US market gets dumped again

Indices end substantially lower for second consecutive day as crude also shoots up

US market once again ended the day with substantial losses today, Wednesday, 21 May, 2008. A lowered economic outlook at the Fed and a spike in crude oil prices were the main reasons for today’s negative mood in the market. The dollar fell after Federal Open Market Committee's 30 April meeting reinforced belief that the central bank has paused its rate-cutting cycle and clearly remains worried about inflation and growth. All ten sectors ended the session in negative territory, led by the telecom and financials sector.

According to the minutes from the Federal Open Market Committee (FOMC) 30 April meeting, real GDP growth is expected to range from 0.3% to 1.2% this year. The Fed previously forecast growth between 1.3% and 2%.

Crude-oil futures were on a roll todayafter government data showed that crude supplies unexpectedly dropped, marking their first decline in five weeks. Prices crossed the $133 mark and registered an increase of more than $4. A strengthening of the euro against the dollar added to the gains.

The Dow Jones industrial Average ended the day with a loss of 227 points at 12,601. The Nasdaq Composite Index, finished lower by 44 points at 2,448. S&P 500 finished lower by 22.7 points at 1,390. All the thirty Dow stocks ended in the red.

The FOMC released the minutes from its 30 April meeting around 2:00 ET, which sent stocks tumbling. The 2008 inflation outlook was increased, as was the unemployment rate forecast. The release of the minutes spurred the majority of today’s selling interest.

The Fed also announced that it expects unemployment will "increase significantly," raising its 2008 forecast to 5.6% from 5.25%. In addition, inflation risks have increased, with the Fed raising its core-inflation forecast to between 2.2% and 2.4% from between 2% and 2.2%.

Earnings reports were mostly better than expected, but the market's response was mixed. Hewlett-Packard and Analog Devices topped their respective earnings estimates.

Crude-oil futures for light sweet crude for July delivery today closed at $133.17/barrel (higher by $4.19/barrel or 3.3%) on the New York Mercantile Exchange. Price touched a high of $133.35 earlier during the day.

As per the weekly inventory report by the Energy Department, crude supplies fell by 5.4 million barrels to 320.4 million for the week ended 16 May. Prior to that, supplies had climbed more than 12 million barrels in the past four weeks. Market was expecting a rise of 900,000 barrels for the latest week.

Trading volumes remained light, with 1.4 billion shares exchanging hands on the New York Stock Exchange, and 925 million shares trading on the Nasdaq stock market. Decliners topped gainers by 2 to 1 on both exchanges.

For tomorrow, the weekly jobless claims report hits the wires first along with a couple of earning reports.