Stock Market News for July 15, 2011

Comments from Federal Chairman Ben Bernanke on the second day of his testimony to Congress dragged the markets into negative territory as he quelled all hopes of a third round of economic stimulus. Economic reports ahead of the opening bell had been encouraging, but failed to sustain the momentum as Bernanke dashed investors’ hopes and Moody’s said it has put the US’s bond rating under review for a possible downgrade.

The Dow Jones Industrial Average (DJIA) had a volatile run throughout the day as it jumped 90 points in the morning, receded 70 points in the afternoon, and recouped losses partially at the end to close 54 points or 0.4% lower at 12437.12. The Standard & Poor 500 (S&P 500) dropped 0.7% to finish the day at 1308.87, while the Nasdaq Composite Index settled at 2762.67, after dropping 1.2%. Meanwhile, the fear-gauge CBOE Volatility Index jumped higher to trade over 20. On the New York Stock Exchange, the American Stock Exchange and Nasdaq, consolidated volumes remained low at 7.44 billion shares, compared with last year's daily average of 8.47 billion. Consolidated volumes on the NYSE alone were 3.8 billion shares, and for every four stocks that declined, just one stock managed to climb up.

The Dow and the S&P 500 each suffered their fourth loss in five days. Among the Dow components, the declines were led by Alcoa, Inc. (NYSE:AA - Analyst Report), Boeing Co. (NYSE:BA - Analyst Report), EI DuPont de Nemours & Co. (NYSE:DD - Analyst Report), 3M Co. (NYSE:MMM - Analyst Report) and The Travelers Companies, Inc. (NYSE:TRV - Analyst Report) as they dipped 2.5%, 1.4%, 1.4%, 1.3% and 1.3%, respectively.

The morning had provided some optimism as all three economic reports for the day came in strong - jobless claims numbers fell, the retail sales report was better than expected, and wholesale prices declined.

The Department of Labor reported seasonally adjusted initial claims for the week ending July 9 had declined by 22, 000 to 405,000 from the previous week's revised figure of 427,000. The consensus estimate for the period was for 414, 000 claims.

Retail sales data also provided cheer as the U.S. Census Bureau announced: “Advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $387.8 billion, an increase of 0.1 percent (±0.5%)* from the previous month, and 8.1 percent (±0.7%) above June 2010. Total sales for the April through June 2011 period were up 7.7 percent (±0.5%) from the same period a year ago. The April to May 2011 percent change was revised from -0.2 percent (±0.5%)* to - 0.1 percent (±0.2%)”. Separately, the Producer Price Index (PPI) dropped 0.4% in June. This decline comes after a 0.2% rise last month and against economists’ expectation of a 0.2% decline.

In other news, JPMorgan Chase & Co. (NYSE:JPM - Analyst Report) (1.8%) posted robust results that outperformed both earnings and revenue estimates.

However, markets failed to hold on to the impetus provided by these developments as the Fed Chairman dismissed all hopes of the US economy getting a boost from the third round of bond-buying plan. On the second day of the testimony, Bernanke said the central bank will only initiate further economic stimulus upon noticing a significant downturn.

These comments immediately dragged the benchmarks lower. Incidentally, the statement comes a day after traders and investors interpreted Bernanke was hinting at a third round of economic stimulus. On Wednesday, in his testimony to the House Financial Services Committee, Bernanke had said: “The possibility remains that the recent weakness may prove more persistent than expected and that deflationary risks might reemerge, implying additional policy support".

Separately, news about the debt ceiling dampened the markets and the Treasury Department may fail to pay at least 40% of its bills if Congress does not raise its $14.3 trillion debt ceiling by August 2. These may likely include payments to social security recipients and military pay. Taking such a situation into account, Moody's Investors Services has put the US’ AAA rating under review for a possible downgrade, citing "the rising possibility" that Congress will fail to pass the debt ceiling by August 2.

Read the full analyst report on AA

Read the full analyst report on BA

Read the full analyst report on DD

Read the full analyst report on MMM

Read the full analyst report on TRV

Read the full analyst report on JPM