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World week ahead: Further losses indicated

The fiscal outlook in the US and the European Union remains clouded and investors appear set to leap to the sidelines.

Margreet Dietz
Wed, 11 Jul 2018

As markets swoon in the wake of the American presidential election and as the fiscal outlook in the US and the European Union remains clouded, investors appear set to leap to the sidelines.

In the past five days, the Dow Jones Industrial Average dropped 2.1%, the Standard & Poor's 500 Index shed 2.4% and the Nasdaq Composite Index fell 2.6%. All 10 of the S&P 500's industry groups fell last week.

"There's a technical breakdown in the market that indicates further losses," Adam Sarhan, chief executive of Sarhan Capital in New York, told Reuters. "A 10% drop is the next big line in the sand."

It will not help investors' nerves to have a short week for trading after having lost two days when Hurricane Sandy swamped the US East Coast. Wall Street is closed on Monday for the Veteran's Day holiday.

As Mr Sarhan noted, there is good reason for chatter about a potential correction. The S&P 500 has been trading in a range between the 50-day moving average of 1433.50 and the 200-day moving average of 1380.98 for about two weeks.

A significant break below that lower level could be a precursor to further weakness, according to analysts.

One reason for the pall over Wall Street is continuing mixed corporate signals. Shares of Walt Disney and Groupon were among those that got hammered because of disappointing results last week. Slowing sales growth is a worry about what the next few quarters may bring.

With results in from 449 of the S&P 500 companies, third-quarter earnings now are estimated to have declined 0.3% from a year ago, which is slightly better than the forecast at the start of the reporting period, according to Reuters.

Only 38% of companies have surpassed expectations for third-quarter sales, Thomson Reuters data showed.

Earnings due this week include Wal-Mart and Home Depot.

Economic indicators poised for release in the coming days include the producer price index, retail sales and consumer price index.

Also pending are the minutes from the latest Federal Open Market Committee meeting. In the statement released on October 24, the committee says it is "concerned" that the economy is not expanding fast enough to bolster the jobs market. 

"Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook," it says.

Among those risks is the lingering debt crisis in Europe, which shows no sign of abating and may be set to deepen as the EU's economy heads south.

The eurozone's gross domestic product contracted 0.1% in the third quarter, economists in a Bloomberg survey forecast before data due November 15.

The economy shrank 0.2% from April through June after stagnating in the first quarter.

In Europe, the Stoxx 600 Index suffered a 1.7% decline in the past five days. The euro weakened against the Japanese yen and the greenback last week, sliding 2.1% and 0.9%, respectively, in the past five days.

While Greek politicians will vote today on the country's 2013 budget – which includes more austerity measures, it may be several more weeks until the country's international lenders transfer fresh bailout funds.

EU finance ministers await a report on the country's compliance with bailout terms.


Margreet Dietz
Wed, 11 Jul 2018
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World week ahead: Further losses indicated