Home' Trinidad and Tobago Guardian : July 27th 2014 Contents JULY 27 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
Even if data next week shows a mediocre rebound
in US economic growth, that might be enough to keep
the stock market aloft at record highs and the Federal
Reserve steadfast in its winding down of stimulus
through bond purchases.
US gross domestic product for the second quarter,
due to be released Wednesday, is forecast to have grown
3.2 per cent. Growth had shrunk 2.9 per cent in the
first quarter due to a harsh winter and spending cuts
tied to the federal Affordable Care Act.
Still, some lackluster recent data on housing and
capital spending, plus a mixed bag of second-quarter
earnings, have raised the risk that even a moderate
GDP bounce may fall short of expectations.
Indeed, Friday's disappointing report on durable
goods orders in June spurred JPMorgan and Goldman
Sachs to shave their second-quarter outlook by 0.1
percentage point to 2.6 per cent and 3 per cent growth,
While recent anxiety over conflict in Ukraine and
Middle East has somewhat kept a lid on stock prices,
it has not spooked investors enough to prompt them
to dump equities for bonds and cash.
"The market has been resilient to these setbacks.
They have taken bad news in stride," said Steve Weiting,
global chief investment strategist with Citi Private Bank
in New York.
The Standard & Poor s 500 index fell 0.4 per
cent on Friday after closing at a record high of
1987.98 on Thursday, while benchmark 10-year
Treasuries yield was little changed on the week
at 2.48 per cent.
There has been steady improvement on the job front.
Domestic jobless claims in the latest week fell to their
lowest since early 2006, while monthly jobs gains have
jumped by more than 200,000 in each of past five
months, a level of strength last seen in the late 1990s.
While more Americans have returned to work, Federal
Reserve Chair Janet Yellen told two Congressional
panels earlier this month she remained worried about
stagnant wage growth and a low inflation rate that is
below the Fed's 2 percent target.
Those concerns have supported a notion that the
Fed is in no hurry to move away from its near-zero
interest rate policy.
On Friday, US short-term interest rate futures implied
that traders priced in a 53 per cent chance of a Fed
rate hike in June 2015 and a 75 per cent chance of such
a move a month later.
"We expect very little new information from the Fed
next week. We have been given a clear map going into
October," Wieting said.
The Federal Open Market Committee, the Fed's pol-
icy-setting group, is scheduled to announce whether
it will further pare its bond purchases---currently at
US$35 billion a month---at 2:00 pm. (Reuters)
Investors got some bad news about
the American shopper on Friday,
driving down stocks and sending
the Dow Jones industrial average to
a loss for the week.
Two major US companies---the retail giant
Amazon and the credit card processor Visa---
both said that the second half of the year
was looking more troubled than originally
expected. The cautious outlook from two
companies so heavily exposed to consumer
spending spooked investors, causing the
stock market to fall at the open and remain
lower throughout the day.
"Visa put a lot of caution into the market
this morning," said Quincy Krosby, a market
strategist at Prudential Financial.
The Dow dropped 123.23 points, or
0.7 per cent, to 16,960.57. It s the first
time the Dow has closed below the psy-
chologically notable 17,000-point mark
since July 9.
The Standard & Poor s 500 fell 9.64
points, or 0.5 per cent, to 1,978.34 and
the Nasdaq composite fell 22.54 points,
or 0.5 per cent, to 4,449.56.
With Friday's selling, the Dow fell 0.8 per
cent this week. The S&P 500 closed basically
unchanged and the Nasdaq rose 0.4 per
cent this week.
Visa was the biggest decliner among
the blue chips, falling $7.97, or 3.6 per
cent, to $214.77. The credit card processor
reported an 11 per cent rise in quarterly
profit but cut its full-year forecast on con-
cerns about growth overseas.
Because the Dow is a price-weighted
index, and Visa is the most expensive stock
in the Dow, Visa was having an outsized
impact on it. Roughly 60 points of the Dow's
decline can be attributed to Visa.
Investors have closely watched Visa ever
since the company went public in 2008.
Credit cards that use Visa's payment system
are in nearly person's pocket, and each time
a consumer buys a product with a Visa card
the company takes a small per centage.
To see Visa give a cautious outlook is
worrisome, Krosby said.
"Visa represents the consumer and the
consumer is one of the most important
pieces for the future of this economic recov-
ery," she said.
Amazon's quarterly results didn't help
boost investor sentiment either.
Amazon's stock slumped 10 per cent after
the online retail giant late Thursday posted
a much wider loss than analysts had forecast,
hit by expenses. The Seattle-based company
is focused on spending the money it makes
to expand into new areas and products,
including a smartphone, the Fire, which
starts selling Friday.
Amazon fell $36.60 to close at
$324.01, the biggest decliner in the S&P
Investors retreated from riskier stocks and
moved into traditional havens at times of
uncertainty: bonds and gold. The yield on
the 10-year Treasury note eased to 2.47 per
cent from 2.50 per cent late Thursday as
demand for the government bond rose. Gold
climbed $12.50, or 1 per cent, to $1,303.30
Despite the disappointing news from those
consumer-focused companies, corporate
earnings from the latest quarter have been
solid. Of the 230 companies that have
reported so far, 76 per cent have beaten
profit expectations and 67 per cent have
beaten sales expectations, according to Fact-
So far the S&P 500 is averaging a 6.7 per
cent earnings growth this quarter compared
to a year ago. Investors had expected earnings
to be up 4.9 per cent when the results started
to roll in at the beginning of July.
Even with Friday's declines, the stock
market remains near all-time highs, and
the S&P 500 closed at a record Thursday..
That made some investors cautious.
"I continue to see the level of complacency
in the (stock) market to be unnerving," Scott
Clemons, chief investment strategist at
Brown Brothers Harriman, which manages
$25 billion in assets for private investors.
"All of this geopolitical tension, the market
trading near all-time highs, I think the mar-
ket is at a critical state right now."
Clemons said he doesn't believe the mar-
ket is poised for a major sell-off, but instead
thinks investors should brace for more
volatility and more heavy-handed reaction
to disappointing earnings or data, like Fri-
day's Amazon and Visa results.
drag stocks lower
How the Dow Jones
industrial average did
The Dow Jones industrial average lost
123.23 points, or 0.7 per cent, to close at
The Standard & Poor's 500 index fell
9.64 points, or 0.5 per cent, to 1,978.34.
The Nasdaq composite fell 22.54
points, or 0.5 per cent, to 4,449.56.
For the week:
The Dow is down 139.61 points, or 0.8
The S&P 500 is up 0.12 of a point, or
0.01 per cent.
The Nasdaq is up 17.42 points, or 0.4
For the year:
The Dow is up 383.91 points, or 2.3 per
The S&P 500 index is up 129.98 points,
or 7 per cent.
The Nasdaq is up 272.97 points, or 6.5
FIle photo: People walk past an electronic
stock indicator in Tokyo, on July 22, 2014.
Asian shares rose Tuesday as tensions over
the downing of a passenger jet in Ukraine
eased after pro-Moscow separatists
released a train packed with bodies and
handed over the aircraft's black boxes. AP
In this July 16, 2014 file photo, trader Benedict
Willis uses his moblie phone as he works on the
floor of the New York Stock Exchange. Stocks are
pricier, tensions between Russia and the West are
mounting, and Israel has rolled into Gaza to stop a
deadly air war. And yet investors shrug it all off
and keep pushing the market higher. AP
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