Investors appear worried that the economy is not keeping up with the eight-month old rally in the stock market. Disappointing outlook and grim economic data are further fueling concerns that markets are ripe for a pullback and a full-blown economic recovery would take time.
On Friday, the 30-share Dow Jones industrial average fell 14 points, or 0.1%, to close at 10,318.16. The broader S&P 500 index closed 0.3% lower at 1091.38 and the tech-heavy Nasdaq finished the day at 2146.04, off 0.5%. On the week, the Dow average managed to hang on to gains, registering a paltry 0.5% advance. The S&P 500 and the Nasdaq fell 0.2% and 1%, respectively. On the New York Stock Exchange, 1.1 billion shares exchanged hands, with declining issues ahead of those that advanced in price by a three-to-two margin.
Last week’s disappointing reports on housing and weak forecasts from technology companies had antsy investors swooping up safe haven investments like Treasury bonds and dollar. The demand for safe havens also spiked after European Central Bank President Jean-Claude Trichet remarked that the bank is planning to unwind some of its stimulus measures. A higher dollar pushed crude prices lower and pressured stocks.
Nevertheless, at the center of the activity on the Wall Street is the ascending price of such physical assets as gold, which touched its fresh highs of $1146.80 on Friday, and a declining dollar. The metal, although lacking fundamental valuation measures, has surged 29.7% so far this year. Since India's central bank bought 200 tons from the IMF, the metal has jumped 11.5% on its dollar-alternative, safe-haven, inflation-resistant appeal.
Meanwhile, the decline in the US dollar has raised valuation expectations for the major industrial companies, with offshore sales expected to boost revenues. Nevertheless, this week’s highlight remains today’s after-market-close earnings from Hewlett-Packard (NYSE: HPQ). Last week the company preannounced strong quarterly numbers, anticipating record sales results of $30.36 billion, and earnings of $1.13, and also lifted its 2010 guidance.
Last week, the 1% decline in the technology shares came after weaker-than-expected guidance from two software companies, Autodesk (NASDAQ: ADSK) and Salesforce.com (NYSE: CRM), was compounded by disappointing numbers from Dell (NASDAQ: DELL). Technology companies felt the heat after Dell (NASDAQ: DELL) reported quarterly earnings that were well below analysts’ expectations. The company said sales of its computers to big businesses remain weak. Shares in the company plunged 10% to $14.29. So far in November, the NASDAQ has advanced 5%, and is up 36.1% year-to-date.
The 0.2% pullback in S&P500 was caused by declines in oil and gas (-1.4%) and tech (-1.3%) sector shares that offset gains in health care issues (+1.5%) and basic materials (+1.2%).
The earnings calendar has slowed, but companies still due to report include: Campbell Soup (NYSE: CPB) on Monday; American Eagle (NYSE: AEO), Barnes and Noble (NYSE: BKS), Dollar Tree (NASDAQ: DLTR) on Tuesday, with Deere (NYSE: DE), J Crew (NYSE: JCG) and Tiffany (NYSE: TIF) on Wednesday.
Zacks Investment Research
