Encouraging consumer spending data and strong sales figures from major retailers failed to avoid benchmarks’ fall yesterday as investors remained cautious ahead of Ben Bernanke’s speech. The S&P 500 settled below the 1, 400 level for the first time since August 6. Also, none of the industry groups in S&P settled in the green. The financial sector was heavily battered as investors preferred to offload their positions ahead of Bernanke’s speech.
The Dow Jones Industrial Average (DJI) slumped 106.77 points or 0.8% to close at 13,000.71. The Standard & Poor 500 (S&P500) also dropped 0.8%to finish yesterday’s trading session at 1,399.48. The tech-laden Nasdaq Composite Index was down 1.1% and ended at 3,048.71. The fear-gauge CBOE Volatility Index (VIX) added 4.5% and settled at 17.83. Volumes continued to be among the lowest for the year and it was a mere 2.8 billion shares on the New York Stock Exchange. The average consolidated volumes for the week till Thursday is at 4.49 billion shares on the New York Stock Exchange, Nasdaq and American Stock Exchange; the lowest levels for 2012 so far. The declining stocks far outpaced the advancing ones; as for 68% stocks that declined, only 28% stocks closed higher.
As for the economic readings, the real consumer spending expanded in July, rebounding from a contraction in June. The Bureau of Economic Analysis reported that Personal consumption expenditures (PCE) rose 0.4% or $46.1 billion. The real PCE was up 0.4% as against a decline of 0.1% in June. The report also noted that the personal income increased 0.3% and disposable personal income (DPI) added 0.3% in July.
Separately, retailers including Target Corp. (NYSE:TGT), Macy’s, Inc. (NYSE:M), Gap Inc. (NYSE:GPS) and Nordstrom Inc. (NYSE:JWN) reported encouraging August sales numbers. This combined with the positive consumer expenditure data should have been encouraging headlines for the benchmarks to have finished in the green. However, that was not the case yesterday as a cautious stance coupled with no drop in initial claims and discouraging signs from international frontiers dragged benchmarks to the negative zone.
As for the international jitters, Greek Prime Minister Antonis Samaras pressed on the need of the austerity measures in 2013-2014. He did mention that the “cutbacks are difficult, painful,” and added, “”But they are also inevitable. For without them the country would return to zero credibility and effectively leave the euro. Which would…destroy the country”. However, he also mentioned that this cutback would be the last major austerity measure. Separately, German Chancellor Angela Merkel’s talks with Chinese Premier Wen Jiabao failed to assure him about the European region, as Wen Jiabao urged that the embattled European nations must pick up austerity measures.
Coming back to the domestic front, the U.S. Department of Labor reported that the seasonally adjusted initial claims in the week ending August 25 remained flat with the previous week at 374,000. It was also somewhat weaker than the consensus estimates of 373,000.
While the these negatives weighed on investor sentiment, they also remained on the edges as the investors are apprehensive about what Federal Reserve Chairman have to divulge regarding the need of another economic stimulus. The Federal Reserve’s annual meeting is scheduled at Jackson Hole on Friday. Through the week, investors remained cautious and refrained from betting big bucks. While some investors have been optimistic about a definite clue regarding the third quantitative easing, there have been strategists who opined otherwise. Very recently, economic data have been on the brighter side, including positive housing figures and GDP data showing slight advance in the second estimate from the initial estimate.
Thus, with the apprehensions alive, investors chose to sell their shares and the financial sector also bore the brunt. The Financial Select Sector SPDR (ETF) dropped 0.5% and stocks including Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), U.S. Bancorp (NYSE:USB), Goldman Sachs Group, Inc. (NYSE:GS) and Wells Fargo & Company (NYSE:WFC) dropped 0.9%, 1.1%, 0.6%, 0.8% and 0.6%, respectively.
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