Stocks Fell for the Week on Lower Economic Growth Concern

Published on Saturday, 14 August 2010 09:45 Written by TradersHuddle Staff

Weston, August 14^th (Tradershuddle.com) – Stocks stumbled for the week on concern as the Fed trimmed its economic outlook and announced that it will keep its balance sheet from shrinking, amid tepid labor and consumer data.

For the week, the blue chip index fell 3.29%; the S&P 500 index slid 3.78% and the NASDAQ tumbled 5.02%.

At the start of the week, stocks gained on speculation the Fed will introduce measures to stimulate economic growth. Market participants expected the Fed to downgrade its economic outlook amid weak data out of the labor market and rising fears of a double dip recession.

The bullish mood helped stocks early on, which gain in a broad buying effort, the move received a jolt from economic data that showed the reading of the ISM Manufacturing Index for July pulling back to 55, but it exceeding the 54.2 that had been widely expected. Additionally construction spending for June gained 0.1% after a 1.0% decline in the prior month, surprising economists that expected a 0.8% decline.

Telecom, consumer discretionary, and energy were the best performing sectors. Telecom finished 1.1% higher, posting the best gain of the session. AT&T (NYSE:T), the owner of the second largest U.S. wireless carrier, posted the fourth biggest percentage gain in the Dow Jones Industrial Average, as shares climbed 1.21% to $26.86. AT&T gained on reports by some analysts that Apple is scrambling to raise production to keep up with the iPhone4 demand.

Also in the sector, Google (NASDAQ:GOOG) and Verizon (NYSE:VZ) proposed principles to policing web traffic but only for landline Internet access and not for wireless devices. The companies’ proposal prohibits prioritizing, and blocking web content on landlines and gives the FCC power to impose fines. Both companies hope that by proposing the rules, they will have chance to avoid bet neutrality rules in wireless devices, where they expect most of the growth.

Consumer discretionary stocks gained 0.9% as a group, as investors pushed the sector higher. McDonald’s (NYSE:MCD), the largest restaurant chain in the world, gained 1.64% to $72.92, after the company reported a jump of 7% in July’s global comparable sales, with the U.S. posting a 5.7% gain.

Technology stocks, struggled in the early going, but eventually caught up with the broader market. The sector settled with a 0.5% gain, despite computer maker Hewlett-Packard (NYSE:HPQ) dropping close to its 52-week lows following news that Mike Hurd resigned, following an internal sexual harassment probe.

Cisco (NASDAQ:CSCO), the networking giant, posted the biggest gain in the blue chip index, as shares jumped 2.91% to $24.77.  And International Business Machines (NYSE:IBM), the IT solutions and consulting services provider, was the third best Dow component, as shares climbed 1.43% to $132. Both stocks benefited from scandal plague Hewlett-Packard, as the board will get started on the search of Mr. Hurd’s permanent replacement.

The Energy sector posted a 0.6% gain for the session, with crude oil prices climbing for the first time in four days boosted by advancing equity markets. The contract for September delivery gained 1% to $81.48 per barrel.

On Tuesday, the market started with widespread weakness, as Wall Street joined a global retreat prompted by disappointing Chinese data, which showed imports grew at its slower pace since November, pushing Chinese trade surplus to an 18-month high.

The bearish mood got a boost from an unexpected decline in second quarter U.S. productivity, which fell 0.9%. Investors clearly pare positions ahead of the FOMC policy statement, as uncertainty took hold of morning trading.

But after the statement was release, a bid returned to the market, as stocks tried a comeback. The mood was much improved after the Fed, but trading became choppy, with major benchmark indices failing to find positive territory.

The FOMC voted to keep the target federal funds rate at 0.00% to 0.25%, as expected, noting that conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Fed also said that it plans to keep constant its securities holdings by reinvesting principal payments from agency debt and agency mortgage-backed securities in Treasuries. That pronouncement pushed Treasuries sharply higher, with the benchmark 10-year note yield dropping to a 14-month low of less than 2.75%.

Defensive plays were the best performers, with utilities, consumer staples, healthcare, and telecom sectors posting gains. Technology, materials, financials, and industrials were the weakest sectors.

