Wall Street suffered from another bout of weakness at the start of trading today, as investors speculated that the market has got ahead of itself.
The trading day kicked off with some moderately decent jobless claims figures and stronger regional manufacturing data, yet a weaker-than-expected leading economic index left investors with a sour taste in their mouths.
The feeling in the market is that the American economic recovery may be losing some steam, especially in view of yesterday’s dismal housing starts.
The US Labor Department today revealed that the number of Americans claiming for first time unemployment benefits (initial jobless claims) remained steady at 505,000 in the week ending 14 November, in line with Bloomberg’s expectations. The previous week’s level was revised to 505,000 from 502,000.
The four-week moving average for initial jobless claims, which aims to smooth volatility in the weekly data, fell by 6,500 to 514,000 – the lowest figure since 22 November 2008.
Meanwhile, the total number of Americans collecting unemployment benefits for more than a week (continuing jobless claims) fell by 39,000 to 5.61 million. The overall trend is that jobless claims figures appear to be dropping, which is a positive sign for the US labour market.
The Philly Fed manufacturing data was also encouraging, rising 5.2 points from the prior month to 16.7 in November. This exceeded Bloomberg’s median estimates by 4.5 points and marks the fourth month of factory expansion in the region.
The important leading index, a gauge of near-term economic activity, didn’t fare as well, however, rising by only 0.3% in October. This was substantially lower than the prior month’s 1% increase and missed Bloomberg’s median estimates for a 0.4% rise.
By 3.35pm (London time), the Dow Jones Industrial Average was trading 139.59 points (-1.34%) lower at 10286.72, while the broader S&P 500 was 17.84 points (-1.61%) below its previous close at 1091.96. The technology-based Nasdaq was also deep in the red, down 33.68 points (-1.9%) to 1768.06.
Bearish remarks on Intel, the world’s largest chip maker, didn’t bode well for market sentiment, especially technology shares.
The company’s shares plunged 5.5% to $19.01, dragging down shares of several other chip makers as well, after Dan Heyler, the head of Asian semiconductor research at Merrill Lynch, said the supply of chips is growing faster than demand, putting Intel’s bottom line at risk. Mr Heyler downgraded Intel’s rating from ‘buy’ to ‘neutral’ and cut the outlook for the global chip industry from ‘positive’ to ‘negative’. [1]
Shares of chipmaker STMicroelectronics fell 4.9% to $8.55, while Advanced Micro Devices tumbled 6.4% to $6.85 following this report.
Banks were out of favour as well today, with Goldman Sachs seen 2% lower at $173.43 after renowned banking analyst Meredith Whitney said the bank has lost ‘tremendous’ talent, as executives left to set up their own hedge funds. Whitney downgraded Goldman Sachs last month.
JPMorgan was another casualty, down 2.1% to $42.46 after announcing that it intends to acquire the rest of Cazenove Group for $1.7 billion (£1 billion).
US resource shares were also under pressure today, after a rebound in the Dollar exerted pressure on commodity prices. Alcoa slumped 4.3% to $13.17, Barrick Gold slid 1.2% to $43.22 and Freeport-McMoRan Copper & Gold fell 2.2% to $82.78.
Source: [1] Bloomberg News (19 November 2009)
By Anthony Grech, Research Analyst, IG Index.
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