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Weak Japanese GDP data affected the domestic mood and dragged the benchmarks lower on Monday. The dismal economic reading from Japan came on the heels of disappointing data from China, thus highlighting the concerns in the Asian territory while Europe keeps struggling with its debt woes. With yesterday’s fall, the S&P 500 ended its longest winning stretch since December 2010. The technology sector was one of the few bright spots, and tech-laden Nasdaq was the only benchmark to manage a positive finish.
The Dow Jones Industrial Average (DJI) dropped 0.3% and closed at 13,169.43. The Standard & Poor 500 (S&P 500) slipped 0.1% to end just 1.76 points lower at 1,404.11. The tech-heavy Nasdaq Composite Index managed to add 0.1% and finished yesterday’s trading session 1.66 points higher at 3,022.52. The fear-gauge CBOE Volatility Index (VIX) dropped 7.1% to settle at 13.70. The Street witnessed another session of low volumes, as consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq were roughly 4.5 billion shares, sharply lower than last year's daily average of 7.84 billion. The advancing stocks were outnumbered by the decliners on the NYSE; as for 36% stocks that gained, 60% stocks closed lower.
Incidentally, on a day when the benchmarks ended mostly in the red, the VIX dropped to its lowest level in five years. Generally, VIX moves in the opposite direction of the market and a drop in the fear-gauge index reflects improving investors confidence. Thus, certain market onlookers opined that investors were not aggressively bothered about the negative situation. Another equity strategist commented that investors were taking out ‘some gains’.
Headline from the Asian territory was what bothering the markets yesterday, once more. Investors’ sentiment turned jittery following the report that Japan’s gross domestic product (GDP) rose a mere 0.3% in the second quarter of 2012. The annual growth decelerated to 1.4%, sharply lower than estimates of 2.5%. About 60% of the country’s economy depends on the domestic consumption, which dropped by 0.1% in the second quarter and was a reason behind the slower GDP growth.
Additionally, the effect of the global headwinds is prevalent, affecting Japanese economy. Masaaki Shirakawa, Governor of Bank of Japan, commented: “Europe's sovereign debt woes are already having a huge impact on the global economy… If the situation worsens further, it could trigger market turmoil or further cool global growth”.
The dismal Japanese GDP data came soon after China reported disappointing economic readings last week. Last week, China’s General Administration of Customs said both export and import growth decelerated in China. Trade surplus slumped to $25.1 billion in July from prior month’s $31.7 billion. This report came just a day after the nation reported factory output growth had sunk to its lowest level in over three years.
Thus, combined with the recent negative news out of Asian continent and the lingering European debt woes, investors were reminded of the grim picture of the global economic condition. However, flagging economic condition have also raised investors’ hopes for fresh economic measures, and they eagerly wait to see what the U.S. Federal Reserve, the European central bank or the Chinese central bank have to do with this regard.
Coming to the sectors, technology was the only gainer among the 10 industry groups in the S&P 500. The Technology SPDR (ETF) (XLK) managed to end 0.3% higher. Google Inc (NASDAQ:GOOG) was major gainer as it jumped 2.8% after announcing that it will chop down Motorola Mobility's headcount by 20%. Among the other tech stocks, Apple Inc. (NASDAQ:AAPL), Western Digital Corp. (NASDAQ:WDC), Tellabs, Inc. (NASDAQ:TLAB), Computer Sciences Corporation (NYSE:CSC) gained 1.3%, 0.8%, 0.9% and 0.3%, respectively.