Technology lost 1.2%, posting the biggest decline amid the S&P 500 key sectors. Semiconductor stocks dragged the sector down, as analysts downgraded Intel (NASDAQ:INTC), the largest chipmaker in the world, to a Neutral from Outperform, after their supply chain checks point to a sharp deceleration of PC orders, leading to a likely below expectations third quarter. Intel posted the biggest percentage decline in the Dow Jones Industrial Average, as shares tumbled 4.02% to $19.82.

Microsoft (NASDAQ:MSFT), the world’s largest software publisher, also fell on signs that PC demand is faltering. The software publisher was the fourth worst Dow component, as shares fell 2.11% to $25.07.

Materials suffered in the session after Chinese imports slowed. The greenback gave back a 1% gain after the FOMC statement, to finish with a 0.2% gain, adding downward pressure to the sector. Alcoa (NYSE:AA), the aluminum producer, led material stocks to a 1% loss as metal prices fell. Alcoa posted the second biggest percentage decline in the blue chip index, as shares dropped 2.66% to $11.35.

Financial shares also lost 1% as a group, with property and casualty insurer, Travelers (NYSE:TRV) and the U.S. largest lender, Bank of America (NYSE:BAC) falling more than 2% for the session.

Mid week, stocks tumbled as market participants lost confidence on the global economic recovery and rotated their positions into safe haven assets amid the Fed’s soft economic outlook and Chinese disappointing retail data.

Overseas, China reported weaker than expected retail sales and a dip in industrial production in July. In Japan, investors weighed a tepid machinery orders report and moderate economic outlook. And finally the Bank of England said that risks remained towards the downside.

The sell-off was broad based, with 495 components of the S&P 500 posting declines. Macy’s (NYSE:M), the department store operator, was one of the 5 components of the S&P 500 posting gains, after the retailer reported better than expected results and raised its guidance.

Stocks remained under pressure for the entire session and closing near the lows of the day. The S&P 500 fell through the key technical level of the 200-day moving average but held the 50-day moving average level.

Treasuries and the Dollar had strong moves to the upside as market participants sought safe haven assets. The yield on the benchmark 10-year note dropped to a 14-month low, settling at 2.68%.

The move out of equities hit all benchmark indices hard. All 30 Dow components fell, with Alcoa  (NYSE:AA), the aluminum producer, leading the decline in the blue chip index, as shares tumbled 6.08% to $10.66. Material stocks suffered on global growth concerns and on the strength of the greenback, which gained 2.4% against the euro, pushing the commodity prices lower.

Industrial stocks suffered as well, with market participants exiting positions in global recovery plays. Boeing (NYSE:BA), the 2^nd largest commercial aircraft maker in the world, skidded 4.40% to $65.6. And Caterpillar (NYSE:CAT), the largest earthmoving equipment maker in the world, was the third worst Dow component, as shares fell 3.79% to $68.71.

JPMorgan (NYSE:JPM), the second largest U.S. lender, fell 3.57% to $37.77. Banks fell, as concern that despite interest rates near zero; the economic growth is faltering raising the specter of deflation, which may hurt the banks’ hedging strategies and consumers’ balance sheets.

On Thursday, stocks extended losses, as a tepid weekly jobless claims report sparked a renewed selling effort. Concern the economic recovery is stalling under pressure from a weak labor market pushed the S&P 500 below a key technical level. A dismal initial jobless claims report set the stage for the broad market to open with more than 1% loss.

The Labor Department reported that for the week ending Aug 7^th initial unemployment benefit claims climbed 2,000 to 484,000, the highest level since February; the report was weaker than expected, as economists were looking for a decline of 14,000. Continuing claims fell to o 4.45 million from 4.57 million, but the decline is mostly due to the expiration of jobless benefits among the unemployed.

Market participants reacted pushing stocks lower, with the S&P 500 breaking thru its 50-day moving average level. Technology, industrials, and financials were the worst performing sectors.

