Benchmarks declined for the second consecutive day as investors remained worried about whether the “fiscal cliff” dilemma would be resolved at the right time. Meanwhile, the number of Americans filing for the unemployment benefits declined during the previous week. Separately, the U.S. trade deficit decreased to its lowest level in nearly two years as exports increased to a record high. European Central Bank (ECB) President Mario Draghi said financial market sentiment has improved a bit, but the European economic outlook remains dull. The energy sector was the major loser among the S&P 500 industry groups.
The Dow Jones Industrial Average (DJI) tumbled 0.9% to close the day at 12,811.32. The Standard & Poor 500 (S&P 500) slumped 1.2% to finish yesterday’s trading session at 1,377.51. The tech-laden Nasdaq Composite Index fell 1.4% to end at 2,895.58. The fear-gauge CBOE Volatility Index (VIX) tumbled 3.1% to settle at 18.49. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.9 billion shares, higher than the daily average of 6.52 billion shares. Declining stocks easily outpaced the advancers on the NYSE; as for 71% stocks that fell, only 26% stocks moved higher.
The Dow had surged as much as 48 points, boosted by couple of encouraging domestic reports in the initial hours. However, the Dow started to fall soon after and shed as much as 73 points in the last 40 minutes of trading. Including yesterday’s decline, the S&P 500 has tumbled 6% after touching a 52-week high on September 14.
Concerns about chances of the “fiscal cliff” not being resolved in time hit markets for the second day in a row. Worries over the fiscal cliff may influence investors in the coming weeks according to market experts. The debate over this issue will intensify during next year’s budget session. According to the Congress Budget Office, if Congress fails to solve the problem in time then there might be a recession in 2013 and GDP will fall by 0.5%.
According to a statement made by White House: "The President will deliver a statement in the East Room about the action we need to take to keep our economy growing and reduce our deficit”.
Meanwhile, the U.S. Department of Labor released its initial claims report, which revealed that the number of Americans filing for unemployment benefits has decreased from the previous week. The report stated that the advance figure for seasonally adjusted initial claims decreased by 8000 to 355,000 for the week ending November 3 from the prior week’s unrevised figure of 363,000. This was below consensus estimates of 365,000.
Separately, the September trade deficit has decreased to $41.5 billion from the revised August figure of $43.8 billion. This was below consensus estimates of $44.9 billion. According to the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, September, exports were recorded at $187.0 billion, whereas imports were $228.5 billion. September exports increased by $5.6 billion from August, while imports increased by $3.4 billion.
On the international front, European Central Bank (ECB) President Mario Draghi said that the sentiment of European financial markets has improved marginally but the Euro zone continues to struggle with the debt crisis. He also said that: "Unemployment is deplorably high. Overall economic activity is weak and it is expected to remain weak in the near term.” However, he also spoke of certain encouraging signs for the European markets and said: “There has been a return of flows from the rest of the world, in particularly U.S. money-market funds.”
The energy sector was the major loser among the S&P 500 industry groups and the Energy Select Sector SPDR (XLE) lost 1.8%. Stocks such as Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), Marathon Oil Corporation (NYSE:MRO), Petroleo Brasileiro Petrobras SA (NYSE:PBR) and TOTAL S.A. (NYSE:TOT) tumbled 1.3%, 1.5%, 0.3%, 3.0% and 1.8%, respectively.