more on that later.

And ho, hum – interest rates kept moving higher, with the yield on the 30-year bond reaching its highest level since April 2012 at 3.37% while the 10-year maturity got back up to its high of the year at 2.22%, which now means that we have seen six straight weeks of lower bond prices, and this means that for those who invest in bonds, the loss of principal has wiped out years of interest payments, and just think of how those who ran into the ostensible “safe-haven” of fixed income products and pushed yields to record low unsustainable levels must feel like.

Despite this perception of higher yields in the U.S. which should theoretically strengthen the dollar, the greenback lost ground as the Euro advanced to 1.325. The Japanese stock market rose by an incredible 5.2%, its best gain in more than two years, after it was reported that Japan’s first-quarter G.D.P. rose by 4.1%.

As mentioned above, May industrial production in China rose by only 9.2% in May and in addition, its exports gained by the slowest level in 10 months and imports into that country declined as well, and all of this could indicate a slowing down in world trade patterns.

Then we had good old Standard & Poor’s revising its credit outlook for the U.S. government to stable from negative, citing Congress’s avoidance of the year-end 2012 fiscal cliff (remember that word?) and the higher than expected tax receipts that followed. They said that even raising the debt ceiling will not affect this rating, and added that the chances of a ratings downgrade are now less than one in three “due to improvements in tax receipts and economic performance, which are helping to bring down the country’s debt levels.” And let us not forget that horrible August 2011 first-ever downgrade of the sovereign credit rating of the U.S. from AAA to AA-plus by this outfit, which is the second highest rating and they also left the U.S. credit outlook negative at that time. Of course, S&P should never have downgraded our debt in the first place to begin with because if a credit rating is supposed to predict the probability of a default, it is certainly nonsensical to give the U.S. government anything but the highest rating which is AAA.

After yesterday’s mixed close, things started out with a huge downside selloff, as the Dow began with a large 152 point decline, from which it then started to accelerate to the upside around 10:20am and actually had the nerve to get positive by 13 points at its 11:30am high and how about that for an intraday upside reversal? It is currently lower by 18 as this is being written.

The VIX had an upside field day early on the very sharp opening losses with a gain up to 17.09, which has since cooled off to an advance of .58 to 16.02, still more than it should be, but we have seen this pattern persist on the potential for this type of volatility, and if the Dow does end with a triple-digit loss, it would be the seventh time in the last 11 sessions that movements of this type had taken place. This would also turn the tide of in favor of triple-digit losses versus gains into a 4 to 3 scorecard, which would indicate that market internals are weakening. But let us hope that the rally to those fast positive highs, even though not supported by the overall market, will prevent such a thing from taking place.

Bond yields initially rose to 14 month highs but have cooled off a bit ahead of today’s first leg of the latest calendar of $66 billion at this week’s auctions alone. As this is being written they are down nominally. The Euro is up nominally and once again in concert with the Japanese yen, which has strengthened to 96.8 against the dollar. Crude oil is selling off, probably the only good thing to come out of all the outside market activity, and gold is also lower, as it battles to stay above the $1,350 downside support level.

So what caused all of the early anxiety, and once again investors had to look to developments outside the U.S. as apparently what got people all bent out of shape early was a statement from the Bank of Japan governor to the effect that their central bank will consider new steps to calm markets if borrowing costs jump higher in the future, but for the time being they held off on new stimulus measures, as they argued that bond markets had stabilized. They stuck to their April pledge to expand the money supply at a 60-70 trillion yen rate, which equates to $605 billion dollars. This apparently shocked investors who had thought that new stimulus measures were on the way, and this resulted in a gain for the yen and declines in both the Japanese stock and bond market, and this is what caused the worldwide cascade of selling.

Of course, this was also an example of the Dow flying solo as the broader market was having no part of it, as breadth numbers, which had started out at one of the worst ratios possible, negative by almost 1 to 10, grudgingly improved to where now they are “only” 1 to 4. All of the other major averages are still lower, but well off of their lows as well.

Economic reports this week will be all later in the week with: Thursday – May advance retail sales, weekly jobless claims, May import price index, April business inventories; Friday – May P.P.I., May industrial production and capacity utilization, preliminary June U. of Michigan Consumer sentiment Survey.

First quarter earnings rose by 6.2%, increased by 5% for the second-quarter, were flat for the third-quarter and were 6.3% higher in the fourth-quarter. The current projection is now for a gain of 5% in the first-quarter of 2013.

The S&P trades at 15 times the projected 2013 earnings of $111. Earnings were $85 in 2010, $92 in 2011 and $102 in 2012. The estimate for 2013 is $111, a gain of 9%. The average P/E multiple for the S&P going back to 1954 has been 16.4 and it has been 14.4 for the last 10 year’s average.

After four consecutive quarters of negative G.D.P. growth, we have had 15 consecutive quarters of positive growth, starting with the third-quarter of 2009, every quarter in 2010, every quarter in 2011, and every quarter in 2012. G.D.P. rose by 2.2% in 2012, and is projected to increase by 2% in 2013, according to various surveys, with 2.5% in the first-quarter and then in the low 1’s for the second and third-quarters before a fourth-quarter acceleration to over 4%.

Donald M. Selkin

Don Selkin is the Chief Market Strategist at National Securities Corporation, member FINRA/SIPC, (NSC) and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, Associated Press}.