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Stock Market News for September 25, 2012

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The fifth-consecutive month of declines in German business confidence coupled with Caterpillar’s dismal earnings forecast dragged benchmarks into the red yesterday. Both these developments reminded investors of the frail economic scenario and offered little reason for the markets to rebound into the green. Meanwhile, another drop in crude prices affected the energy sector.

The Dow Jones Industrial Average (DJI) declined 0.2% to close at 13,558.92. The Standard & Poor 500 (S&P 500) dropped 0.2% to finish yesterday’s trading session at 1,459.89. The tech-laden Nasdaq Composite Index plunged 0.6% and ended at 3,160.78. The fear-gauge CBOE Volatility Index (VIX) gained 1.2% and settled at 14.15. Consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq was roughly 5.54 billion shares, which fell short of the year-to-date daily average of 6.54 billion shares. Declining stocks outpaced the advancers on the NYSE; as for 58% stocks that dropped, 39% stocks moved higher.

A larger-than-expected decline in German business confidence in September reminded investors about the slowdown in the global economy. Germany’s IFO Business Climate Index was down to 101.4 in September from 102.3 in the prior month. This was not only the fifth-straight decline, but the index reached its lowest since early 2010. The European debt crisis remains far from resolved, and dismal data from one of Euro-zone’s strongest economies was a matter of concern.

Dismal data out of Germany follows a bagful of discouraging economic readings from the U.S., Europe and China released last week. Among them, initial claims for unemployment benefits was near a two-month high, while manufacturing suffered the weakest quarter in three years and leading indicators declined in August in the U.S. Separately, manufacturing activity declined in China as well as Europe.

Separately, Caterpillar Inc. (NYSE:CAT), the world's largest maker of construction equipment issued a warning that there could be a larger-than-expected decline in the demand for its products in the upcoming years. The company cited weaker commodity prices as the reason for the estimated fall in demand. Eventually, the company had to revise its 2015 earnings estimates to $12 to $18 per share, down from a prior range of $15 to $20 a share. Moreover, demand for mega trucks is expected to fall along with lower equipment sales in Australia and China. Caterpillar’s CEO Doug Oberhelman said: “We've seen a slowing in economic growth more than we expected…We expect fairly anemic and modest growth through 2015”. Shares of Caterpillar dropped 0.9% following the announcement.

Meanwhile, shares of tech bellwether Apple Inc. (NASDAQ:AAPL) plunged 1.3% as concerns arose about whether the company can produce and supply sufficient quantities of its iPhone 5 to meet the huge demand in time.

Coming to the energy sector, the PHLX oil service sector index shaved off 1.4% and prices of crude oil ended at $91.93. Concerns about global demand have pulled down crude oil prices by over 6% since last week. The Energy Select Sector SPDR (XLE) lost 0.5% and stocks such as Marathon Oil Corporation (NYSE:MRO), Schlumberger Limited (NYSE:SLB), Halliburton Company (NYSE:HAL), Occidental Petroleum Corporation (NYSE:OXY) and Valero Energy Corporation (NYSE:VLO) plunged 1.4%, 1.0%, 1.0%, 0.7% and 0.7%, respectively.

Separately, the Utilities Select Sector SPDR (XLU) added roughly 1% and stocks including Exelon Corporation (NYSE:EXC), The Southern Company (NYSE:SO), NextEra Energy, Inc. (NYSE:NEE), Duke Energy Corp (NYSE:DUK) and Dominion Resources, Inc. (NYSE:D) surged 1.4%, 1.2%, 1.2%, 0.9%, 0.8%, respectively.

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