It seems like every time investor sentiment turns positive and consumers gain hope, something in the way of negative financial news gets in the way. Thursday (August 7), there were a few bits of important economic news that worked together to spoil the day. Retail sales, jobless claims, and disappointing financial sector news all contributed to driving the Dow down 224 points, and left consumers to wonder if the end to the bad news will ever come.

In retail news, Wal-Mart headlined a group of retailers who reported sluggish sales Thursday. The company reported same store sales were up by three per cent in July. Much of the credit for the rise was given to consumers spending their economic tax stimulus checks. However, the sales growth did not measure up to the modest 3.4 per cent growth predicted by analysts.

The retail news was especially disappointing given the positive report from the Fed this week suggesting that consumer spending had picked up during the second quarter. Some analysts speculate that while some retailers are still experiencing a profit, sales growth has slowed due to inventory control measures related to uncertain demand.

The news in the financial sector was actually a repeat of a common theme of late, just with a few different company names attached. Insurance company American International Group was the biggest name that disappointed as it offered a $5 billion second quarter loss in its earnings report. Perhaps the biggest news, however, was word that Moody’s Investors Service was reviewing the long-term credit rating of American Express, and considering a downgrade. This does not bode well for the reputation of the credit card market.

The most negative of the day’s events were the worst jobless claims data since March of 2002. The number of people just laid off who were seeking unemployment benefits climbed 7,000, to 455,000. This was 25,000 more than forecasts which called for 430,000 jobless claims.

The reason such striking jobless claims send fear throughout investor and consumer circles relates to the economic impact it creates. Unemployed workers have little money to spend, which suggests harder time for retailers, housing, and credit markets. The number of economic components that have struggled in the overall cycle has much to do with the challenge of propelling the economy forward. It is hard to get all the pieces working together in a positive motion.

A final note from the day of directional change (the Dow dropped erased much of the 370 point gains from the previous two days) was a $1.44 climb in oil prices. Light sweet crude oil closed New York trade at $120.02. This modest correction comes after a $30 slide from record highs in mid-July above $147 per barrel. Despite today’s rise, overall oil sentiment seems to point toward some more room for downward price movement. Any rebounds in the last few weeks have been very light.

It is unclear when the sun will shine brightly on the US economy again, but gradually markets seem to be trying to work themselves out. The proportion of positive events and developments seems to be increasing slowly over time. Eventually, once the hilltop is reached, a clear turning point could see a tremendous ripple effect in improvement for all markets that have been affected.

Market Recap

With little else to prompt direction, stocks climbed again Wednesday thanks to another oil dip. The Dow, NASDAQ and S&P were up 40, 28, and 4 points, respectively. Oil closed at $118.58, down 59 cents, after following below $118 briefly in New York. Gas fell another penny to $3.862 overnight, according to AAA. The dollar surged again as it approaches 110 yen and pushed higher against the other major currencies, including the Euro and Pound. The financial sector brought Wall Street to an about face Thursday. The Dow dropped 224. The NASDAQ and S&P were off by 22 and 23 points. Retail struggles and high jobless claims, along with rising oil all contributed to the lackluster day in equities as well.

Neil Kokemuller
Thursday, August 7, 2008
9:37 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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