Wall Street’s confidence has taken a hit after losses over the past week with investors fretting over the European and Chinese economies in the aftermath of the Federal Reserve’s new stimulus package.
Traders turned to some profit-taking following a spectacular rally on the back of the US Federal Reserve’s decision to pump US$600 billion into the markets in a bid to boost the US economic recovery.
The week ahead will see a slew of economic indicators that will once again offer investors a glimpse of the health of the US economy, including retail sales, the consumer prices index, housing data and unemployment claims.
“The economy appears to have regained momentum early this quarter, but as the calendar heats up this week, the outlook for growth and inflation should become clearer,” Moody’s Economy.com analysts said in a note.
In the week to Friday, the Dow Jones Industrial Average fell 2.12 percent to 11,192.58, after the previous week’s rally that say markets touch levels last seen in the days preceding the September 2008 collapse of Lehman Brothers.
The broader S&P 500 index gave back 1.79 percent to 1,199.21 points, while the technology-rich NASDAQ composite index declined 2.29 percent to 2,518.21 points.
Trade was little affected by a report on Wednesday that showed new claims for US unemployment aid dropped sharply last week to close at the lowest level of the year, raising some hopes that the distressed labor market was on the mend.
“It has been a week where international news seems to have moved the US stock market,” Gina Martin of Wells Fargo Securities said.
The US stock market was pulled down by intensifying concerns over the eurozone economy as laggards Ireland, Spain, Portugal and Greece struggle to deal with a growing sovereign debt.
“There are a lot of rumors in the market about a package for Ireland coming out of the ECB [European Central Bank] during the weekend, so when we get to Monday we may face a very different climate than we had this week,” Martin said.
Confidence in the global economy was further shaken after data out of China showed a roaring inflation beyond central bank targets, which raised speculation of an interest rate hike as early as this weekend.
A rise in Chinese rates could slow down its economy, which has been the bulwark of the global economic recovery.
“We had a rally due to quantitative easing ... which continued until the announcement. Since then, we had some profit-taking,” Gregori Volokhine of Meeschaert New York said.
“The market turned its attention to other economic aspects that are less encouraging,” he said.
The coming week will also see quarterly earning results from companies including the world’s biggest retailer, Walmart, home construction chain store Home Depot as well as computer maker Dell.
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