2012 Stock Predictions and Outlook
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Dow Jones Industrial Average added 93 points, or 0.75%, to close at 12,554. Thanks mainly to Wednesday's big pop, the blue-chip index finished the week up 3.6% after closing negative for the year a week ago. The S&P 500 tacked on nearly 11 points, or 0.81%, to settle at 1326. The index rose 3.8% for the week and is now up 5.4% in 2012. The Nasdaq gained 27 points, or 0.97%, to finish at 2858. The index advanced 4% for the week, putting it up 9.7% year-to-date.
Within the Dow, 26 of 30 components were on the rise, led by Wal-Mart Stores ( WMT), Verizon ( VZ), and Home Depot ( HD). Blue-chip decliners included Alcoa ( AA) and McDonald's ( MCD). Sectors in the green included technology, transportation and consumer cyclicals, while selling was concentrated in energy and basic materials. On both the New York Stock Exchange and the Nasdaq, winners were running ahead of losers by a roughly 2-for-1 ratio. The benchmark 10-year Treasury was up 1/32, diluting the yield to 1.638%. The dollar was adding 0.28%, according to the dollar index. July crude oil futures settled down 29 cents at $84.53 a barrel and August gold futures settled up $6.30 at $1,594.30 an ounce. U.S. stocks closed on a mixed note Thursday with gains held in check by Federal Reserve Chairman Ben Bernanke's non-committal stance on additional stimulus measures-- after the European Central Bank provided no indications of near-term stimulus plans -- and a downgrade of Spain's credit rating by Fitch. But they had gotten an early lift after the People's Bank of China slashed its benchmark lending and deposit rates by 0.25 percentage points to prevent excessive cooling of economic growth in the country. That move was now was triggering some worries that there could be some disappointing data out of the country this weekend, when it releases almost all its heavyweight economic data for May.
"There may be a sizable downside surprise that prompted the PBoC
People's Bank of China to pull the trigger," said Yao Wei, an economist at Societe Generale. "Second, it is probably also a pre-emptive move ahead of the Greek election and a potential surge in global financial stress afterwards." "The sense of the market, I believe, is that the Chinese know their economy has softened, they have a feel for the softness of the Chinese data, the housing data, the investment data; so that's probably part of the chop and volatility in the market," said Stephen Wood, chief market strategist Russell Investments. Joe Bell, senior equity analyst at Schaeffer's Investment Research, expects China to approve another rate cut later this year. Other worries for investors were that German exports fell for the first time in 2012 as demand deteriorated amid a slowdown in global growth and a deepening debt crisis. Exports declined 1.7% in April after spiking 0.8% in March, according to the Federal Statistics Office. Meanwhile, Spain saw its credit ratings downgraded by Fitch to BBB from A on Thursday with the move attributed to the burden of recapitalizing the nation's banking system amid a deepening recession. There were also reports that Spain could ask for a bailout of its banks from the European Union as early as this weekend. David Ader, a strategist at CRT Capital, said the market is nervous because if the package that Spain receives is the rumored €40 billion, that would be deemed inadequate -- some estimates say they need €150 billion. Ader also noted that the European Financial Stability Facility has only limited resources, "so any help to Spain depletes that, though if ever there was a tautology that's one." Wood thinks that a 17-minister conference call over weekend to address Spain's banking troubles could be the "first step" in eurozone fiscal integration. "Unfortunately some of the biggest uncertainties in this market are politically driven." "History is replete with politicians doing silly things and that applies to all sides of the aisle, everywhere at all times ... to better their career, but have consequences, and that creates that policy-driven risk-off," he said.
The Hang Seng Index in Hong Kong finished lower by 0.9% and the Nikkei in Japan fell 2.1%. The FTSE in London settled down 0.2% and the DAX in Germany closed down 0.2%. "If we can just get any sort of clarity out of Europe ... even if it's not great news, just something to sort of hang our hat on ... we could potentially have a lot of buyers come into this market," said Bell. The Commerce Department reported Friday that the U.S. trade deficit shrank to $50.06 billion in April from an unfavorably revised $52.62 billion in March. The figure missed the $49.9 billion figure expected by economists surveyed by Briefing.com. There are "growing signs that the crisis in Europe is taking a toll on U.S. exports," said Paul Dales, senior U.S. economist at Capital Economics. The Commerce Department also reported that inventories at wholesalers rose 0.6% in April, after increasing 0.3% the prior month, and was a bigger gain that the 0.2% economists were expecting. In corporate news, shares of Chesapeake Energy ( CHK) rose nearly 3% after the embattled oil and natural gas company announced divestitures totaling $4 billion amid a board shakeup that will give investors, including activist Carl Icahn, representation. Truck and engine maker Navistar International ( NAV) saw its shares surge more than 17% after activist investor Carl Icahn and his affiliates bought shares of the company on the dip, raising his stake to 11.87% from 9.99%. Molina Healthcare ( MOH) withdrew its 2012 earnings guidance Wednesday because of potential expansion-related costs in Texas. But the company said it will be able to keep providing managed-care services for Medicaid beneficiaries as of 2013 in Ohio. The shares surged 26%.
-- Written by Andrea Tse in New York. >To contact the writer of this article, click here: Andrea Tse.