Posted on Friday, 20th August 2010 by Jesse Walker
(Reuters) – With Wall Street limping along through the summer doldrums, investors say they will remain on guard for more deterioration in what’s expected to be a light-volume week.
The S&P 500 suffered losses this week and is in danger of falling through support due to continuing worries about economic data.
“The market is moving into a defensive posture coming into next week,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
“There may be some trepidation on the data that is coming out based on the data we saw this week that seems to indicate the economy could be deteriorating.”
Even a pick-up in mergers and acquisitions was not enough to entice investors to get back into the market because of the dismal signs.
Potash Corp (POT.TO)(POT.N) searched for a white knight on Friday as BHP Billiton (BHP.AX) formally launched its $39 billion hostile offer for the world’s largest fertilizer company.
The offer came on the heels of Thursday’s deal by Intel Corp (INTC.O) to acquire software maker McAfee Inc (MFE.N) for $7.7 billion, fueling speculation more acquisition activity was on the horizon, which market participants noted may not improve the economic climate.
“The main goal of a merger is to cut costs which means they are going to be cutting jobs even more — so is that necessarily a good thing?” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
Anemic volumes on Wall Street recently — including the lowest volume tally of the year on Monday — will also present another obstacle as they show apprehension by investors and are unlikely to improve without a significant catalyst.
According to Thomson Reuters data, 97 percent of S&P 500 companies have reported quarterly earnings, putting the attention squarely on economic data, including reports on the housing market, durable goods and the preliminary reading of gross domestic product.
The government’s estimate of GDP is expected to show a 1.4 percent increase in the second quarter, down from the 2.4 percent rise estimated a month ago.
Disappointing initial jobless claims data and a dismal reading on manufacturing activity in the mid-Atlantic region on Thursday have turned investors pessimistic, as the chorus warning of a double-dip recession grows louder.
On Friday, the S&P managed to close above the 1,070 level, viewed as a key support level as it represents both the August 16 low and the 50 percent Fibonacci retracement from the rally between July 1 and August 9.
“There is a critical point here — if we were to close under that I would probably increase my hedges a little bit just to add some protection coming into the weekend here,” said Mendelsohn.
For the week, the Dow fell 0.9 percent, the S&P 500 slipped 0.7 percent but the Nasdaq added 0.3 percent.
Data from Credit Suisse showed institutional investors had adopted a more defensive stance in the second quarter, increasing holdings in areas such as telecoms and utilities along with food, beverage and tobacco — a trend which could continue due to weak data, according to analyst Pankaj Patel.
“Usually there is some momentum so you would see a similar thing this quarter, depending on how this quarter turns out, they will slowly change it.
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Tags: Investors, Investors Defensive
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