A relief rally dominated US markets on Friday, despite Intel’s surprise warning on sales and profits which would have normally sent traders off on another selling spree, especially among tech stocks.
Investors took comfort from a slightly less pessimistic fall in the second estimate of US second quarter economic growth and positive statements from Fed chairman Ben Bernanke that the central bank doesn’t expect a double dip slowdown and/or deflation, and if they look like happening, something will be done.
This week may be a little different as analysts mull over the Fed chairman’s words, assess the GDP report and look at Intel’s warning which confirms other commentary from major tech groups (such as Cisco) that the best performing part of the market and the economy is losing strength.
Business investment, especially in technology and software, were the best performing sectors in the second GDP estimate on Friday, but there have been a growing number of comments from major companies in the second quarter reporting season suggesting that the rebound was exhausting itself.
Now the world’s biggest chip maker is suggesting that activity in the sector may be tipping over and joining other sectors in starting to slow more rapidly than anyone had thought.
Markets fell after Intel’s warning and Bernanke’s comments, but then short covering and some second thought saw the Dow bounce 164 points by the close.
The Dow Jones rose 164.84 points, or 1.65%, to 10,150.65; the Standard & Poor’s 500 index added 17.37 points, or 1.66%, to 1,064.59 and the Nasdaq composite index was 34.94 points, or 1.65% higher, at 2,153.63.
For the week, the Dow and the S&P 500 were each down a little less than 1%, while Nasdaq was down by just over 1%.
August looks like being a mixed month for many markets, thanks to the weakness that emerged in the second half of the month.
US investors normally don’t like September and October (too many bad things have happened, such as the crashes of 1929 and 1987, Lehman Brothers in 2008 and other failures in the GFC).
The second quarter reporting season is almost finished (see diary) and of the 490 companies in the S&P 500 to have so far reported, Thomson Reuters says 75% have posted earnings that beat analysts’ expectations.
But third and fourth quarter earnings estimates are starting to be lowered, especially among the banks and financial stocks.
In Europe the Stoxx Europe 600 index rose 0.6% on Friday to finish at 251.24 points.
The index fell 0.4% last week for the third weekly loss in a row.
The index has fallen 1.6% so far this month and is down 7.7% from the April 15 peak.
Markets fell in 14 of the 18 major western European markets last week.
Germany’s DAX lost 0.9% and France’s CAC 40 slid 0.5%, while the London’s FTSE rose 0.1%.
Asia had a much rougher week.
The MSCI Asia Pacific Index fell 1.2% last week after rising 0.4% the week before.
It’s down 9.5% from its peak on April 15.
Tokyo’s Nikkei fell 2.1% as Japan’s export growth slowed last month, adding to risks in an economy already under threat by the yen’s appreciation and deflation, which continued in July.
China’s Shanghai Composite fell 1.2% on speculation the government will introduce a property tax to allow it to raise money and better control demand and supply.
South Korea’s Kospi Index dropped 2.6% on a fall in consumer confidence.
Australia’s ASX 200 fell 1.4% after the inconclusive federal poll and a fall in June quarter business investment.
At the close, the ASX200 index was 14.1 points higher at 4370.1, while the All Ordinaries index gained 14.7 points to 4404.1.
