Published On: Mon, Oct 22nd, 2012

Trading of Google Shares Halted

Corporate earnings for the third-quarter caused investor confidence to dim. Amid an ongoing debt calamity in Europe, McDonald’s and General Electric posted weaker than expected earnings. Stocks around the world and the price of crude oil dropped during Friday’s trading session due to the concerns about global growth.

Gold faced its largest slide for one-day in more than three months. Technical selling it gold bullion and caused it to drop one percent. This fall erased most of the advances gold made during the prior week of trading. At the same time, the euro and the yen fell against the United States dollar. Investors are waiting for news about fiscal easing measures in Japan and are wary about making any investments in the currency at this point in time. Ongoing debt issues in Europe have also detracted from the euros appeal as a safe haven currency.

Interestingly, Friday was also the 25th anniversary of the Black Monday crash. In 1987, the Dow Jones Industrial Average dropped more in one day than it had ever fallen in history. On this day, it fell 22.6 percent. Friday’s trading session saw stocks fall, but nowhere near Black Monday levels. The CBOE Volatility Index rose from 13.5 percent to 17.06 percent. This is its highest level since September 5.

Overall, the Dow Jones Industrial average dropped 1.52 percent, or 205.43 points, to reach 13,343.51. The Nasdaq Composite Index fell to 3,005.62. This marks a 2.19 percent fall for the day or 67.24 points. Friday’s trading session also saw the Standard & Poor’s 500 Index lose 24.15 points or 1.66 percent. This index currently stands at 1,433.19.

Weak Third-Quarter Profits

The falling stock prices are primarily driven by lower third-quarter profits. Out of 116 Standard & Poor’s 500 index companies, only 60 percent have exceeded the expectations of analysts. In the last four quarters, 67 percent of forecasts were exceeded. McDonald’s exemplified this quarter’s trend due a weakened global economy. It dropped 4.5 percent to $88.72. General Electric also lost 3.4 percent to $22.03. Executives at GE believe it missed third-quarter revenue goals due to unfavorable exchange rates. Overall, US stocks slid by more than 1.5 percent. Incoming information from multinational companies contributed to the negative view of the market and global economy.

European Shares Break Streak

After four days of advances, European stocks closed lower amid an uneventful meeting of Eurozone leaders. European Union leaders have still not decided how to solve the ongoing debt crunch in Europe. The euro dropped 0.3 percent versus the dollar to close at $1.3021. It hit a session low of $1.3018 during the trading session. The FTSEurofirst 300 index dropped 0.8 percent to 1,111.85 while Euro STOXX 50 fell 1.24 percent to 2,542.24.

Fed to Raise Rates?

Prices for United States Treasury bonds rose as selling pressure subsided. Economic data released by the United States over the last week indicates that the world’s largest economy is beginning to rebound. At the same time, investors are expecting that the United States Federal Reserve will begin increasing rates in2014 instead of 2015. Some analysts have even speculated about the necessity of the latest round of quantitative easing started earlier in the year. Currently, ten-year treasury notes are yielding 1.7677 percent.

Crude Oil and Gold Fall

Brent crude oil and United States crude futures closed more than one percent down amid investors’ concern about a stronger dollar and lowered equity markets. Brent crude oil futures dropped by $2.28 to $110.14 while United States crude fell $2.05 to reach $90.05 per barrel. Spot gold slid 1.2 percent to $1,720.80 an ounce while United States COMEX gold futures dropped $20.70 an ounce to $1,724 for December delivery.

Canadian Stocks Drop

On Friday, the stock market in Canada fell. One of the largest losers was Astral Media Incorporated. It dropped nearly 16 percent. Canada’s broadcast regulator recently stopped Astral Media from merging with BCE Incorporated, much to the dismay of investors. After the Canadian Radio-Television and Telecommunication Commission stepped in, shares of Astral Media fell to C$39.51. BCE Incorporated also dropped 1.76 percent to reach C$42.86. The CTRC stated that the deal would grant too much power to the largest telecoms company in Canada. Other media companies also saw a fall in stock prices with Corus Entertainment closing 2.83 percent down at C$22.33.

Most of the sell-off in Canada occurred because of negative earnings in the United States. After four-days of rising share prices, a drop in the stock market was due. The Toronto Stock Exchange S&P/TSX composite index finished the day 50.14 points lower at 12,415.98. Out of ten of the index’s main groups, nine finished the week lower. Overall, the index gained 1.75 percent over the last week. Analysts believe the week started with higher-than-expected economic data. This sector includes mining companies and boasted a 0.26 percent gain due primarily to gold firms. Reports from the United States housing market and employment statistics fed high expectations for investors. By the end of the week, weak third-quarter revenue reports fueled a drop in stock prices. One of the only sectors that gained on the index was Materials.

Technology Stocks Fall While Gold Advances

Yamana Gold Incorporated gained by 1.48 percent to C$19.23 while Goldcorp rose by 2.01 percent to C$43.05.  Out of ten of the most influential advancers, seven were gold companies. Much of the fall in Canada’s index was due to technology stocks. Overall, this sector fell by 1.36 percent. Lower-than-expected profits by Google Incorporated and Microsoft Corporation fed the negative sentiment around the technology sector. Google shares fell 10.5 percent to a session low of $676. Trading of Google stock was automatically halted at 12:50 PM in the United States until 3:20 PM. IBM also dropped 2.8 percent to end at $194.96.

At the same time, financial sector stock prices in Canada dropped 0.38 percent. The energy sector fell 0.53 percent amid concerns about global demand for energy. If the global markets do not exit the recession, demand for commodities and energy will remain low.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.