Concerns from European corner once again pulled down the markets, as reports about a slowdown in the German economy led to the benchmarks’ first fall in four days. Failed talks between the French and German heads over a resolution to euro-zone debt woes overshadowed positive corporate results and Fitch’s decision to retain the US’ AAA rating.
On yet another volatile trading day, the Dow Jones Industrial Average (DJIA) lost 76 points or 0.7% to finish the day at 11,405.93. For the first time in seven trading days, the blue-chip index moved by less than 100 points. The Standard & Poor 500 (S&P 500) dropped 1% to settle at 1,192.76. The Nasdaq Composite index declined by 1.2% and closed the day at 2,523.45. On the New York Stock Exchange (NYSE) consolidated volumes were 4.5 billion, marginally higher than last year’s average of 4.3 billion. For every three stocks that declined, only one stock managed to move up.
Concerns from the European continent refuse to disappear and have consistently dampened the mood of US markets. Since late last year, debt problems have plagued Ireland, Greece and Portugal. Off late, it is being feared that the debt crisis will spread to larger economies like Italy and Spain. Now such fears have also emerged about Germany, with reports showing that the nation’s growth dropped to 0.1% from 1.3%. Additionally, the European Union (EU) reported that in 17 countries which use the euro, economic growth receded to 0.2% in April to June from 0.8% in the preceding quarter.
Meanwhile, German Chancellor Angela Merkel and French President Nicolas Sarkozy met to find ways to resolve the euro-zone’s debt situation. However, their meeting did not bear fruit as the leaders provided no indication of immediate financial measures like selling new euro bonds, contrary to expectations
On the domestic front, economic reports came in mixed with industrial production surging ahead but the housing sector showing weakness. According to the Board of Governors for the Federal Reserve System: “Industrial production advanced 0.9 percent in July. Although the index was revised down in April, primarily as a result of a downward revision to the output of utilities, stronger manufacturing output led to upward revisions to production in both May and June. Manufacturing output rose 0.6 percent in July, as the index for motor vehicles and parts jumped 5.2 percent and production elsewhere moved up 0.3 percent”.
Separately, housing data came in weak as the U.S. Department of Housing and Urban Development reported: “Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 597,000. This is 3.2 percent (±1.2%) below the revised June rate of 617,000, but is 3.8 percent (±2.2%) above the July 2010 estimate of 575,000”.
However, the key development that was overshadowed by these concerns was that rating agency Fitch had retained the US’ AAA rating. Earlier this month, credit rating agency S&P’s downgrade of the US credit rating by a notch to AA- had created enormous jitters that rattled the markets.
Looking at the sectors, financial stocks were weighed down and among the losers were JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), Morgan Stanley (NYSE:MS) and UBS AG (NYSE:UBS) and they declined by 2.3%, 4.6%, 4.3%, 4.7% and 3.5%, respectively.
