Business News

What happened on Wall Street?

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by Peter Switzer

Wall Street got the overdue wobbles over the weekend with the Dow off over 200 points! So, what happened?

The main drivers were some worrying company results, which have then been used to make negative assumptions about global economic growth going forward.

All I can say to that is — “well, der.”

Let’s go straight to the scoreboard to see how bad the results were. The Dow lost 205.43 points or 1.52 per cent to finish at 13,343.51 while the S&P 500 dropped 24.15 points or 1.66 per cent to end at 1433.19. It’s worth noting that around 1420 is a key resistance level and so closing above that point is a positive.

Scary October

We should keep all of this in perspective, despite the fact we will sell-off today on the local stock market. The Dow was up 0.11 per cent for the week and is 9.22 per cent higher for the year. The S&P 500 was up 0.32 per cent for the week and 13.96 per cent for the year.

However, the VIX or fear index is creeping up and is now at 17.06, where a reading such as 14 had been regular when the markets shot up between June and September. So investors are more nervous and some weak company results combined with the belief that a pullback was overdue can explain the Friday sell-off on Wall Street. It was always going to happen — especially in the month of October, which has hosted a few market crashes, but I don’t think it is on the cards this time unless some left-field event happens.

The triggers

So, let’s identify the triggers for the bad day for stocks in New York:

GE reported earnings in line with analyst’s predictions but revenue was down, so the results were created via cost reductions
McDonalds missed on earnings but beat on revenue so at least the Yanks are eating at Maccas.
Google’s underperformance is worrying analysts and its share price is diving.
Microsoft missed on earnings.
Existing home sales were down on expectations.
Germany is making life hard for the EU’s bailout fund to help troubled banks in places such as Spain.
And the Spanish Prime Minister is still playing silly games over whether he will request a bailout. He needs to request a bailout to gain assistance but that will mean he will have to cop imposed austerity measures which could deal a fatal political blow to his re-election chances.

Expected pullback

As you can see, there were not any really big, bad news items and the company news was expected while it really wasn’t disastrous. That’s why I suggest that this pullback is what was always on the cards — the global economy is weaker and so is the US economy and that’s why the European Central Bank (ECB) and the Federal Reserve added to their respective money supplies.

Coming soon

Ahead this week, more big US companies will report with Caterpillar bound to be closely watched on Monday and there’s a swag of economic data which will help us understand just how the US economy is faring.

There are few reasons to contemplate razor blades at this stage but if things do get nastier, then I suspect it will be another buying opportunity.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Monday, October 22, 2012

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