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13.09.2007 - US equities decline on lower profit forecasts

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Indices in the United States declined after major companies reduced their sales forecasts. Higher oil prices are lifting shares of companies in the energy sector.

 

Investors in the US are concerned that the economy is slowing down and that growth in the technology sector is at danger. Capital spending is also slowing down causing major technology firms to reduce their earnings forecasts. The Nasdaq Composite Index, which groups companies from the technology sector, declined 0.2% to 2,592.07. The Dow Jones Industrial Average lost 0.1% to 13,291.65. Shares of energy companies helped the S&P 500 gain 0.07% to 1,471.56.

Despite the small gain of the S&P 500, the Technology sub index declined 0.6%. Decreases were led by Texas Instruments, the largest maker of chips for cell phones and semiconductors. Shares of the company lost 60 cents to $35.12. After prices of flash-memory chips declined, SanDisk Corporation lost 4.6% to $51.75. Indices were dragged down also by retailers. Office Depot had to lower their earnings estimates for 2007 and 2008.  Also, Staples and OfficeMax lowered their third-quarter profit forecasts. Shares of Office Depot lost 2.5% to $18.34, Staples dropped 52 cents to $22.00 and OfficeMax declined 38 cents to $31.74. Energy companies helped the major indices. After crude oil inventories in the US decreased yesterday to 7 million barrels, the price of oil rallied to over $80.0 per barrel of Brent oil. Exxon Mobil, the largest energy company in the world, gained 71 cents to $87.65.

The situation on Wall Street is stable but concern can be felt. Investors are anxiously waiting for September the 18th, when the Federal Reserve will announce the interest rates level in the US. It seems that the market is already discounting the information that the Federal Reserve System will cut interest rates in the US by 25 basis points. If the US central bank decides to decrese the federal funds rate by 50 basis points to 4.75%, the American dollar might weaken even more against the major currencies. Yesterday the greenback declined to 1.3911 against the euro. Lower interest rates are pushing yield of Treasuries down, lifting their prices. Cutting interest rates can help the equitites markets though. It will spur investments since the cost of credits for companeis will be lower. The next couple of days will be decisding on the near-term future of the currency and equities markets.


Adam Narczewski