(BA) Stock Market News for August 31, 2011 – Market News

The fact that a third round of quantitative easing had found favor among a section of Fed members helped the benchmarks end with mild gains on Tuesday. Indices had been trending down initially and sentiment turned further negative following a disappointing consumer confidence report. But signals in the Fed minutes of a likely third round of economic stimulus helped markets recoup losses and log their third-straight day of gains.

After a roller-coaster ride the Dow Jones Industrial Average (DJIA) finally posted a 20-point or 0.2%, gain and closed at 11,559.64. The Standard & Poor 500 (S&P 500) increased by 0.2% and finished the day at 1,212.88. The Nasdaq Composite Index closed at 2,576.11 after gaining 0.6%. The fear-gauge CBOE Volatility Index (VIX) traded around 32. A day after Hurricane Irene kept the traders away from their workstations leading to the lowest volumes since July 26, consolidated volumes remained weak once again as investors continued to enjoy their vacations. On the New York Stock Exchange, the American Stock Exchange and Nasdaq, consolidated volumes were 7.2 billion, well below last year’s daily average of 8.47 billion. On the NYSE, 9 stocks rose for every 11 that fell.

In fact, the Dow had even dropped as much as 109 points moments after the consumer confidence report dampened sentiment. The blue-chip index has now enjoyed six days of gains out of the past seven days. The advance-decline ratio was even for the 30 Dow components with Boeing Co. (NYSE:BA), Caterpillar Inc. (NYSE:CAT), EI DuPont de Nemours & Co. (NYSE:DD), Walt Disney Co. (NYSE:DIS), Microsoft Corporation (NASDAQ:MSFT) and AT&T, Inc. (NYSE:T) gaining 2.2%, 1.9%, 1.5%, 1.3%, 1.5% and 1.2% respectively.

The S&P 500 has now moved above the 1, 200 level, which experts interpret as a sign of the bulls regaining their strength. The index had also recouped all of its losses on Monday since it touched this year’s low on August 8, following the Standard & Poor’s downgrade of the US credit rating. The index has now gained 7% over the last seven trading days.

It was the consumer confidence report that dragged down the markets initially and looked to spoil their recent foray into positive territory. The Conference Board reported that the consumer confidence index had plunged in August to its lowest level in over two years. According to the report: “The Conference Board Consumer Confidence Index®, which had improved slightly in July, plummeted in August. The Index now stands at 44.5 (1985=100), down from 59.2 in July. The Present Situation Index decreased to 33.3 from 35.7. The Expectations Index decreased to 51.9 from 74.9 last month”. Commenting on the sharp decline, Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer confidence deteriorated sharply in August, as consumers grew significantly more pessimistic about the short-term outlook. The index is now at its lowest level in more than two years (April 2009, 40.8). A contributing factor may have been the debt ceiling discussions since the decline in confidence was well underway before the S&P downgrade. Consumers’ assessment of current conditions, on the other hand, posted only a modest decline as employment conditions continue to suppress confidence.”

However, Fed minutes which came to the rescue and helped erode all the concerns sparked by disappointing consumer confidence data. The minutes did highlight the fact that contrarian viewpoints emerged among the members of the central bank during their meet on August 9. It also suggests that a portion of the members were in favor of a third round of asset-purchases to lift the economy and also favored hiking the maturity of Fed’s balance sheet. While some believe that the Fed had run out of tools, the Fed minutes stated: “Some participants judged that none of the tools available to the FOMC would likely do much to promote a faster economic recovery”. It also stated: “Consequently, these participants thought that providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or unemployment”. On a positive note, the Fed minutes suggested keeping the interest rates low and the members concluded that they do not foresee any recession, but acknowledged the fact that a soft economy was susceptible to negative influences.

BOEING CO (BA): Free Stock Analysis Report

CATERPILLAR INC (CAT): Free Stock Analysis Report

DU PONT (EI) DE (DD): Free Stock Analysis Report

DISNEY WALT (DIS): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

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

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