US Market sells off

Investors waiting with bated breath for Federal Reserve's rate cut meeting on 18 September

A weak job report on the last day of the week pulled down the US market considerably lower for the holiday-shortened week ended on Friday, 7 September, 2007. The indices had alternate bouts of journey during the four trading days of the week, rising on Tuesday, 4 September and Thursday, 6 September and skidding on the other two days.

The Labor Department's report on Friday showed that payrolls fell by 4,000 in August, the first decline since August 2003. It was well below analysts' expectations of a gain of 110,000. Unemployment rate held steady at 4.6% as expected.

The downward revision to both the June and July numbers totaling 81K further led to the negative sentiment among investors. July job growth was revised down to 68,000 from a previously reported gain of 92,000. June job growth was also revised down, to 69,000 from 126,000.

With the weak report, the major averages plummeted on Friday, 7 September, 2007 with the Dow Jones industrials falling nearly 250 points. The broader S&P 500 index fell 25 points and the Nasdaq composite index declined 49 points.

Twenty-nine out of thirty Dow stocks ended in red on Friday. Johnson & Johnson was the only stock to close marginally higher on that day.

The Dow Jones Industrial Average lost 245 points for the week. Tech - heavy Nasdaq lost 31 points and S&P 500 shed 20.45 points.

The month of September had kicked off on a strong note after Energy and Technology sectors helped the US market pushed stocks higher on Tuesday, 4 September, 2007. Stocks rallied inspite of the Institute for Supply Management reporting that its manufacturing index registered 52.9% in August, just shy of the consensus and down from 53.8% in July.

On Wednesday, 5 September, stocks fell once Federal Reserve's Beige Book was released. The Beige Book suggested that the weakness in the economy is limited to two areas: residential real estate and motor vehicle sales. Renewed worries about credit markets and weak data on housing sector also took a toll on the stocks.

But on Thursday, 6 September, stocks got a good boost after Wal-Mart reported better than expected August same-store sales growth of 3.1%. Target too said same-store sales rose 6.1% during the month. The figures were of major importance as Costco had reported disappointing same store sales results for August just a day earlier reflecting increasing pressure on U.S. consumers.

Among other major stories during the week, Apple shares fell by almost 5% during the week. The company came under major firing from customers after the company dropped the prices of its new iPhone by $200 within two months of its launch.

On Friday, Apple CEO Steve Jobs asked for apology to original iPhone customers. He also added that Apple will give each of the early iPhone customers a $100 credit at the Apple store.

Executive Summary

For the week, the indices closed down. DJIx was down by 1.9% and S&P 500 was down by 1.4%. Nasdaq was down by 1.2%. Market started off the week on a strong note but ended finally on a much weaker note.

The weak job report on Friday mainly pulled stocks down for the week. For the year, Dow is up by 5.2%, Nasdaq is up by 6.2% and S&P 500 is up by 2.5%.

It seems that investors are now in a dilemma about how to react to latest market news. On, one side, weak job report paints a weak picture for the economy. On the other, it might act as the main fuel to instigate Federal Reserve for a 25-50 bps rate cut in its forthcoming 18 September meeting. That will surely cheer investors.