On Friday, stocks finished the week with the worst close since early June of 2012. Weak earnings reports from corporations fueled the decline in stocks. The Dow Jones Industrial Average ended flat with a 2.46 point gain to 13,339. At the same time, the Nasdaq dropped 5.3 points to end 0.3 percent lower while the Standard & Poor’s 500 Index closed out 4.25 points or 0.3 percent lower. For the entire week, the three indexes were all 2 percent or more lower.
At mid-day, the stock market did a slight rally due to positive earnings from major companies. As investors digested record third-quarter results from two banks, share prices initially gained. Consumer sentiment in the United States was up for October while wholesale prices remained roughly unchanged. By afternoon, the mild rally started falling. Major stock indexes reduced course and ended up closing lower on Friday. The gain in share prices was mostly led by stocks in the banking and energy sectors.
The University of Michigan-Thomson sentiment gauge was released for September. This gauge showed that computer sentiment was it its highest level in five years. It rose to 83.1 which marks a much higher level than the 78.3 that investors had expected.
In the United States, shares of JPMorgan advanced initially before ending 1.2 percent lower for the day. Shares of this company were trading at 41.61 by the end of the week. The original gain in JPMorgan shares was fueled by profit reports that beat expectations on Wall Street. Wells Fargo also outperformed in third-quarter profit reports. Revenue was still shy of where investors had hoped so shares fell 2.6 percent to $34.25. On the KBW Bank Index, Banking shares dropped 2.5 percent.
The United States Wholesale Prices Report was released this week and showed a second consecutive month of sharp gains. Overall, wholesale prices were 1.1 percent higher than in August. This government report is designed to reflect wholesale prices that exclude food and energy. In the United States, a 9.8 percent gas spike impacted the overall level of wholesale prices. Excluding the influence of higher gas prices, producer prices were essentially unchanged for the month.
Continued Concerns in Europe
Anecdotal reports have indicated that earnings around the world are still weaker than expected. Continued fiscal concerns in Europe and lack of a Spanish bailout have fueled this negative sentiment. With weakened global demand expected, many analysts believe that the S&P 500 company’s average earnings will drop 3 percent from last year.
In trading, the euro gained 0.2 percent versus the dollar to $1.2952. This keeps Europe’s currency squarely within the $1.28 to $1.3170 range that it has held since the middle of September. Despite temporary gains, the euro will have difficulty gaining traction in the marketplace. Investors are still concerned about the European Central Bank’s bond-buying plan and the higher borrowing costs presently faced by Eurozone nations. If Spain chooses to request a bailout, it would come as a relief for the marketplace. Leaders in the European Union are expected to meet on Thursday to work on the Eurozone’s crisis strategy.
Analysts had initially expected oil prices to remain at a high level for the remainder of the month. Continued disruptions in output have harmed production in the Middle Easy. Brent Oil was down $1.09 a barrel to $114.62. United States crude oil ended the week 21 cents lower at $91.86. The United States also posted a gain on its 10-year treasury note. Government bonds are currently trading at levels that yield 1.660 percent.
European Stocks Drop
For the third week out of four, stocks in Europe have fallen. The International Monetary Fund warned earlier this week about lower economic-growth expectations for the Eurozone. This negative outlook was further compounded by reports that many companies expected a decrease in earnings for the third quarter. The Stoxx Europe 600 Index dropped 1.7 percent to 269.43. Last week, the index had gained 2.1 percent and is still 15 percent higher than the low it reached on June 4.
The International Monetary Fund lowered its expectations for global growth to 3.3 percent. This marks its lowest levels since 2009. Next year’s forecast was also lowered to 3.6 percent. Previously, the IMF had expected global economic growth to be at 3.5 percent for 2012 and 3.9 percent for 2013. East Asian economic growth expectations were also lowered to 7.2 percent. This forecast excludes India and Japan and represents a drop of 1.1 percent from 2011. If the economy performs as expected, it will be the slowest economic growth since 2001.
Marine Harvest ASA retreated 5.2 percent due to lowered profit estimates. Cookson Group and Morgan Crucible Company shares both fell more than 14 percent after reports that their fiscal performance would not meet the targets. At the same time, Advanced Micro Devices Incorporated dropped its sales forecast.
Canadian Stocks Down
In Toronto, stock prices fell 31.91 points or 0.26 percent for the day. They ended the week at 12,202.04. Overall, this is a 1.8 percent drop for week and the worst performance since June. Individual low performers include the Bank of Montreal and the Bank of Nova Scotia. The Bank of Montreal fell 0.3 percent to C$58.47 while the Bank of Nova Scotia dropped 0.5 percent to C$53.22. Canadian financials dropped 0.2 percent altogether.
The index further dropped because of a weak performance in the materials sector. This sector fell a total of 1.3 percent with Barrick Gold dropping 1.9 percent to C$38.31. Potash Corporation also fell 1.5 percent to C$40. 82. Energy shares gained slightly by 0.2 percent while Canadian Natural Resources advanced 0.8 percent to C$30.25. At the same time, shares in EnCana Corporation rose 0.6 percent to end the week at C$21.91.
Falling share prices in Toronto was attributed to the weak global economy and the ongoing debt crisis in Europe. To the south of Canada, the United States is battling with excessive government debt and a lame duck legislature. Until the election season is over, it will increasingly difficult for any major budget proposals to be passed.