Equity Markets Finish Lower after Two Weeks of Gains
Stock markets in the US finished lower for the first negative weekly close in two weeks, as the S&P 500 dropped on the negative sentiment created by the Federal Reserve’s downgraded GDP forecasts and lower prices in commodities (which pushed commodity stocks lower). Commodity stocks (particularly energy producers) were the biggest losers for the week, dropping by a total of 3.3% on negative economic data that many analysts are using as rationale for arguments that global demand will decrease throughout the remainder of 2012.
Evidence of Slower Growth Globally
Some of the other big losers for the week could be seen with Proctor and Gamble, which dropped 4.9% and Bed Bath & Beyond, which saw much more massive losses 16% after corporate earnings missed analyst expectations. Rounding out the highly volatile week, Facebook was one of the few positive stories, which saw gains of 10% on the week. The S&P 500 on the whole saw losses of 0.6 percent, to close just below the highly watched 1340 level, and this marks the end of the 5% rally that had been seen in the previous two weeks. The Dow Jones was lower by 1%, registering losses of 126.4 points, to close the week at 12,640. At this stage, the Dow is now lower by 3.5% on the year.
A large part of this week’s negative price activity is coming from the fact that economic data is providing investors with evidence of slower growth in all of the major global economies. Recent disappointments in economic data releases is leading stock analysts to revise earnings expectations lower as slowing confidence brings reduced sales growth.
Federal Reserve Reverses Optimism
The overall trend was higher at the beginning of the week, as there was some renewed optimism in markets after the latest Greek elections showed that the country was able to elect a majority pro-bailout government. This election result made it more likely to that Greece will be able to remain a member of the European Monetary Union and there there will not be a total collapse in the Euro currency.
This optimism changed, though, when the US Federal Reserve made its announcement that the Board expects GDP growth in the US to slow as a result of the manufacturing slowdown that is being seen in China and the possibility of debt contagion that is present in the Eurozone. After the comments, the stock market posted a major reversal, dropping 2.2% on June 21st, which is the second largest daily drop seen this year. Evidence of a slowdown in manufacturing is now being seen in the US, China and the Eurozone (where manufacturing is currently at its slowest pace in 3 years). Looking ahead on Monday, stock prices are likely to remain heavy but at the same time, longer term investors could also be seen as they start to build new stocks at the cheaper prices that are currently being seen.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.