US Market tries best to limit its own losses
US Market ended the week on Friday, 25 July on a mixed note. Nasdaq was
the only index that managed to carve out some gains for the week. But
the other two major indices, S&P 500 and the Dow registered modest
losses. Drop in oil prices, ups and downs in the financial stocks and
better-than-feared earnings news once again dominated the week.
The Dow Jones Industrial Average lost 126 points for the week to end at
11,370.69. Tech - heavy Nasdaq gained 30.4 points at 2,310.5. S&P
500 lost 2.9 points to end at 1,257.76. In percentage terms, Nasdaq
gained 1.2%. Dow and S&P 500 lost 1.1% and 0.2% respectively.
Bank of America kicked off the reporting for the financial sector this
week. The company announced a substantial drop in its profits. Bank of
America reported a 43% drop in earnings per share to $0.72. However,
the result easily topped Wall Street's forecast due to a
lower-than-expected write-down of $1.2 billion. In contrast, Wachovia
declared a larger-than-expected loss of $8.9 billion.
After
rallying in the first two days of the week, the pullback in the
financials was a major drag on the broader market during the rest of
the period. A pickup in concerns about a global economic slowdown,
which were fed by weak data out of Europe, the hangover of major
earnings disappointments from American Express and Texas Instruments,
cautious guidance from Apple, and a horrendous earnings report from
Ford kept buying efforts in check.
Also in the earnings arena,
strong emerging market demand helped Caterpillar increase earnings per
share 40% year-over-year, topping estimates. UPS reported in-line
earnings, relieving investors. The company called the economy bleak,
but kept its full year earnings forecast in-line with expectations.
In the healthcare sector, Merck reported better-than-expected results
for its latest quarter, but continued concerns over its cholesterol
drug Vytorin sent shares tumbling. United Health reported a 23% drop in
earnings per share, but the results topped expectations.
AT&T shares rallied after reporting an 8.6% rise in earnings per
share, which met Wall Street's forecast. There were some earnings
misses as well. Boeing, E*Trade, Washington Mutual and Yahoo! fell
short of estimates. Washington Mutual reported a larger-than-expected
loss of $3.3 billion. 3M announced earnings that exceeded analysts'
expectations. Amazon.com announced that its second quarter revenue
surged 40% year-over-year to $4.1 billion which was better than
analysts forecast.
Weak housing data added further salt to
injury that the market had been bleeding with since the middle. On
Thursday, 24 July, the National Association of Realtors reported
existing home sales in June slipped to a 10-year low. A day later,
Commerce Department reported that new home sales, were reported to be
down 0.6% in June from an upwardly revised May number. Strikingly, June
new home sales at an annual rate of 530,000 units were right in line
with the 3-month average for the March to May period. Market was
expecting new home sales of 503,000 for June. Importantly, the data
suggested some signs of stabilization, though at depressed levels.
During the last day of the week, Friday, 25 July, traders lifted stocks
in early action after it was reported durable goods orders made a
surprising increase for June. The increase totaled 0.8%, which is
better than the prior increase of 0.1% and the 0.3% downturn that
economists forecast. Excluding transportation, orders increased 2.0%,
up from the 0.5% downturn in the prior month and above the 0.2%
downturn that was expected.
In other economic news, initial
jobless claims for the week ending 19 July was reported to have totaled
406,000, which is an increase of 34,000 from the prior week and 26,000
more than market expectations. That was the second time in four weeks
the claims number were reported above 400,000. This report also made
sentiment negative in the market.
Crude prices once again fell
on Friday, as investors continued to be worried about oil demand from
US in the long run. The rebounding dollar also added further impact to
the fall. With this, crude ended lower in the seven out of last nine
sessions. Crude-oil futures for light sweet crude for September
delivery closed at $123.26/barrel (lower by 2.23/barrel or 1.8%) on the
New York Mercantile Exchange. For the week, prices coughed up $6.5
(4.8%). It's now 16.3% lower than the $147.27 record high hit last on
Thursday, 10 July, 2008.
The coming week will bring another
heavy slate of earnings reports and a key batch of economic data,
including the advanced Q2 GDP report and the July employment report.
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