Fed Minutes, China Slowdown, Europe Crisis Impact on Wall Street

Wall Street responded to the Federal Reserve minutes released on Wednesday afternoon with a significant slump, managing to recover to some extent and ending the day with only slight losses. Among other issues, the Federal Reserve identified a number of threats to the recovery of the US economy, with the slowdown in China and an upcoming budget crunch in Washington being cited as two examples. Most notable is that the Fed gave no indication of new strategies for stimulating the economy, as investors were hoping they would. The Dow responded to the release of the Fed’s minutes at 2pm by dropping 118 points as investors digested the news, managing a recovery in the hour before the closing bell. The Dow ended the day 48.59 points down, the Standard & Poor’s 500 index dropped 0.02 of a point and the tech-heavy Nasdaq composite index lost 14.35 points – the fifth consecutive day stocks have closed lower on Wall Street.

With Spanish banks working out bailout details, Europe’s debt crisis, the sluggishness of the US economy, and China’s growth slow-down, investors are being very cautious at present. Financial analysts note that US second quarter corporate earnings which have started trickling in are not likely to boost investor confidence. Research firm S&P Capital IQ estimates that companies in the S&P 500 will report a 2 percent drop in the second quarter compared with the same period in 2011. If this should prove true it would reportedly be the first drop in second quarter profits since 2009.

Rising 1.4 percent, energy stocks were the leaders of the ten industry groups represented in the S&P 500 index. Exxon Mobil climbed $1.27 to $84.38, while Chevron gained 97 cents to $104.85. High demand for Treasurys has had the effect of keeping the US government borrowing rates low. Wednesday afternoon the Treasury auctioned 10-year notes at 1.46 percent – a record low.

With investors nervous of uncertain economic conditions, IPOs dropped 34 percent during the second quarter of 2012. Globally companies raised $41.3 billion by selling shares, compared with the $62.7 billion raised in 2011 for the same period.