Wall Street has continued to descend today, as investors decreased their exposure to equities on fear of a deeper correction.

The number of bearish signals hitting the market was on the rise today, with policymakers from India, South Korea and Indonesia expressing their concern over potential asset bubbles, and ECB President Jean-Claude Trichet saying that the central bank is ready to start exiting emergency lending measures.

In the US, we had the Economic Policy Institute saying domestic budget shortfalls pose a direct threat to millions of US jobs and a separate report from Moody’s Economy saying that the US housing market hasn’t stated to recover yet.

‘I don’t think the housing crisis is over,’ Mark Zandi, the chief economist with Moody’s Economy.com told Reuters today ‘I think we’re going to see another leg down.’

PC-maker Dell added to the downbeat vibe by unveiling a bigger-than-expected 54% drop in third-quarter net income to $337 million. This is equivalent to 17 cents a share, substantially below Bloomberg’s median analyst estimate of 27 cents a share.

Sales were also a disappointment, coming in 15% lower than the previous year’s comparative at $12.9 billion and missing Bloomberg’s $13.1 billion median forecast.

Dell expects its fourth-quarter revenue to improve, partially on the back of a pickup in consumer demand over the holiday season. Michael Dell, the company’s founder and chief executive, also said he foresees strong demand for PCs and other computer systems sometime in 2010, yet the fear on the market is that the company may be losing market share. Dell’s shares slid 9.2% to $14.41 this afternoon.

‘Dell usually does well in the holiday season. So this suggests that we won’t get good results from other retailers. That’s pushing the market down’ said Dan Faretta of Lind-Waldock.[1]

Chipmakers continued to decline as well today following a bearish report from Merrill Lynch, which downgraded the chip industry from ‘positive’ to ‘negative’ yesterday. [2] Shares of Advanced Micro Devices slid 3.33% to $6.82, while Intel declined nearly 1% to $19.15.

House builder D.R Horton was another casualty today, plunging over 10% to $11 a share after unveiling a wider-than-expected fourth-quarter loss and saying that its operating environment remained challenging.

By 3.30pm (London time), the Dow Jones Industrial Average traded at 10315.06, representing a 17.38 point (-0.17%) decline, while the broader S&P 500 was trading 4.47 points (-0.41%) below yesterday’s close at 1090.43. The Nasdaq fared relatively worse, down 11.44 points (-0.65%) to 1761.75.

There was an interesting research note from Goldman Sachs today, which essentially implied that we could see a rally over the month of December. ‘December stands out as one of the best months for equities, using both long-and-short term data; we think this year will be similar.

In years when the first 11 months have yielded good returns, December has tended to be particularly strong.’ [3] If correct, investors may be able to make lucrative returns by taking advantage of current volatility, perhaps acquiring equities at key support levels.

Source: [1] Reuters News (20 November 2009)
Source: [2] Bloomberg News (20 November 2009)
Source: [3] Company research report (20 November 2009)

By Anthony Grech, Research Analyst, IG Index.

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