US Stock Market Moves, July 2008

 

It felt a little like a roller coaster ride for investors in July. The stock markets of the world’s largest economy – the United States of America – oscillated between rallies and steep declines.

Several factors contributed to the volatility in the US stock markets in July. Among the most important ones were fluctuating oil prices, volatility in the financial sector, second-quarter earnings reports released by various companies and news on the latest economic data. Despite the stomach-curdling swings, the major indices finished the month more or less where they started. The Dow Jones Industrial Average (DJIA) gained a measly 0.43% in July, while the S&P 500 Index (S&P) was down by merely 0.84%. Nothing to write home about… but figures often do not tell the complete story.

The first week in July was exceptionally volatile, with the S&P-500 rising in the first half, but finishing the week down 39 points. Oil prices surged during the week to a record high of $145 per barrel. The Labor Department reported 62,000 job cuts for June and an unemployment rate of 5.5%. The ISM (Institute for Supply Management) report indicated unexpected contraction in the US services sector. Concerns over upcoming earnings reports of banks and insurance companies also contributed to the bearish sentiment.

The second week of July saw the federal government taking over control of IndyMac Bank. The takeover of the Pasadena-based savings bank was termed by regulators as “the second-largest bank failure in US history.†Oil prices continued at elevated levels. These developments did not do a lot of good for sentiments in the stock market.

The third week of July witnessed a sharp rally. A steep decline in oil prices played a major role. However, disappointing earnings releases by Google, Microsoft and AMD sent shares of these tech companies plummeting. Hopes were then pinned on Apple reporting strong earnings the following week.

The fourth week of July saw the NASDAQ gain ground, with a recovery in the shares of some of the tech companies, like Google and Apple. The S&P-500 was down, however, due to the bearish sentiments surrounding the financial sector and a downturn in energy stocks in response to the decline in oil prices.

Despite the continued pressure on the housing and financial sectors, the US economy achieved GDP growth of 1.9% (according to initial estimates) in the second quarter, as compared to 0.9% growth in the prior quarter.