Another week of huge losses at Wall Street

Nine sectors end in the red led by financial sector

US Market once again ended the week on Friday, 27 June with huge losses. The Dow fell to its lowest level since September 2006. Record high crude prices, tumbling financial sector and not-so-good outlooks from tech companies took a toll on market sentiment.

The Dow Jones Industrial Average lost 496 points for the week to end at 11,346.69. Tech - heavy Nasdaq lost 91 points at 2,315. S&P 500 shed 40 points to end at 1,278. In percentage terms, Dow, S&P 500 and Nasdaq lost 4.2%, 3% and 3.8% respectively. Financials tumbled almost 6% for the week and is at its lowest level in five years.

Wall Street firms were in downgrade mode, prompting most of the selling during the week. Goldman Sachs sent financials tumbling on Monday, 23 June, after cutting the sector to Underperform from Neutral. Also, Wachovia Securites downgraded Goldman Sachs to Market Perform from Outperform. Credit Suisse cut its earnings estimates on Merrill Lynch and JPMorgan Chase, citing incremental credit quality deterioration.

As the week progressed, financial sector failed to make any change in its destiny. Goldman added Citigroup to its Conviction Sell list on Thursday, 26 June and also forecast a $8.9 billion second quarter write-down. On the other hand, Lehman Brothers said Merrill Lynch will likely incur a $5.4 billion second quarter write-down, mainly from its exposure to bond insurers. Nine of the ten sectors posted a decline for the week.

During the middle of the week, on Wednesday, 25 June, the Federal Reserve sharpened its focus on inflation, saying that the upside risks to inflation have increased. Market reacted in a quite volatile manner throughout the day. At the end, it ended with little gains. Fed held its target for short-term interest rates steady at 2%.

In its FOMC directive, the Fed said overall economic activity continues to expand, partially due to "firming" in household spending. However, the fed expects economic growth will face the burdens of tight credit conditions, housing contraction and the rise in energy prices. The statement also said that uncertainty over the inflation outlook remains high, although it expects inflation to "moderate later this year and next year."

In terms of economic data, the Commerce Department reported that U.S. orders for durable goods were unchanged in May. Also, the Commerce Department estimated that sales of new U.S. single-family homes fell 2.5% in May to a seasonally adjusted annual rate of 512,000 as sales in the West fell to a 26-year low. The drop in May follows the upwardly revised 4.8% gain in April. The results in May are better than the expected drop of 2.7%.

Also, the final GDP reading for the first quarter indicated the economy grew at 1%, on par with expectations and up slightly from the previous reading. Personal consumption expenditures were revised upward to 1.1%, while the GDP price index came in at 2.7%.

The 104% year-over-year spike in crude prices took a toll on petroleum intensive companies. UPS lowered its second quarter earnings guidance, citing the increase in fuel costs and the sluggish U.S. economy.

In terms of earnings news, Research In Motion reported an earnings miss and tepid outlook. Oracle’s outlook also disappointed investors.