Thursday’s Market Recap: Stocks Continue To Fall Even As Oil Hits 5-Month Low

Stocks plummeted today after more poor economic indicators were reported. The labor department reported that new applications for unemployment rose unexpectedly, to a seasonally adjusted 444,000, up 15,000 claims from last week and well above economists’ expectations. Economists had expected claims would drop to around 422,000. This is definitely a bad omen for our economy and American workers as both jobs and wages have eroded over the past few months. However, some economists think our economy is poised for a turn around and also feel that these lost jobs and wage decreases signal less inflationary concerns for the Fed.

The Dow Jones Industrial Average (^DJI) traded ended the day down 2.99%, or 344.65 points to close at 11,188.23. The Nasdaq (^IXIC) slid 74.69 points to close the day at 2,259.04, a loss of 3.20% as Technology continued its dismal performance. The S&P 500 (^GSPC) closed the day at 1,236.82, sliding 2.99% or 38.16 points. 10 year treasury bonds fell 0.0540 points or 1.46% to 3.6430%, marking a four day decline. Gold also fell for the fourth straight day, falling $6.10, or 0.76% to $796.00 per ounce.

Currently the dollar is trading at 0.6983 vs. the Euro, once again gaining on the Euro. The dollar fell for a fourth-straight day against the yen and is currently at 107.10 vs. the yen. The dollar has continued to gain strength against the Euro leading many speculators to believe the Fed will hike rates, but we will have to continue to watch and see what the Fed’s next move will be.

Oil prices closed down today, hitting a 5 month bottom due to a lower than anticipated drop in U.S gasoline supplies, which led some to believe our struggling economy has forced some Americans to ultimately drive less. Crude oil ended the day at $107.76 a barrel, dropping $1.59, or 1.45%. Oil prices have slid for 5 consecutive trading days, and have fallen overall somewhat steadily for the past 2 months due to a stronger dollar and a falling demand. The Energy Department’s EIA reported today that U.S. gasoline stockpiles fell by 1 million barrels, to 194.4 million barrels for the week (ending Aug. 29), which was less than the expected 1.8 million barrel drop. Since July 11, when crude oil posted a record of $147.27, crude has tumbled almost 26% or $38 per barrel. The national average for a gallon of gasoline fell about a penny this week, coming in at $3.678, well below July’s record high of $4.114 but still far above the year ago average of $2.792.

US retailers were plagued with sluggish back to school sales and many investors fear a tough time ahead of retailers for the holiday season. The International Council of Shopping Centers-UBS sales tally rose 1.7%, falling short of analysts’ expectations of 2%. The tally is a key economic indicator of the retail sector’s health, and is based on same-store sales.  Same store sales are characterized as sales at stores opened at least a year. The ICSC blamed rising oil and travel costs for the disappointing tally. Wal-Mart (WMT) was one of the few major US retailers to report solid numbers. Wal-Mart reported a solid 3% gain in same store sales (including fuel same store sales rose 3.5%), well above analysts’ expectations of 1.6%.

The Commerce department announced today that Americans’ productivity (the amount of output for every hour of work) jumped 4.3% at an annual rate in the April to June quarter, beating analysts’ expectations by almost 100 basis points. Labor costs over the same quarter fell at a rate of 0.5%, also better than analysts had expected. Economists warn that although rising wages and benefits are good news to laborers, if those gains exceed productivity then inflation could increase sharply.

The US Service sector grew unexpectedly in August, the first increase in three months, due to increasing new orders and less inflation. The Institute for Supply Management announced that the services sector index rose to 50.6 in August from 49.2 in July. This beat analysts’ expectations of 50.0. A reading above 50.0 equates to growth while a reading below 50.0 indicates contraction. Although inflation is still high, at 72.9 out of 100, it did fall from July’s reading of 80.8. US prices have been on the rise for the past 5 years. Other sectors also reported growth, including real estate, rentals, mining, health care, education, and utilities. The transportation, finance, hotels, and wholesale trade sectors all contracted in August.

Disclosure: The mutual fund the author is associated with is long WMT

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