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Markets Dip on Beige Book Blues

20 October 2011 - News - Editor

Wall Street responded negatively yesterday in response to what many view as a pessimistic report from the Federal Reserve on regional economic activity. Others may be more inclined to view the report as a cold dose of reality, as the US economy continues to struggle to recover. The Dow Jones Industrial Average closed down 72 points, with the S&P 500 shedding 15 points and the Nasdaq dropping 53 points, being 0.6 percent, 1.3 percent, and 2 percent respectively.

While investors continue to keep an eye on developments in Europe, as well as third quarter corporate results as they trickle in, on Wednesday afternoon attention was focused on the Federal Reserve's Beige Book, published eight times a year, which revealed that the US economy remains in dire straits. Tuesday's report from Goldman Sachs which showed the financial giant had lost 84 cents per share ($393 million) in the third quarter did not help investor confidence. The latest economic report also revealed an increase in inflation with a 3.9 percent increase in prices over the past twelve months being the highest recorded rise in three years.

Corporate results released in the first half of this week included Chubb, Allstate and Travelers on Wednesday – with all three ending the day higher. Alleviating concerns about its exposure to the financial turmoil in Europe, Morgan Stanley posted a profit of $2.2 billion before start of trade on Wednesday, while Intel’s earnings beat estimates by analysts as its sales reached a new peak. Yahoo's third quarter sales beat analyst forecasts, although their earnings were down compared to the same period in 2010. While reporting positive sales, Apple fell short of expectations resulting in a drop in the tech sector. Companies that beat forecasts included United Technologies, BlackRock, and Abbott Laboratories – which also announced that it will be splitting into two specialized companies in the near future, both of which will be publicly traded.

Market turmoil has also been reflected in the fact that US Hedge Funds have reportedly had their worst quarter on record, completely obliterating the gains of the previous six months. According to Hedge Fund Research – which produces more than 100 indexes of hedge fund performance – hedge funds are down 5.4 percent, on average, for the first nine month of 2011. With just over two months of the year left to go, no doubt investors on all levels will be giving serious consideration to their investment portfolios.

 


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