Positive initial claims data could hardly help the markets avoid
its sixth-consecutive day of losses, as worries over the global
economic situation and profit warnings weighed on investors
sentiment. All the benchmarks closed in the red, but the Dow had
turned positive briefly helped by a strong rally in homebuilding
The Dow Jones Industrial Average (DJI) slipped 0.3% and was down
to 12,573.27. The Standard & Poor 500 (S&P 500) dropped
0.5% and finished yesterday's trading session at 1,334.76. The
tech-laden Nasdaq Composite Index plunged 0.8% and ended at
2,866.19. The fear-gauge CBOE Volatility Index (VIX) edged up 2.1%
and settled at 18.33. Consolidated volumes on the New York Stock
Exchange, the Nasdaq and the American Stock Exchange were roughly
6.46 billion shares, lower than the year-to-date daily average of
6.85 billion shares. Decliners outnumbered the advancing stocks on
the NYSE; as for 61% stocks that declined, 36% stocks ended higher.
The remaining 3% stocks were left unchanged.
Domestic economic readings yesterday were on the positive side.
In the morning investors learnt that initial claims had declined
significantly. However, this hardly had any positive impact and
benchmarks were down in the red zone right from the start. The U.S.
Department of Labor reported that the advance figure for seasonally
adjusted initial claims declined 26,000 from previous week's
revised figure of 376,000 to 350,000 in the week ending July 7. The
reported decline was larger than consensus estimates' projection of
a decline to 371, 000.
However, the encouraging jobs report failed to spark off any
cheer as it might have lowered the odds of further economic
stimulus. A day earlier, the minutes from the Federal Open Market
Committee's meeting dashed investors' hopes for additional stimulus
measures stating that policy makers awaited more weakening signs
from the economy. The minutes noted that the policymakers did
acknowledge the sorry state of economy and labor conditions and
said: "Growth in employment has slowed in recent months". However,
some economists had opined that central bankers might wait and
observe developments in the labor market and then decide about
economic stimulus accordingly.
Economic conditions continued to weigh on investor sentiment,
with even Billionaire investor Warren Buffett expressing his
concerns about the situation. Speaking to CNBC Buffet said: "The
general economy in the United States has been more- or-less flat,
and so the growth has tempered down." Investors' apprehension
regarding the European economy was highlighted in Buffet's comments
as well and he said that weak spending in Europe, a result of its
debt woes, had resulted in businesses deciding to "pull in their
Warren Buffet also spoke on the housing sector. He said: "For a
couple years I've been telling you that everything except
residential housing was improving at a moderate rate, not crawling,
but not galloping eit.her, but that residential housing was
flat-lining. And the last two months it's been just sort of the
opposite." His comments came on a day when homebuilder stocks put
up a strong rally. The SPDR S&P Homebuilders (XHB) gained 1.4%
and stocks including Lennar Corporation (NYSE:
), KB Home (NYSE:
), PulteGroup, Inc. (NYSE:
), D.R. Horton, Inc. (NYSE:
) and M/I Homes Inc (NYSE:
) jumped 3.6%, 3.7%, 2.9%, 2.7% and 1.3%, respectively.
The strong showing by the homebuilder segment did help the
benchmarks come off their lows and helped the Dow turn positive for
a short time. However, investors' apprehension regarding economic
health was widely prevalent and markets suffered yet another loss.
Further intensifying the concerns were corporate profit warnings.
After Cummins Inc. (NYSE:
), Advanced Micro Devices, Inc. (NYSE:
), Applied Materials, Inc. (NASDAQ:
) chopped their sales estimates earlier this week, the Indian tech
major Infosys Ltd ADR (NASDAQ:
) slashed its sales expectations. The company's shares moved 11.2%
lower yesterday following the announcement.
Infosys's CEO S.D. Shibulal said "If you look at the
environment, it's still very uncertain." Infosys' concerns about
the uncertain global economy were almost an echo of what Cummins
and AMD had to say earlier this week. Both of them said a slowdown
in the global economy was responsible for their woes. AMAT too
noted that "weaker than expected near-term demand in its
semiconductor equipment business" affected its results.
Meanwhile, as investor apprehensions were further aggravated by
corporate profit warnings, financial majors JPMorgan Chase &
) and Wells Fargo & Company (NYSE:
) are scheduled to report their earnings results today.
APPLD MATLS INC (AMAT): Free Stock Analysis
ADV MICRO DEV (AMD): Free Stock Analysis Report
CUMMINS INC (CMI): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis
INFOSYS LTD (INFY): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
KB HOME (KBH): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
M/I HOMES INC (MHO): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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