15 Reasons Markets Continued to Fall While HP Shocked Tech Investors and Gold Boomed

Dow 10,817 S&P500 1,123 Nasdaq 2,241 Gold 1,852 Oil 82

The Dow (NYSE:DIA), S&P (NYSE:SPY) and Nasdaq (NASDAQ:QQQ) resumed a painful downward trend this week. Oil (NYSE:USO) shed $3 on the week on poor economic data. On the other hand, Gold exploded past $1,800 an ounce as investors sought shelter from the equity and currency storm.

Now, for our analysis of the 15 reasons markets moved this week:

Monday

1) U.S. economic data. According to the National Association of Home Builders, builder (NYSE:XHB) confidence in the market for newly built, single-family homes – the National Association of Home Builders/Wells Fargo Housing Market Index – was unchanged in August at a low level of 15. Also being reported today was an assessment of New York-area manufacturing activity, which declined for the third consecutive month and fell short of economists’ expectations. But after last week’s volatility, investors have grown used to the idea that the economic recovery has slowed, allowing positive data from other areas to overshadow the negative.

2) Japan. Japan’s (NYSE:EWJeconomy contracted less than expected in the second quarter, despite a huge blow to industry and production dealt by the March 11 earthquake and tsunami. Gross domestic product declined at an annualized rate of 1.3% in the quarter ending June 30. Economists had forecast a 2.5% decline. In the second half of the quarter, many Japanese companies, including Toyota (NYSE:TM) expect to fully recover to previous production levels, or even exceed previous levels in order to make up for lost revenue in the months following the earthquake.

3) Crude futures. After tumbling considerably over the past few weeks, crude-oil futures began to recover today. Crude for September delivery climbed roughly 3% today on the New York Mercantile Exchange, giving energy stocks a boost. Exxon Mobil (NYSE:XOM), BP (NYSE:BP), Marathon (NYSE:MRO), and Chevron (NYSE:CVX) all gained over 3% today.

Tuesday

1) Germany. The euro zone’s largest economy only grew 0.1% in the last quarter, according to a report on GDP growth in the EU released this morning. Germany has notoriously been the strongest of the seventeen European nations using the euro, but the country’s second-quarter growth fell short of the euro zone’s 0.2% growth during the second quarter. Most euro-zone countries, particularly those with the largest economies — Germany (NYSE:EWG), France (NYSE:EWQ), Spain (NYSE:EWP), Italy (NYSE:EWI) — has seen economic growth slowing to a halt, and as a result of today’s report showing that even the strongest European economy has been hit by the sovereign debt crises plaguing the region, the euro pared yesterday’s gains and fell to $1.4420.

2) Housing starts. This morning’s residential construction report showed that fewer privately-owned housing units were authorized in July than in June, as was also the case with building permits. While completions were up in July, that only reflects real estate (NYSE:IYR) decisions made months in the past based on different economic factors than those the nation is currently facing.

3) Earnings. Wal-Mart (NYSE:WMT), Home Depot (NYSE:HD) and Urban Outfitters (NASDAQ:URBN) all reported second-quarter earnings this morning, making them some of the most heavily traded stocks today. In the case of Wal-Mart and Home Depot, that was a good thing, with each watching its share price rise throughout the day, while Urban Outfitters shares plummeted after the retailer reported quarterly profit fell 21%.

Wednesday

1) Producer Price Index. The Labor Department’s PPI advanced 0.2% in July, following a 0.4% decline in June. That means that wholesale costs for producers rose last month, and at their fastest rate in six months, pushed higher by tobacco prices, light trucks, and pharmaceuticals. Economists had only expected a 0.1% advance. Producer prices are one of three monthly inflation gauges reported by the Labor Department — the other two are prices of goods imported to the U.S., which rose 0.3% in July according to a data release yesterday, and consumer prices, which rose 0.2% in July. Increasing inflation could potentially limit the Federal Reserve’s ability to ease credit.

2) Tech. With little in the way of big policy announcements or data releases, today’s markets were a little less volatile than they have been over the past couple weeks, and relied more heavily on the performance of individual sectors and companies. Dell (NASDAQ:DELL) and other tech stocks accounted for a significant amount of the Nasdaq’s losses today after the computer maker slashed its full-year revenue forecasts, citing weaker sales. Dell shares fell more than 10%, Cisco (NASDAQ:CSCO) declined 0.94%, Intel (NASDAQ:INTC) fell 0.58%, and even Apple (NASDAQ:AAPL) declined 0.01% despite opening high this morning.

