US stocks end lower for second straight week

Economic data play the spoilsport in a week when earnings do not disappoint much

US stocks registered losses for the second consecutive week that ended on Friday, 20 August 2010. The major averages began the week on a strong note. However, U.S. equity markets could not hold their gains for the week, and the culprit once again was U.S. economic data. A resurgence in deal activity to the highest levels since late 2009 contrasted with persistent reminders of the struggling global economic recovery.



For the week, that ended on Friday, 20 August 2010, Dow ended lower by 89.53 points (0.9%) at 10,213.62. Nasdaq ended higher by 6.28 points (0.3%) at 2,179.76. S&P 500 ended lower by 7.56 points (0.7%) at 1,071.69.

Seven out of ten economic sectors ended lower led by energy sector. Only technology, consumer discretionary and materials sectors managed to finish modestly in the black for the week.

The major averages rallied on Tuesday, 17 August 2010, after hearing positive earnings from retailers Walmart and Home Depot though their results and guidance actually came in mixed.

But the news that garnered the maximum attention was the takeover bid from BHP Billiton for Potash. But that morning, Potash announced that it rejected a takeover offer from BHP Billiton. The offer was for $130 per share in cash, a 16% premium to the prior session's closing price. The next large deal quickly followed, as Intel acquired McAfee on Thursday morning in a cash transaction for a 60% premium.

Among earning data expected for the week, retailer Target expressed comfort with the consensus earnings forecast for third and fourth quarters. In contrast, Deere posted an upside earnings surprise and issued strong guidance. Deere's third-quarter earnings rose 47% on a 15% gain in sales, and the company cited strong demand for large farm machinery and improvement in construction and forestry.

Among economic data during the week, The Labor Department in US reported on Thursday, 19 August 2010 that first-time filings for state unemployment benefits rose unexpectedly last week to reclaim the highest level since the middle of last November. As per the report, initial claims rose 12,000 to 500,000 for the week ended 14 August 2010. In addition to this, the surprisingly weak Philly Fed report, as well as a simultaneously released leading economic indicators report combined to rattle U.S. stocks on Thursday.

On Friday, 20 August, 2010, stocks ended the day mixed. Stocks closed off their worst levels of the session, bottoming around midday and moving higher throughout most of the afternoon trade. The Nasdaq was the best performer closing fractionally higher while the Dow lagged. On that day, the Dow Jones Industrial Average ended lower by 57.59 points at 10,213.62. Nasdaq ended higher by 0.81 points at 2179.76. S&P 500 ended lower by 3.94 points at 1,071.69.

At the end, the economic sectors ended mixed but the energy sector dropped the most. Majority of Dow components declines and the fall were led by H-P, Exxon Mobil, Caterpillar and 3M. H-P shares skidded more than 2% though the technology giant's profit climbed 6.1% on higher world-wide sales in its fiscal third-quarter.

Components with significant overseas exposure weakened after the euro touched a one-month low following a European Central Bank official's suggestion that monetary policy should remain loose until next year. In the currency market on Friday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies rose by 0.8%.

Energy and precious metals led the commodities sector lower on Friday. October crude oil futures finished lower by 1.3% to $73.85 per barrel. Crude was once again marred by concerns about the economy and finished the session in the red for the third consecutive day and for the eighth session in 9 days. Sept natural gas shed 1.5% to close at $4.11 per MMBtu.

Dec gold futures shed 0.5% to finish at $1228.80 per ounce, while Sept silver dropped 2% to end at $17.99 per ounce. Strength in the dollar index weighed on both precious metals.

Volume was strong for a Friday in August due to today's options expiration. More than 1.12 billion shares changed hands on the floor of the NYSE.

Indian ADRs ended mixed on Friday. Tata Motors and VSNL were the main gainers soaring 3.1% and 3.7% respectively. HDFC Bank and Infosys were the main losers shedding 1.5% and 0.1% respectively.

For the year, Dow is lower by 2.1%. Nasdaq is lower by 3.9% and S&P 500 is lower by 3.9%. The upcoming week has a number of important economic reports on the docket. Looking ahead to next week, all eyes will be on an economic calendar that includes existing home sales on Tuesday, durable goods orders on Wednesday, initial jobless claims on Thursday, as usual, and the second reading for Q2 2010 GDP on Friday.