(PCE) Stock Market News for August 3, 2011 – Market News

Incremental concerns about the economy outweighed news of the Senate approving the debt deal, as stocks plunged and posted their longest losing streak in almost three years. Additionally, the S&P 500 hit its lowest point for the year and entered the negative zone.

The Dow Jones Industrial Average (DJIA) lost 265 points or 2.2% to close at 11,866.62. The blue-chip index is now down 6.7% since July 22 and with eight-consecutive days of losses this is its longest losing streak since October 2008. The Standard & Poor 500 (S&P 500) turned negative for the year and ended at its lowest level for the same period. The index was down to 1,254.05, after it shed 2.6%. This was also the sharpest one-day decline for the index since August 2010 and the S&P 500 is now down 0.3% year to date. The Nasdaq Composite Index declined by 2.7% and settled at 2,669.24. On the New York Stock Exchange, Amex and Nasdaq, composite volumes were 9.7 billion shares, considerably ahead of this year’s daily average of 7.5 billion. On the NYSE, for four stocks that moved down, only one stock managed to climb higher.

Over several of the past days, the debt deal negotiation had dampened investor sentiment considerably. While rating agencies like Moody’s and Fitch warned they were considering a downgrade of the US credit rating if it failed to raise the debt-ceiling by August 2, the Republicans and the Democrats were pushing opposing plans of dealing with the debt issue and had created a political gridlock in the process. Additionally, if Congress failed to raise its $14.3 trillion debt ceiling by August 2, the Treasury Department would have been unable to pay at least 40% of its bills. Last Friday, President Obama went on record asking both the parties to find a way “out of this mess” and also cautioned about the consequences of losing the credit rating. Finally, the deal was struck late Sunday and awaited the approval from Congress.

After all the drama, on Tuesday, the Senate voted just in time in favor of lifting the federal debt limit and approved spending cuts of trillions of dollars. The bill won by a tally of 74 against 26 and was rushed to President Obama who said that he would sign it shortly. However, Democrats have cried foul over the bill alleging that the legislation favors the Republican view.

Even though the bill cleared all hurdles just ahead of the crucial deadline, many are still uncertain about whether the deal will rescue the nation from a rating downgrade. Also, investor focus shifted to the economy that has looked out of sorts. Consumer spending declined with hardly any rise in personal income, the euro-zone debt crisis refused to fade out and reports on Monday also showed declining manufacturing activity. Additionally, the jobs report has brought little cheer to investors as on most occasions it has failed to reflect any economic growth.

Bearing the brunt of economic sluggishness, the consumer discretionary and industrial groups suffered the biggest battering in the S&P 500, with none of the 10 industry groups closing on a positive note. Both the sectors are closely linked to the economic health of the nation, and a fall in these industry groups reflects significant weakness in the US economy.

For the consumer discretionary segment, the fall was largely due to a government report that showed consumer spending in the nation has fallen in June. The Bureau of Economic Analysis reported personal consumption expenditures (PCE) was down $21.9 billion, or 0.2% in June. Personal income also enjoyed a marginal increase of only 0.1%. With no significant increase in personal income, the economy recorded a fall in consumer spending for the first time in almost two years. Among the decliners in the consumer discretionary, Target Corp. (NYSE:TGT), Wal-Mart Stores Inc. (NYSE:WMT), Costco Wholesale Corporation (NASDAQ:COST), Dollar Tree, Inc. (NASDAQ:DLTR), Fred’s Inc. (NASDAQ:FRED) and PriceSmart Inc. (NASDAQ:PSMT) lost 4.2%, 1.8%, 2.4%, 2.6%, 6.6% and 4.8%, respectively.

The disappointing consumer report was followed by the significant manufacturing data that was released on Monday. On the opening day of the week, the Institute for Supply Management reported that the U.S. manufacturing sector expanded at its slowest rate in two years in July. The PMI or the manufacturing gauge receded 4.4 percentage points to 50.9% in July, its worst reading since July 2009.

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