Shares on Wall Street flattered to deceive today; opening brightly but plunging soon after despite US GDP figures coming in better than expected.
In the second quarter, April to June, US gross domestic product decreased at an annual rate of 0.7%. Analysts, in an earlier Reuters poll, had forecast a decline of 1.2%. This could be the last quarter of decline in output for the US economy seen during this recession.
Constituent among the better-than-expected GDP figures were consumer spending and business investment, falling 0.9% and 9.6% respectively. Positive news for trade too, in the shape of exports which fell only 4.1% instead of the 5% predicted.
’Businesses are in better shape to start production. Massive government spending has been supportive of growth and will continue to help,’ said Michelle Meyer, an economist at Barclays Capital in New York. [1]
Earlier, the ADP National Employment report returned worse-than-expected figures of 254,000 private sector US jobs shed in September, though the figure was an improvement on last month and the smallest drop since July 2008.
Meanwhile, a fall in manufacturing activity indicated by the Chicago Purchasing Managers Index, which fell to 46.1 in September, has proven to be a major reality-check in what is clearly a more fragile market than many think at the moment.
Although the Dow Jones opened up some 19 points it was to fall back soon after. By 3.40pm (London time), the Dow Jones Industrial Average was trading 112.75 points (-1.16%) lower at 9629.45, while the broader S&P 500 was down 12.08 points (-1.14%). The Nasdaq was also in negative territory, down 22.43 points (-1.06%) to 2101.61.
It took what was perhaps an unlikely source to sum up this unlikely outcome. Ralph Shive, manager of the Wasatch-1st Source Income Equity Fund, said, ‘All of us to some degree are guessing how strong the recovery is or how long it will take. Market prices have anticipated a decent recovery at this point. At some point we need to see earnings turn.’ [2]
Banks were weighing heavily today. JP Morgan and Chase shares were down 1.96% at $44.00, while shares in Bank of America Corp fell to $16.90 (-1.57%).
Also among the strugglers today were giants American Express and Walt Disney, down 2.19% and 2.22% respectively.
In retail, Wal-Mart announced it will extend its aggressive $10 toy programme; US consumers will soon have a choice of 100 toys at $10 instead of just 10. This made no impression on investors though, its share price fell 0.75% to $48.86.
Among the few positives today was Nike, whose shares rose 6.7% to $64.13 after cost-cutting measures enabled it to post a slight rise in first-quarter profits that exceeded analyst estimates yesterday.
[1] Source: Bloomberg News (30 September 2009)
[2] Source: Bloomberg News (30 September 2009)
By Anthony Grech, Research Analyst, IG Index.
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