Another week of huge losses at Wall Street
US Market once again ended the week on Friday, 27 June with huge
losses. The Dow fell to its lowest level since September 2006. Record
high crude prices, tumbling financial sector and not-so-good outlooks
from tech companies took a toll on market sentiment.
The Dow
Jones Industrial Average lost 496 points for the week to end at
11,346.69. Tech - heavy Nasdaq lost 91 points at 2,315. S&P 500
shed 40 points to end at 1,278. In percentage terms, Dow, S&P 500
and Nasdaq lost 4.2%, 3% and 3.8% respectively. Financials tumbled
almost 6% for the week and is at its lowest level in five years.
Wall Street firms were in downgrade mode, prompting most of the selling
during the week. Goldman Sachs sent financials tumbling on Monday, 23
June, after cutting the sector to Underperform from Neutral. Also,
Wachovia Securites downgraded Goldman Sachs to Market Perform from
Outperform. Credit Suisse cut its earnings estimates on Merrill Lynch
and JPMorgan Chase, citing incremental credit quality deterioration.
As the week progressed, financial sector failed to make any change in
its destiny. Goldman added Citigroup to its Conviction Sell list on
Thursday, 26 June and also forecast a $8.9 billion second quarter
write-down. On the other hand, Lehman Brothers said Merrill Lynch will
likely incur a $5.4 billion second quarter write-down, mainly from its
exposure to bond insurers. Nine of the ten sectors posted a decline for
the week.
During the middle of the week, on Wednesday, 25 June,
the Federal Reserve sharpened its focus on inflation, saying that the
upside risks to inflation have increased. Market reacted in a quite
volatile manner throughout the day. At the end, it ended with little
gains. Fed held its target for short-term interest rates steady at 2%.
In its FOMC directive, the Fed said overall economic activity continues
to expand, partially due to firming in household spending. However, the
fed expects economic growth will face the burdens of tight credit
conditions, housing contraction and the rise in energy prices. The
statement also said that uncertainty over the inflation outlook remains
high, although it expects inflation to moderate later this year and
next year.
In terms of economic data, the Commerce Department
reported that U.S. orders for durable goods were unchanged in May.
Also, the Commerce Department estimated that sales of new U.S.
single-family homes fell 2.5% in May to a seasonally adjusted annual
rate of 512,000 as sales in the West fell to a 26-year low. The drop in
May follows the upwardly revised 4.8% gain in April. The results in May
are better than the expected drop of 2.7%.
Also, the final GDP
reading for the first quarter indicated the economy grew at 1%, on par
with expectations and up slightly from the previous reading. Personal
consumption expenditures were revised upward to 1.1%, while the GDP
price index came in at 2.7%.
The 104% year-over-year spike in
crude prices took a toll on petroleum intensive companies. UPS lowered
its second quarter earnings guidance, citing the increase in fuel costs
and the sluggish U.S. economy.
In terms of earnings news,
Research In Motion reported an earnings miss and tepid outlook.
Oracle?s outlook also disappointed investors.
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