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Positive initial claims data could hardly help the markets avoid its sixth-consecutive day of losses, as worries over the global economic situation and profit warnings weighed on investors sentiment. All the benchmarks closed in the red, but the Dow had turned positive briefly helped by a strong rally in homebuilding stocks.
The Dow Jones Industrial Average (DJI) slipped 0.3% and was down to 12,573.27. The Standard & Poor 500 (S&P 500) dropped 0.5% and finished yesterday’s trading session at 1,334.76. The tech-laden Nasdaq Composite Index plunged 0.8% and ended at 2,866.19. The fear-gauge CBOE Volatility Index (VIX) edged up 2.1% and settled at 18.33. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were roughly 6.46 billion shares, lower than the year-to-date daily average of 6.85 billion shares. Decliners outnumbered the advancing stocks on the NYSE; as for 61% stocks that declined, 36% stocks ended higher. The remaining 3% stocks were left unchanged.
Domestic economic readings yesterday were on the positive side. In the morning investors learnt that initial claims had declined significantly. However, this hardly had any positive impact and benchmarks were down in the red zone right from the start. The U.S. Department of Labor reported that the advance figure for seasonally adjusted initial claims declined 26,000 from previous week's revised figure of 376,000 to 350,000 in the week ending July 7. The reported decline was larger than consensus estimates’ projection of a decline to 371, 000.
However, the encouraging jobs report failed to spark off any cheer as it might have lowered the odds of further economic stimulus. A day earlier, the minutes from the Federal Open Market Committee’s meeting dashed investors’ hopes for additional stimulus measures stating that policy makers awaited more weakening signs from the economy. The minutes noted that the policymakers did acknowledge the sorry state of economy and labor conditions and said: “Growth in employment has slowed in recent months”. However, some economists had opined that central bankers might wait and observe developments in the labor market and then decide about economic stimulus accordingly.
Economic conditions continued to weigh on investor sentiment, with even Billionaire investor Warren Buffett expressing his concerns about the situation. Speaking to CNBC Buffet said: “The general economy in the United States has been more- or-less flat, and so the growth has tempered down.” Investors’ apprehension regarding the European economy was highlighted in Buffet’s comments as well and he said that weak spending in Europe, a result of its debt woes, had resulted in businesses deciding to “pull in their horns”.
Warren Buffet also spoke on the housing sector. He said: “For a couple years I’ve been telling you that everything except residential housing was improving at a moderate rate, not crawling, but not galloping eit.her, but that residential housing was flat-lining. And the last two months it’s been just sort of the opposite.” His comments came on a day when homebuilder stocks put up a strong rally. The SPDR S&P Homebuilders (XHB) gained 1.4% and stocks including Lennar Corporation (NYSE:LEN), KB Home (NYSE:KBH), PulteGroup, Inc. (NYSE:PHM), D.R. Horton, Inc. (NYSE:DHI) and M/I Homes Inc (NYSE:MHO) jumped 3.6%, 3.7%, 2.9%, 2.7% and 1.3%, respectively.
The strong showing by the homebuilder segment did help the benchmarks come off their lows and helped the Dow turn positive for a short time. However, investors’ apprehension regarding economic health was widely prevalent and markets suffered yet another loss. Further intensifying the concerns were corporate profit warnings. After Cummins Inc. (NYSE:CMI), Advanced Micro Devices, Inc. (NYSE:AMD), Applied Materials, Inc. (NASDAQ:AMAT) chopped their sales estimates earlier this week, the Indian tech major Infosys Ltd ADR (NASDAQ:INFY) slashed its sales expectations. The company’s shares moved 11.2% lower yesterday following the announcement.
Infosys’s CEO S.D. Shibulal said "If you look at the environment, it's still very uncertain." Infosys’ concerns about the uncertain global economy were almost an echo of what Cummins and AMD had to say earlier this week. Both of them said a slowdown in the global economy was responsible for their woes. AMAT too noted that “weaker than expected near-term demand in its semiconductor equipment business” affected its results.
Meanwhile, as investor apprehensions were further aggravated by corporate profit warnings, financial majors JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) are scheduled to report their earnings results today.