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US shares endure their worst-ever start to a year

Further selldown expected unless this week’s earnings results are first-rate

NEW YORK – STOCKS in the United States, as measured by the Standard and Poor’s (S&P) 500 Index, are off by 9.7 per cent so far this month – their worst start to a year ever. If markets slide again as they did last week, stocks will head into bear territory.

Another major stock index – the Russell 2000 Index of small-cap stocks – is already there. If the S&P 500 falls about 5.5 per cent this week, it will join the Russell 2000. Last Friday, it fell 8.06 points, or 0.6 per cent, to a 16-month low of 1,325.19.

Both the Dow Jones Industrial Average – off 59.91 points, or 0.49 per cent, at 12,099.3 – and the Nasdaq Composite Index – down 6.88 points, or 0.29 per cent, at 2,340.02 – have hit 10-month lows. Over the course of the last week, the Dow fell 4.02 per cent, and the Nasdaq, 4.1 per cent.

The gloom hanging over Wall Street could deepen this week unless bellwether companies such as Apple and United Technologies provide investors with hope that the US can avert a recession.

‘With the market in such a fragile condition, those earnings had better be good or we could see some severe selling,’ said Mr Richard Sparks, a senior equities analyst with Schaeffer’s Investment Research.

Apple, Bank of America and Wachovia are slated to report their results tomorrow; eBay and Motorola on Wednesday; AT&T on Thursday; and Caterpillar on Friday.

The shortened trading week has scant economic data scheduled for release. Markets will be closed today for Martin Luther King Jr Day.

Investors found little solace last week in a US$150 billion (S$215.5 billion) White House rescue plan, as stocks plunged after Citigroup and Merrill Lynch announced huge losses, and after economic data signalled that the US economy was headed for a recession.

The sharp sell-off seen in recent weeks might not be over, said Mr Owen Fitzpatrick, the head of US equities at Deutsche Bank Private Wealth Management.

‘The market seems to be capitulating to some extent,’ he said. ‘I think we’re finding a bottom. That’s not to say we might not find another one.’

Investors will sift through data in efforts to assess the state of the nation’s economic health, as they look at first-time claims for state unemployment insurance benefits and existing-home sales for last month. Both sets of figures will be released on Thursday.

The forecast for jobless claims is 325,000, while the pace of existing-home sales is expected to display an annual rate of 4.95 million, according to Reuters polls.

 

Source: REUTERS (The Straits Times 21 Jan 08)

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