3) Retail. Retail stocks were in focus today after both Target (NYSE:TGT) and Staples (NASDAQ:SPLS) reported better-than-expected earnings. Abercrombie & Fitch (NYSE:ANF) also reported earnings today, demonstrating increased sales and profit but a declining gross margin as input costs rose 28% in the second quarter, a problem many clothing retailers have been facing as both cotton and fuel prices have been high. But with cotton prices beginning to fall, the coming months should show some improvement in that department, and Abercrombie plans to increase prices to make up the difference. Overall, consumers have been getting a mixed message from retailers. Many of those reporting earnings today beat expectations, but companies like Wal-Mart (NYSE:WMT) have only barely managed to stay afloat as U.S. sales decline drastically.

Thursday

1) Initial jobless claims. Initial jobless claims for the week ending August 13 were reported today, with 408,000 new applications for unemployment benefits, well above economists’ expectations, and an increase of 9,000 over the previous week’s upwardly revised 399,000 new claims. While any number below 400,000, when sustained over a period of weeks or months, means the job market is growing and unemployment is declining, any number above 400,000 indicates the opposite.

2) Home sales. While the high rate of unemployment in the U.S. is one of the biggest drags on the economy, the other is the poor housing market (NYSE:IYR), and today the National Association of Realtors reminded us of that fact. The NAR’s report on existing home sales showed that 3.5% fewer homes were sold in July than in June. The national median existing-home price also fell, down 4.4% from the previous year, despite a 21% year-over-year increase in the annual sales rate, which was 4.67 million in July. With the housing market already doing poorly, any decline is another step away from economic recovery and another step toward a recession.

3) Banks. Growing concern that European banks hard-hit by the region’s sovereign debt crises are vulnerable to increasing financial pressures and might lack sufficient capital to fund necessary day-to-day operations had the financial sector posting some of the market’s biggest losses today. Add to that news that a Manhattan court could decide that Bank of America (NYSE:BAC) has to buy back any faulty mortgages it sold, even if they didn’t result in default, and you have widespread panic. The ruling could cost Bank of America $9 billion more in liability, and would set a new precedent for other U.S. banks being sued by investors. Some of Europe’s biggest banks, and some of today’s biggest losers, were France’s Société Générale SA, Germany’s Deutsche Bank AG (NYSE:DB), Italy’s UniCredit SpA, the Royal Bank of Scotland (NYSE:RBS). In the U.S., JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and of course, Bank of America, all watched their share prices plummet.

Friday

1) Europe. European shares continued Thursday’s sell-off after JPMorgan (NYSE:JPM) economists lowered their estimates for economic growth in the U.S., following a similar move by Morgan Stanley (NYSE:MS) yesterday. “The market is very concerned about the deteriorating outlook for global growth in general and the United States in particular,” said Marcus Svedberg, chief economist at East Capital. While poor economic forecasts in the U.S. have been hurting European markets, euro-zone fiscal problems are also to blame for the sell-off, both in the U.S. and abroad, as investors are fearful that the region’s debt crises will infect the financial sector in Europe, which has branches in the U.S.

2) News Jobs. Sounds good, right? Maybe not. While payrolls climbed in 31 states in July, the unemployment rate in 28 states actually grew. Michigan’s unemployment rate rose 0.4% to 10.9%, the third-highest unemployment rate in the country, despite adding 23,000 jobs, making the state third in the nation behind New York and Texas in terms of added payrolls. And Michigan wasn’t the only state to add jobs while watching its unemployment rate rise. The working population in this country continues to grow, and job growth just can’t keep pace.

3) Bank of America. While Bank of America (NYSE:BAC) has lately been tending to weigh down markets anyway, news today that the bank planned to cut 3,500 employees by the end of the current quarter had a particularly depressing effect. BAC joins HSBC (NYSE:HBC) and Llloyds (NYSE:LYG) in a round of very public jobs cuts made necessary by new capital requirements under Basel III and Dodd-Frank that are intended to protect the economy from the sort of banking that led to the financial crisis, which doubled the nation’s unemployment rate in just a few years. Ironic, isn’t it?

BONUS: A Look at the 40th Anniversary of the Dollar’s Divorce from Gold.

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