FYI | Aug 10 2006
By Greg Peel
If the US stock market was your football team, it hit the field running last night and surprised the opposition with a couple of quick tries. The opposition regathered, but your team was still on top at half time. Was it a different side that came out of the sheds for the second half? The wheels fell off, all confidence evaporated and the opposition romped it in for a resounding victory at the final whistle.
Cisco Systems led the early charge by suggesting profits would grow faster in FY07 than the previously forecast 15-20%. IT companies have come under a lot of pressure lately, and this was a positive sign. Dow component Walt Disney also posted an impressive Q3 profit increase of 40%, helping to establish the early tone.
But that was where it ended. And not with a bang, but with a whimper. There were no significant economic data released last night, but concerns over a slowing US economy, and with doubt lingering over the sustainability of the Fed pause, the mood began to turn.
Once the rally had been declared a non event, the decline gathered pace. Cyclicals were hardest hit, with Dow component Caterpillar taking a beating along with anything to do with housing. Financials were also out of favour.
Having been up 77 points at its high last night the Dow Jones Industrial Average staged a 182 point turnaround to close down 97 points at 11,076.
The oil price was largely unchanged overnight but a weaker US dollar led to a rally in gold of around US$10/oz to trade at US$650/oz. Base metal markets were for the most part stronger.
The Australian market has run counter to the Dow for the last couple of days with no less volatility. A scramble to buy bank stocks on Tuesday, smacking of a mob riot, was offset by another thumping of metal stocks yesterday for no particularly good reason. If the theme continues, we should pick up today, but I’m not silly enough to make daily predictions when the markets don’t know whether they’re Arthur or Martha.