A weak revenue outlook from Cisco (NASDAQ:CSCO), the largest maker of networking equipment in the world, prompted a sell of in the stock and on the overall tech sector, which posted a 1.7% loss, weighing heavily in the tech heavy NASDAQ that underperformed in the session. Cisco fell 9.9% to $21.36, posting the biggest percentage decline in the broad market index and the Dow Jones Industrial Average. Research firms BMO Capital and Oppenheimer cut their rating on the tech bellwether on the tepid revenue outlook.

Also dragged down by the sector, Hewlett Packard (NYSE:HPQ), the largest PC maker in the world and Microsoft (NASDAQ:MSFT), the world’s largest software publisher, were among the worst blue chip index components.

But the market managed to find support, as it trim some of their losses as broader market participants eased up from their selling efforts. Despite several attempts, the S&P 500 was never able to break back above its 50-day moving average, leaving the major benchmark indices well into negative territory.

The Dollar saw renewed strength, as investor demand for the greenback persisted. Industrial stocks fell 0.8% as a group, on concern over future demand amid weak economic data prompted market participants to sell recovery plays. Caterpillar (NYSE:CAT), the largest maker of earthmoving equipment in the world, helped led the sector lower.

American Express (NYSE:AXP), the credit card issuer, was the second worst Dow component, helping the financial sector to a 0.6% loss. American Express fell as market participants pushed the stock lower on speculation write offs and delinquencies will remained elevated as the labor market continues to struggle.

At the end of the week, the market started with modest losses, as market participants gave a muted response to domestic economic data, taking cues from overseas markets. European markets fell, despite a stronger than expected GDP in the Euro Zone, with Germany posting the best economic growth since reunification. The selling effort in Europe eased into the afternoon, however the bearish mood set it as participants were clearly looking into future expectations, rather than past data.

Consumer prices for July increased 0.3%, which is a slightly stronger increase than the 0.2% rise that had been widely expected. Excluding food and energy, consumer prices in July were up just 0.1%, as expected.

Total business inventories for June increased 0.3%, but that was mostly because inventories at retailers increased 0.8%. Given weaker sales of recent months, that increase means goods are accumulating rather than restocking shelves.

Retail sales reportedly increased 0.4% in July, which was below the 0.5% increase that had been expected. And preliminary Consumer Confidence Survey for August from the University of Michigan improved modestly to 69.6, which is just below the 70.0 that had been widely expected.

The lackluster data resulted in choppy trading for much of the session, before trending lower into the close. Consumer discretionary, technology, and materials were the worst performing sectors.

Retailers, which lost 1.4% as a group, dragged the consumer discretionary sector to a 1.1% loss. Concern over raising inventory levels at Nordstrom (NYSE:JWN), the upscale department store operator, sparked a sell-off in the stock to post the biggest percentage decline in the S&P 500 index. Also weighing down on the sector was a disappointing outlook from JC Penney (NYSE:JCP), the department stores operator based in Plano, TX.

Home Depot (NYSE:HD), the largest home improvement retailer, was dragged down by the group weakness on concern sales will falter as data point to a slowdown in economic growth. American Express (NYSE:AXP), the credit card issuer, underperformed the financial sector, which lost 0.3%, as shares fell 1% to $41.73, The credit card issuer and Travel Company was bogged down by concerns over lower retail sales and a slowdown in spending that investors speculated could hurt transaction fees.

Tech stocks lost 0.7%, with Intel (NASDAQ:INTC), the largest chipmaker in the world, leading the sector lower on reports that NVIDIA (NASDAQ:NVDA) is working on a microprocessor for the tablet computer market that would compete with the Intel’s Atom processor.

The Dollar had another strong session, capping a weekly gain of 3.1%, its best weekly performance since May. The strength of the greenback, added downward pressure to material stocks, which lost 0.4%. DuPont (NYSE:DD), the third largest U.S. chemical maker, fell 1.10% to $40.32, posting the second biggest percentage decline in the Dow Jones Industrial Average.

Meanwhile, Treasuries had a solid performance that saw the yield on the benchmark 10-year cote close back below 2.70% and the yield on the 30-year Bond move down to 3.86% for the first time in three weeks.