US Market plunges on economic concerns

Loss from Merrill Lynch and discouraging statement from Fed Chairman take Dow to ten month low

It was disastrous day for the US Market today, Thursday, 17 January, 2008. Worries about further financial market turmoil and a slowing economy were the main reasons for today’s sell-off. A disappointing quarterly report from Merrill Lynch and discouraging comments from Federal Reserve Chairman, Ben Bernanke regarding the economy just spurred the sell-off further. The indices posted large losses ending at their session’s lows for the day. All ten economic sectors ended in the red.

The Dow Jones industrial Average ended the day with a loss of 307 points at 12,159. The Nasdaq Composite Index, finished lower by 47.7 points at 2,347. S&P 500 finished lower by 39.9 points at 1,333. All thirty Dow stocks ended in the red today led by AIg and Merck.

Before the opening bell, Merrill Lynch reported its earnings and the company posted a net loss from continuing operations of $10.3 billion, mainly due to nearly $15 billion worth of write-downs from poor subprime mortgage investments. That was well below analysts' expectations.

Also today, Federal Reserve Chairman, Ben Bernanke reiterated that the outlook for growth in 2008 "has worsened" and "the downside risks to growth have become more pronounced." But he also said that the Fed is not forecasting a recession this year. Last week he had hinted that more interest rate cuts are on the way to help the situation from worsening further.

Initial claims data gives the day a good start but fails to hold on

Stocks opened higher earlier in the day on a lower than expected jobless claim number. Initial jobless claims for the week ended 12 January unexpectedly fell to 301,000, its lowest reading in eight months. Market expected claims to rise to 335K. Dow was up by as much as 100 points at one point.

On the negative side, the Commerce Department reported today that construction on new homes fell 14% in December to a seasonally adjusted annual rate of 1.01 million, the slowest building pace in more than 16 years.

Also on the economic front, the Philadelphia Fed Index, a regional manufacturing survey, was sharply lower at -20.9, its lowest number since Oct. 2001. The consensus estimate predicted a reading of -1.5. Since the number is below zero, it reflects a contraction in manufacturing.

Crude prices once again fell today. Price slipped after traders once again got gripped by fears of recession. The “r” word once again came into focus after fresh comments from Federal Reserve chairman, Ben Bernanke. Yesterday, Energy Department had reported that crude stockpiles rose more than expected for the first time in nine weeks. This also led to softening of crude price. Crude-oil futures for light sweet crude for February delivery today closed at $90.13/barrel (lower by $0.71/barrel or 0.8%) on the New York Mercantile Exchange.

Volume on the New York Stock Exchange surpassed 2.1 billion, and declining stocks beat those rising 5 to 1. On the Nasdaq, 2.8 billion shares traded, and decliners outdid advancing issues, 3 to 1.

As fourth quarter earnings continues to pick up, investors will be looking for corporate financials to help set the tone of trading. Tomorrow, a number of widely-held companies are expected to report their results, including Dow component General Electric.