SLB Schlumberger Ltd

The political deadlock in Washington weighed down the markets on the opening day of the week, as lawmakers struggled to find a solution to the impasse over the debt-ceiling issue. The day was also marked by disappointing corporate results, and the fear-gauge index posted its biggest percentage jump in two weeks, reflecting heightened investor anxiety.

 

The Dow Jones Industrial Average (DJIA) plunged 145 points in intra-day trade before recouping losses partially and finally settled at 12,592.80, dropping 88 points or 0.7%. The Standard & Poor 500 (S&P 500) shed 0.6% to close the day at 1,337.43. The Nasdaq Composite Index was down 0.6% and signed off at 2,842.80. Investor jitteriness was clearly reflected in the fear-gauge CBOE Volatility Index (VIX) and low volumes. The VIX soared 10.5%, recording its highest percentage gain in two weeks. The fear-gauge has increased by 16% in July.  As for the volumes, on the New York Stock Exchange, Amex and the Nasdaq, consolidated volumes were 5.94 billion, compared with the daily average of 7.49 billion. Advancers were also beaten by the decliners, as for every four stocks that declined on the NYSE, only one stock managed to climb up.

 

An impasse over lifting the debt-ceiling continued to drag the markets down and investor sentiment was dampened by uncertainties over the final outcome of debt-ceiling negotiations. Republicans and the Democrats, have clearly divergent positions over the matter and both of them prepared opposing proposals to rescue the nation from the default, which Federal Reserve Chairman, Ben Bernanke, had termed as ‘calamitous’ . Talks between the President Barack Obama and House of Representatives Speaker John Boehner broke off as the latter claimed the talks were futile since Obama demanded a tax hike. Meanwhile, Republicans demand more spending cuts and washed down the proposal of any tax hike.

 

The game of attrition that is being played out over the past days has kept the investors, bankers and traders wary of the final outcome. Uncertainty prevails over whether the US will actually raise the multi-trillion debt ceiling by August 2, which is absolute necessary if it is to retain its ‘AAA’ credit rating. While words like ‘Armageddon’ have already been used to term the possible default, the nation clearly faces a huge task going forward. Earlier, Moody's Investors Services had put the US’ AAA rating under review for a possible downgrade, citing "the rising possibility" that Congress will fail to pass the debt ceiling by August 2. If Congress does not raise its $14.3 trillion debt ceiling by August 2, the Treasury Department may fail to pay at least 40% of its bills. Additionally, Fitch Ratings reiterated that it plans to downgrade the US sovereign debt rating to negative if the federal government fails to meet the August 2 deadline.

 

Last week, the benchmarks settled in positive territory primarily aided by corporate results, as companies like Apple Inc. (NASDAQ:AAPL), International Business Machines Corp. (NYSE:IBM) and The Coca-Cola Company (NYSE:KO) posted strong earnings results. Even on Friday, Advanced Micro Devices, Inc. (NYSE:AMD), Microsoft Corporation (NASDAQ:MSFT), McDonald's Corp. (NYSE:MCD) and Schlumberger Limited (NYSE:SLB) posted solid results that contributed towards the broader rally.

 

However, it was not the same story this time around, as the markets failed to derive any encouragement from corporate results. Kimberly-Clark Corporation (NYSE:KMB) and HCA Inc. (NYSE:HCA) posted disappointing results that missed expectations and these shares plunged 2.1% and 19.2%, respectively. In another development, Netflix, Inc. (NASDAQ:NFLX) posted poor results after the closing bell and the shares dipped 10.2%.

 
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