A host of worrying events and results robbed investors of optimism to take the markets significantly lower, on Thursday as the benchmark Dow registered its worst performance in seven months. Geopolitical issues also weighed down the markets as tensions in the Middle East intensified with reports of unrest in Saudi Arabia turning investors jittery in anticipation of a likely economic slowdown. Weekly jobless claims increased more than expected and the trade deficit reached its highest level in seven months to add to the gloom.
Suggesting that market strength was on the decline, all three benchmarks dipped below their 50-day moving averages. The Dow Jones Industrial Average (DJIA) finished at 11,984.61, the first time it ended below 12,000 since 31st January. A drop of 1.9% cost the Dow its worst fall since August 11, 2010. The Standard & Poor 500 (S&P 500) shed 1.9% to close at 1,295.11 and posted the first drop below 1,300 since January 31, 2011. The Nasdaq closed at 2,701.02 after dropping 1.8%. Consolidated volumes on the New York Stock Exchange were at 4.8 billion shares and 5 stocks declined for every 1 that advanced.
The US economy took a jolt as it recorded the highest trade deficit ever in the month of February diminishing hopes of a quick recovery. Reflecting the largest shortfall in seven months, the trade deficit widened to $46.3 billion from the $40.3 billion in December last year. This has also upped the annual deficit and would likely end as the biggest deficit recorded for the US. The deficit in February surged way ahead by $2 billion from figures recorded last year. Expected to overshadow the record $1.41 trillion deficit in 2009, this report also marks the third consecutive year of deficits exceeding $1 trillion. Deficit growth was boosted by the financial crisis and the recession that followed. Also, the much debated Bush-era tax-cut package, passed in December, could also be one of the reasons for the record deficit. The tax cut package had extended income tax concessions, increased unemployment benefits and reduced social security taxes among other measures. In addition, $1 trillion was spent as an economic stimulant and tax revenues dipped.
In other news, weekly jobless claims also came in higher than expected. For the week ended March 5, initial jobless claims was up to 397,000 after gaining an additional 26,000. Economists had earlier expected an increase of 14,000 to 382,000.
In global news, China recorded an unexpected trade deficit of $7.3 billion, the first in eleven months. According to reports, exports in China grew 2.4% in February in contrast to a 19.4% increase in imports. Surging crude prices and other commodities took their toll on economic activity to boost the import bill. However, analysts opine that China will return to surplus levels in the coming months. Nonetheless, the event was strong enough to add to investor concerns and weighed on the markets.
To add to the jitters, Moody’s downgraded the credit rating of Spain to Aa2. Restructuring costs of the banking sector and concerns over the government’s potential to meet with the targets of its borrowing reduction propelled the downgrade. A further decline is also likely, given Spain missing its fiscal targets and if public debt ratio increases at a faster rate than expected.
Unrest in Saudi Arabia continues to dent markets and created ripples of concerns over an economic slowdown. On Thursday, crude prices eased off somewhat, falling 1.6% to settle at over $102 per barrel but continued its three-week run of high prices. Analysts had earlier estimated crude prices moving to $200 per barrel if the unrest reaches Saudi Arabia, one of the richest oil producing nations. These fears were further heightened after reports of Saudi Arabian police opening fire on protesters.
Energy sectors took a beating as crude prices paved the way for bearish sentiments and major oil indexes dipped. The NYSE Arca Oil Index shed 3.4% to close at 1,296. The NYSE Arca Natural Gas Index was down 3% to 640. The Philadelphia Oil Service Index dropped 4.4% to 271. The energy sector returned the worst performance among the 10 sectors in the S&P 500 index. The decliners in the sector included Chevron Corp. (NYSE:CVX), Valero Energy Corp. (NYSE:VLO), Exxon Mobil Corp. (NYSE:XOM) and Massey Energy Co. (NYSE:MEE), which shed 3.0%, 5.0%, 3.6% and 5.4%, respectively.
The retail sector also plummeted and shares like Coldwater Creek Inc. (NASDAQ:CWTR), Aeropostale, Inc. (NYSE:ARO), Quiksilver Inc. (NYSE:ZQK) and Peet's Coffee & Tea Inc. (NASDAQ:PEET) dipped 10.3%, 1.2%, 4.9% and 11.5%, respectively. The S&P Retail Index inched down 1.1% to close at index value of 504.70.