Lukewarm economic data discouraged investors as it showed further signs of economic weakness and coupled with the negative outlook from Hewlett-Packard Company, the markets continued its stay in the red. However, on the back of favorable corporate results, the indices showed some resistance to limit its losses but could not prevent the markets from declining for the third-straight day.
The Dow Jones Industrial Average, during the day, had dropped 170 points but finally rebounded to close at 12,479.58, shedding 68 points or 0.5%. The Dow finished at its lowest level since April 20. The Standard & Poor 500 (S&P 500) dropped 0.04% to finish off at 1,328.98. However, the Nasdaq Composite Index was up 0.03%. The fear-gauge CBOE Volatility Index (VIX) was up over 18. On the New York Stock Exchange, decline-advance ratio was 17:12. So far in the week, the benchmarks have been trading down as the Dow, S&P 500 and the Nasdaq are down 0.9%, 0.7% and 1.6%, respectively.
As we said earlier, approaching the end of the earnings season the markets will depend heavily on the economic data with the lack of any other major news. Unfortunately, economic data is displaying a downtrend for the economy and subsequently the indices are edging lower. On Tuesday even, the economic data came in to heighten investors’ concern about the economy as factory production and housing data both fell.
According to a Federal Reserve report, factory output in US fell for the first time in 10 months as it declined 0.4% in last month. The report came in against the analysts’ expectations of an increase of 0.4% in the overall factory production. The Federal Reserve reasoned the natural disaster in Japan to have caused the decline as it disrupted the supply of the auto parts. However, factory output was up 0.2%, without considering the auto vehicles and parts. Meanwhile, the total industrial production was up 5% from its year-ago level.
Separately, the housing markets continued to return gloomy picture as the Commerce Department reported housing starts to have fallen 10.6% or to seasonally adjusted 523, 000 units annual rate. Permits for new houses were down 4.0% to 551,000 in April and single-family home building was also down 5.1%. Housing sector is causing much jitters as this report added to the concern already built by reports from the National Association of Home Builders (NAHB) that came in a day earlier of this disappointing report. On Monday, NAHB said that the index measuring the confidence of home builders remained unchanged this month. The index lingered at the low level of 16 and suggested no improvement in the housing sector.
Investors’ sentiments were further weighed down after the CEO of Hewlett-Packard Company (NYSE:(HPQ - Analyst Report) warned of “another tough quarter" coming up. The company gave a negative outlook and reduced the guidance. Leo Apotheker, CEO of HPQ, commenting on the company missing some market opportunities said: "We are going to address this. We are going to focus our services business on the higher part of the value chain. That requires some work, some investment, and hence the impact it will have for a couple of quarters. He further said: "We're not going to wait any longer. We are going to make a few changes. Therefore, we have to adjust our margin expectations for services". The company slashed the full-year earnings guidance from $5.20-$5.28 to $5.00 per share and chopped the full year revenue estimate from $130 billion- $131.5 billion to $129 billion-$130 billion. This took a dip at the shares of the company and went down 7.3% to settle at $36.91.
The crude-prices in recent days have been trending down and on Tuesday the crude prices for June delivery were down 0.5% to $96.91 per barrel. In the energy sector, shares of Chevron Corp. (NYSE:(CVX - Analyst Report), Transocean Ltd. (NYSE:(RIG - Analyst Report), Halliburton Company (NYSE:(HAL - Analyst Report) and Schlumberger Limited (NYSE:(SLB - Analyst Report) were down 0.5%, 1.0%, 0.2% and 0.2%, respectively. However, shares like ConocoPhillips (NYSE:(COP - Analyst Report) and Exxon Mobil Corporation (NYSE:(XOM - Analyst Report) were both up 0.2%.
Talking about the sectors, materials and industrials suffered heavy fall. Shares like Caterpillar Inc. (NYSE:(CAT - Analyst Report), Alcoa, Inc. (NYSE:(AA - Analyst Report), Freeport-McMoRan Copper & Gold Inc. (NYSE:(FCX - Analyst Report) and Southern Copper Corp. (NYSE:(SCCO - Snapshot Report) were down 3.8%, 2.8%, 1.1% and 1.3%, respectively.