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Stock Market News for August 1, 2012

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Investors’ cautious stance ahead of key economic announcements through this week left the benchmarks languishing in the red. Investors are apprehensive about what the central bank has to say about economic measures after its two-day policy meet concludes on Wednesday. Separately, the European Central Bank’s meeting is scheduled on Thursday, and its outcome gained importance after Mario Draghi pledged last week to do “whatever it takes” to keep the euro-zone intact. Nonfarm payroll data is also slated for release this week.

The Dow Jones Industrial Average (DJI) dropped 0.5% and closed at 13,008.68. The Standard & Poor 500 (S&P 500) was down 0.4% and finished yesterday’s trading session at 1,379.32. The tech-laden Nasdaq Composite Index slipped 0.2% to end at 2,939.52. The fear-gauge CBOE Volatility Index (VIX) gained 5% to settle at 18.93. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were 6.5 billion shares, lower than this year’s daily average of 6.74 billion. Decliners dominated advancing stocks on the NYSE; as for 57% stocks that declined, 39% stocks ended higher.

Markets had no major headlines to guide them through the day. What affected investors’ mood were their hopes and apprehensions about the outcome of the central banks’ meet on both sides of the Atlantic and key jobs data. Investors had renewed hopes about a third round of quantitative easing (QE3) and a bagful of dismal economic readings strengthened those hopes.

Federal Reserve Chairman Ben Bernanke has been critical about the state of the economy in his latest congressional testimony in July. He noted that the pace of improvement in unemployment remains “frustratingly slow”. He had also mentioned: “It may be possible that we will take additional action if we conclude we are not making progress towards higher levels of employment”. Therefore, QE3 hopes were kept alive and investors have now adopted a wait and watch stance as the two-day policy meet of the Federal Reserve’s policy makers concludes on Wednesday.

Meanwhile, the government is due to report nonfarm payroll data on Friday. Investors are keen to see what state the labor market is in. The report will follow initial claims data to be released by the Labor department on Thursday. In the previous report, the advance figure for seasonally adjusted initial claims had dropped 35,000 for the week ending July 21.

Apart from what is slated for release this week, yesterday the Conference Board reported an increase in Consumer Confidence Index. The index rebounded from a decline in June to rise to 65.9 in July. This was significantly higher than consensus estimates of 61.9 and June’s reading of 62.7. Also, the Expectations Index was up to 79.1 in July from 73.4 in June. However, Lynn Franco, Director of Economic Indicators at The Conference Board, noted: "Despite this month's improvement in confidence, the overall Index remains at historically low levels. Consumers' attitude regarding current conditions was little changed in July, but their short-term expectations, which had declined last month, bounced back”.

In tune with the decline in broader markets, the retail sector, that reflects consumer spending, also ended in the red. The SPDR S&P Retail (XRT) was down 0.6% and stocks including Macy's, Inc. (NYSE:M), Saks Inc (NYSE:SKS), Dillard's, Inc. (NYSE:DDS), The Bon-Ton Stores, Inc. (NASDAQ:BONT), Wal-Mart Stores, Inc. (NYSE:WMT), PriceSmart, Inc. (NASDAQ:PSMT) and Family Dollar Stores, Inc. (NYSE:FDO) declined 2.2, 1.6%, 2.4%, 0.8%, 0.7%, 1.1% and 0.9%, respectively.

On the other side of the pool, ECB President Mario Draghi’s vow will now be put to the test as an ECB meeting in scheduled for Thursday. Investors now await concrete action or at least a plan arising out of Mario Draghi’s comments last week to do “whatever it takes” to keep the Euro-zone intact. He had also sparked off hopes that the central bank would buy Spanish and Italian bonds. Reportedly, Mr. Draghi had commented: “While it will take another few days or even weeks to finalize the device in question, the ECB would prepare an operation coordinated with the states may limit the surge in interest rates of Spain, but also the Italy”. However, Germany is against these measures. Investors are thus keen awaiting the next development in this connection and their wait and watch attitude restricted them from betting big.

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