(AA) Stock Market News for July 28, 2011 – Market News

With no resolution in sight to the debt ceiling issue, heightened anxiety among investors led the benchmarks lower for the third consecutive day and markets posted their worst day in eight weeks. Adding to the woes, economic sluggishness continued to foster negative sentiments as the Dow seems to be en route to its biggest weekly decline since August last year.

The Dow Jones Industrial Average (DJIA) has now closed in the red for the past four days and on each of those past four occasions, the declines have got stronger. Yesterday, the blue-chip index settled at 12,302.55, after plunging 198.7 points or 1.6%, recording its biggest one-day drop since early June. The Standard & Poor 500 (S&P 500) lost 25 points to close at 1,304.89. The Nasdaq Composite Index suffered its worst day in five months as it declined by 2.6% to settle at 2,764.79. The benchmarks have failed to make gains recently and the Dow, S&P 500 and Nasdaq are down 3%, 3% and 3.3%, for the week. The fear-gauge CBOE Volatility Index soared 13.6%, reflecting growing fears among investors. While volumes have remained low for several days, yesterday the consolidated volumes on the New York Stock Exchange, Amex and Nasdaq were 8.69 billion shares, compared with the daily average of 7.47 billion. However, the increase in volumes was merely a result of extended selling. Market breadth was completely dominated by the decliners, as for every stock that advanced on the NYSE, more than 10 stocks slipped lower.

The Dow has been suffering a great deal and the index has now washed out all its gain for the month. The Dow is down by almost 1% for the month and is down 4% from the 2011 high that it touched on April 29. The blue-chip index settled at its lowest level since June 29 and only two of the Dow components, Boeing Co. (NYSE:BA) and AT&T, Inc. (NYSE:T) registered gains. While these two increased modestly,  by 0.7% and 0.1%, the declines were led by Alcoa, Inc. (NYSE:AA), American Express Company (NYSE:AXP), Bank of America Corporation (NYSE:BAC), Caterpillar Inc. (NYSE:CAT), Cisco Systems, Inc. (NASDAQ:CSCO), Microsoft Corporation (NASDAQ:MSFT) and United Technologies Corp. (NYSE:UTX) and they slipped 3.6%, 2.1%, 3.2%, 3.7%, 3.7%, 2.7% and 2.8%, respectively.

The declines have continued primarily due to lingering concerns over the deadlock in debt-ceiling negotiations.In the latest development on this front, the Republican proposal to raise the debt ceiling has been pushed to Thursday after facing stiff opposition from conservatives within the party.Additionally, the Congressional Budget Office (CBO), the independent agency that analyses the cost or savings of proposed legislation, said House Speaker John Boehner’s proposal will fail to slash spending to the level Boehner had claimed. The CBO projected that the House Speaker’s bill would reduce US deficits within the range of $850bn to $1,100bn over the next ten years, significantly lower than the $1.2 trillion that Boehner’s office had suggested.

In response, Boehner’s spokesman Michael Steel said: “We’re here to change Washington – no more smoke-and-mirrors, no more ‘phantom cuts.’ We promised that we will cut spending more than we increase the debt limit, with no tax hikes, and we will keep that promise,” and added, “As we speak, Congressional staff are looking at options to rewrite the legislation to meet our pledge.”

Washington must now quickly find a solution to this stalemate failing which the economy will face the prospect of losing its ‘AAA’ rating. Earlier, Moody’s Investors Services had put the US’ AAA rating under review for a possible downgrade, citing “the rising possibility” that Congress will fail to pass the debt ceiling by August 2. If Congress does not raise its $14.3 trillion debt ceiling by August 2, the Treasury Department may fail to pay at least 40% of its bills. Additionally, Fitch Ratings reiterated that it plans to downgrade the US sovereign debt rating to negative if the federal government fails to meet the August 2 deadline.

The markets also took a battering and a large chunk of the fall in the Dow came after the Federal Reserve’s Beige Book suggested economic sluggishness last month and early this month. The summary of Commentary on Current Economic Conditions by the Federal Reserve District, which is commonly known as the Beige Book stated: “Economic activity continued to grow; however, the pace has moderated in many Districts. The six Districts nearest the Atlantic seaboard reported a slowdown in activity since the previous Beige Book report; activity was little changed in the Atlanta District and unchanged or slightly improved in the Richmond District. Of the other six Districts, the Minneapolis District reported political and weather-related disruptions that temporarily slowed growth, and the Dallas District slowed to a moderate pace of growth. The remaining four Districts continued to grow modestly”. It also reported consumer spending had increased overall while jobs and higher gas prices continue to pressurize consumers.

Meanwhile, the Commerce Department reported a significant fall of $4.0 billion or 2.1% in new orders for manufactured durable goods for the month of June which came in at $192.0 billion. The decline was followed by a 1.9% jump in May and was also the second fall in three months.

In other news, not only did earnings reports fail to limit losses, they also dragged the markets lower as companies like Juniper Networks, Inc. (NYSE:JNPR) and Akamai Technologies Inc. (NASDAQ:AKAM) plunged 20.9% and 3.9%, respectively, following their results. However, Amazon.com Inc. (NASDAQ:AMZN) gained 3.9% after its results managed to top estimates.

ALCOA INC (AA): Free Stock Analysis Report

AKAMAI TECH (AKAM): Free Stock Analysis Report

AMAZON.COM INC (AMZN): Free Stock Analysis Report

AMER EXPRESS CO (AXP): Free Stock Analysis Report

BOEING CO (BA): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

CATERPILLAR INC (CAT): Free Stock Analysis Report

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

JUNIPER NETWRKS (JNPR): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

UTD TECHS CORP (UTX): Free Stock Analysis Report

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