Alcoa’s third quarter loss and its forecast of a dismal global economic situation dragged benchmarks into the red on Wednesday. Meanwhile, Chevron forecasted a “substantially lower" third-quarter profit, which further intensified the bearish mood. Separately, the U.S. Federal Reserve released its “Beige Book”, which noted that the U.S. economy is advancing modestly with moderate improvement in housing and auto sales in September.
The Dow Jones Industrial Average (DJI) lost 1.0% to close the day at 13,344.97. The Standard & Poor 500 (S&P 500) slipped 0.6% to finish yesterday’s trading session at 1,432.56. The tech-laden Nasdaq Composite Index slipped 0.4% to end at 3,051.78. The fear-gauge CBOE Volatility Index (VIX) declined 0.5% to settle at 16.29. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.9 billion shares, significantly lower than this year’s daily average of 6.53 billion shares. Declining stocks outpaced the advancers on the NYSE; as for 60% stocks that dropped, 37% stocks moved higher.
The third-quarter earning season began with disappointing news from Alcoa Inc. (NYSE:AA). Alcoa, U.S.’s largest aluminum producing company lost 4.6% after reporting a third-quarter loss. A slowdown in China and low demand for aluminum affected the results. Thus, the company reflected the flagging economic conditions, and that was definitely a disappointment for the markets.
Also, Chevron Corporation’s (NYSE:CVX) shares tumbled 4.2% to $112.45 after it announced that its third-quarter profit is estimated to be “significantly lower” on a sequential basis. Chevron’s downward revision also brings to mind the trend of other bellwethers taking the same route. Earlier, heavyweights such as FedEx Corporation (NYSE:FDX), Caterpillar Inc. (NYSE:CAT) and Hewlett-Packard Company (NYSE:HPQ) had issued warnings about upcoming earnings, indicating weak demand in Europe and China. In fact, not many analysts have a bullish view for the third quarter earnings season. According to market experts, the earnings season might not be encouraging enough to push the benchmarks upward and S&P 500 companies may fall 2.3% from last year; their first decline in three years.
Meanwhile, the Federal Reserve released its Beige Book yesterday, which noted modest improvements in auto and home sales. Consumer spending has increased marginally since the last report. According to the report U.S. economy is growing at a modest rate. This helped the benchmarks trim their initial losses to some extent.
The International Monetary Fund held its meeting in Tokyo and said immediate action should be taken to fix the European debt crisis. The IMF also said that the European Central bank may have to sell $4.5 trillion of their assets if policy makers fall short of pledges. The IMF has slashed global growth rates twice since April 2012, which is a matter of deep concern. International Monetary Fund Managing Director Christine Lagarde said Greece should be given more time to meet its budget targets. "It is sometimes better, given the circumstances…to have a bit more time," she added.
Separately, the U.S. Census Bureau announced that wholesale inventories data was in line with the consensus estimates. According to the report: “Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $487.5 billion at the end of August, up 0.5 percent (+/-0.4%) from the revised July level and were up 5.3 percent (+/-1.1%) from the August 2011 level”.
Coming to the sectors, financial bellwether stocks including JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), Wells Fargo & Company (NYSE:WFC), Goldman Sachs Group, Inc. (NYSE:GS) and PNC Financial Services (NYSE:PNC) gained 0.9%, 1.6%, 0.4%, 0.4% and 0.2% respectively.
The energy sector had a bad run yesterday and was a major loser. The Energy Select Sector SPDR lost 1.8%. Stocks such as Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), TOTAL S.A. (NYSE:TOT), Marathon Oil Corporation (NYSE:MRO) and ConocoPhillips (NYSE:COP) lost 4.2%, 1.2%, 0.6%, 0.1% and 1.0% respectively.