(COP) Stock Market News for August 1, 2011 – Market News

Benchmarks took a battering to register their worst weekly performance in a year as the stalemate over the debt-ceiling crisis pushed the US closer to losing its ‘AAA’ rating. Investor sentiment was dragged even lower as data revealed economic growth in the first half of the year had receded to the slowest pace since the downturn faded a couple of years ago.

The Dow Jones Industrial Average (DJIA) fell to 12,083 soon after the opening bell on Friday. However, after President Obama said there were many ways in which an agreement on the debt ceiling issue could be reached the index moved into the green, only to close at 12,143.24, having lost 0.8% through the day. The Standard & Poor 500 (S&P 500) lost 0.7% and settled at 1,292.28. The Nasdaq Composite Index dropped 0.4% to close at 2,756.38. The fear-gauge CBOE Volatility Index (VIX) increased by 6%. On the New York Stock Exchange, consolidated volumes were 4.5 billion shares and for every stock that rose, two stocks moved down. For the week, the Dow, S&P 500 and the Nasdaq declined 4.2%, 3.9% and 3.6%, respectively.

This was the worst weekly performance in a year for the S&P 500 and the index has suffered three straight months of losses for the first time since late 2008. None of the 10 industry groups in the S&P 500 managed to settle in the green, with energy posting one of the worst performances. Among the decliners in the energy sector were Chevron Corp. (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP), Hess Corporation (NYSE:HES) and Occidental Petroleum Corporation (NYSE:OXY) and they shed 1.0%, 2.1%, 1.1%, 2.7% and 1.6%, respectively.

Energy stocks also led the decline in the Dow. Moreover, it was the sixth straight day of losses for the blue-chip index and the Dow has now lost 581 points over these past six trading days. The Dow is also down 2.2% for the month and so is the S&P 500. The Nasdaq has lost 0.6% for the month.

The sorry tale of the benchmarks over the past couple of weeks was scripted by the ensuing worries surrounding the debt ceiling issue. Since 1917, Congress has made it mandatory to have a limit on the debt of the nations’ federal government. While the limit has been raised from time to time, it has now amounted to $14.3 trillion. With Congress not approving a further increase in the debt ceiling, the nation will hit the limit on August 2. The Political deadlock took center stage as the Democrat-dominated Senate and Republican-dominated House of Representatives failed to reach an agreement over the issue. While the Democrats wanted a tax-hike and a one-time lift in the debt ceiling, the Republicans are pushing for spending cuts.

As the political deadlock continues, the nation faces the prospect of losing its cherished- ‘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. The government will fail to pay employees salaries, social security benefits and medical insurance bills among others. On Friday, Obama asked both the parties to find a way “out of this mess” and also cautioned about the consequences of losing the credit rating.

However, analysts opined that the markets resisted a collapse as belief prevailed that Washington will surely find a favorable way out of the situation. Popular belief was that Congress will inevitably find a solution to the problem to avoid facing financial ‘Armageddon’.

Nonetheless, the issue has crippled the markets for the past many days and has also overshadowed the earnings season. According to research firm FactSet, 76% companies topped estimates, with 1% reporting in line and 23% falling shy of consensus estimates.

Markets on Friday were also dragged lower by disappointing GDP data. The Commerce Department reported a mere 1.3% increase in GDP in the second quarter. The increase was also slower-than-expected as the consensus estimate had projected a 1.6% increase.

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