Wall Street Rally Over As GM & Chrylser Cut Dealerships
By Wednesday of last week, when markets took a dive on Wall Street following the worse-than-expected retail sales results for April, as well as dismal results on housing and employment, there was still some optimism that Thursday and Friday could possibly see markets recoup their losses and extend the two month rally – but this was not to be. As more bad news filtered through to investors, Friday was somewhat of a roller coaster ride, ending the week with all three major indexes – the Dow Jones Industrial Average, Standard & Poor’s 500 and Nasdaq Composite – declining for the first time in ten weeks.
Stock market losses were broad-based, with Wal-Mart, Chevron, Boeing, Exxom Mobil, Caterpillar and Merck all sliding. The motor industry is once again under the spotlight, with Chrysler informing 789, around 25%, of its dealerships that their contracts are being terminated, and General Motors making known that it is preparing to cut 1,100 low-volume franchise dealerships initially, with the view to cutting a total of 40 percent of its dealerships. While it is difficult to estimate what the ripple effect of these cuts will be to job losses and the economy, it is likely to be significant.
While stock market traders may possibly have been getting ahead of themselves in thinking that the worst is over, some are of the opinion that it was unrealistic to expect a sustained rally, especially in the current economic climate and this setback should not deter investor activity. The coming week is expected to present a clearer picture of where markets and the economy are headed. Used as a measure of builder confidence, authorized building permits are expected to have risen in April, with the same being expected of housing starts, which will be revealed on Tuesday. Wednesday should see the release of the minutes of the Federal Reserve policy meeting held in late April where the central bank decided to maintain rates near zero. Also on Wednesday, The Senate Banking Committee will hear testimony from Treasury Secretary Timothy Geithner with regard to the government’s bank bailout plan.
April’s leading economic indicators will be released on Thursday morning, and the Labor Department will make the weekly jobless claims report available before start of trade. Fortune 500 companies releasing their latest results during this week include leading home improvement supplier Lowe’s and its competitor Home Depot, as well as Hewlett Packard and Retailer Target. Although the stock market rally may be over, investors have built a measure of resilience to bad news that will no doubt serve them well as the week unfolds.