Benchmarks settled in the red zone as concerns about the timing
of a rate hike by the central bank rates kept investors jittery.
Friday's largely positive economic data could only lift the stocks
momentarily as concerns from Thursday over a spike in US labor
costs and a credit default by Argentina continued to weigh on
investors. The S&P 500 posted its largest weekly decline in two
years. The Dow too registered its biggest weekly drop since Jan 24.
For a look at the issues currently facing the markets, make sure to
Ahead of Wall Street
The Dow Jones Industrial Average (DJI) dropped 0.4%, to close
Friday's trading session at 16,493.37. The Standard & Poor 500
(S&P 500) declined 0.3% to finish at 1,925.15. The tech-laden
Nasdaq Composite Index closed at 4,352.64; declining 0.4%. The
fear-gauge CBOE Volatility Index (VIX) went up 0.5% to settle at
17.03. Total volume for the day was roughly 7.2 billion shares,
higher than last five day's average of 6.2 billion. Decliners
outpaced advancing stocks on the NYSE. For 61% stocks that
declined, 36% advanced.
Dow's loss on Friday dragged it into the negative territory for
2014. The blue-chip index has dropped 0.5% year to date.
Investors remained concerned about wage inflation, on the backdrop
of robust economic growth. Investors feared that this might lead to
a rise in federal funds rate sooner than anticipated.
Investors were also concerned about Argentina's debt woes. On
Thursday, Standard & Poor's downgraded Argentina's credit
rating to "selective default" after the government failed to pay
interest on $13 billion of restructured bonds within the deadline.
The South American country failed to pay debts of $539 million to
bondholders after a U.S judge ruled that the country can't make
debt payments until and unless hedge funds led by Elliot Management
Corp. receive payments. Earlier, Argentina had failed to make debt
payments to these hedge funds.
Investors also focused on U.S. and European credit markets. Prices
of high-yield bonds and debt issued by European nations declined
partly due to the financial crisis of Banco Espirito Santo SA and
Argentina's debt woes. These high-yield bonds are generally
considered to be riskier assets.
Positive domestic economic data had lifted benchmarks for a while.
Economic activity in the manufacturing sector expanded in July for
the 14th successive month. According to a report from the Institute
for Supply Management, July PMI gained 1.8 percentage points from
June's adjusted reading of 55.3% to touch 57.1%.
The University of Michigan and Thomson Reuters' final reading of
consumer sentiment increased to 81.8 in July. The rise in consumer
sentiment was in line with the consensus estimate.
According to the Bureau of Economic Analysis, both personal income
and personal consumption expenditure increased 0.4% in June. Both
increases were in line with the consensus estimate. Personal
consumption expenditure had increased 0.3% in May.
The U.S. Bureau of Labor Statistics said total nonfarm payroll
employment increased 209,000 in July, less than the consensus
estimate of an increase by 234,000. The unemployment rate edged up
to 6.2% in July from June's 6.1%. The rise in the
unemployment rate seems to suggest that the economic recovery may
be less robust than expected. This eased some fears about the
possibility of a sooner-than-expected rate hike.
Separately, the US Census Bureau of the Department of Commerce
reported a 1.8% drop in construction spending to $950.2 billion in
June from May's revised estimate of $967.8 billion. This decrease
in the payout by builders on residential and nonresidential
structures was in sharp contrast to consensus estimate of an
increase by 0.8%.
Shares of LinkedIn Corporation (
) surged 11.7% a day after the professional networking company's
adjusted earnings per share of 4 cents beat the Zacks Consensus
Estimate of breakeven figure. LinkedIn reported its results after
the markets closed on Thursday.
Tesla Motors, Inc. (
) reported adjusted loss of 14 cents per share in the second
quarter of 2014, narrower than the Zacks Consensus Estimate of a
loss of 24 cents. Shares of the electric car maker increased
The Western Union Company (
) and PerkinElmer Inc. (
) led the decline among the S&P 500 components. Both the
companies reported a decrease in second quarter 2014 earnings.
Shares of Western Union and PerkinElmer dropped 3.9% and 3.6%,
Meanwhile, shares of The Procter & Gamble Company (
) gained 3.0% after the world's largest consumer products company
said it will shed about half of its brands in order to increase
sales. PG's fourth-quarter adjusted earnings of 95 cents per share
beat the Zacks Consensus Estimate of 91 cents. PG turned out to be
the best performing stock among the Dow components.
Benchmarks finished the week on a disappointing note. For the
week, the S&P 500 dropped 2.7%, its largest percentage decline
since the week ended Jun 1, 2012. The blue-chip index dropped 2.8%,
posting its biggest weekly drop since the week ended Jan 24. The
Nasdaq too settled in the red, declining 2.2%.
Benchmarks suffered their biggest losses in months on Thursday,
following a default by Argentina, and a spike in US labor costs.
Benchmarks were also negatively impacted after the U.S.
and the European Union expanded economic sanctions
against Russia. Separately, the Nasdaq was weighed down by declines
in bio-tech stocks.
The Federal Open Market Committee (FOMC) stuck to its plan of
steadily wrapping up the quantitative easing program. The Federal
Reserve said the rate hike may take "considerable time" after the
end of its bond buying program.
Investors also assessed Fed's mixed view on the economy. The FOMC
indicated that the economy has shown significant improvement in the
second quarter as most of the economic indicators such were on
track. However, FOMC also said the labor market is facing problems
of underutilization and the pace of recovery of the housing sector
On the economic front, pending home sales data was discouraging. A
gauge of pending home sales numbers retreated in June after three
consecutive months of solid growth.
Positive second-quarter GDP, encouraging private sector hiring
reports and upbeat consumer confidence data failed to lift the
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
LINKEDIN CORP-A (LNKD): Free Stock Analysis
TESLA MOTORS (TSLA): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
PERKINELMER INC (PKI): Free Stock Analysis
PROCTER & GAMBL (PG): Free Stock Analysis
To read this article on Zacks.com click here.