Retail, banking sectors drag market down

STRUGGLING retail and banking sectors dragged the sharemarket into the red yesterday amid persistent concerns about debt problems in the US.

By InvestSMART · 15 Jul 2011

By InvestSMART ·
15 Jul 2011

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STRUGGLING retail and banking sectors dragged the sharemarket into the red yesterday amid persistent concerns about debt problems in the US.

A forecast dip in sales for retailer David Jones and fears of a downgrade in the US's credit rating added to the market's woes.

Yesterday the benchmark S&P/ASX 200 Index was down 24.1 points, or 0.53 per cent, to 4490.7.

Platypus Asset Management portfolio manager Prasad Patkar said the combination of domestic and global economic worries had triggered nerves among investors. The consumer discretionary sector fell 2.18 per cent yesterday while the financials index dropped 1.15 per cent.

David Jones said an unprecedented and rapid deterioration in trading conditions had forced it to cut its sales and profit guidance. The retailer's stocks dropped by 18.2 per cent yesterday to $3.20 after the company's announcement on Wednesday night.

Mr Patkar expected the market would remain volatile in coming weeks with investors concerned the US would default on its loans.

"It's considered a low probability but a high-impact outcome," he said. "People still believe they will raise their debt ceiling after a bit of fencing and horse trading."

US President Barack Obama has begun negotiations with Republicans to increase the country's debt limit by August 2 to ensure its bills can be paid.

However, The Wall Street Journal reported yesterday that ratings agency Moody's was reviewing its rating for the US, citing fears it may run out of money.

Mr Patkar said a default by the US could have disastrous consequences for equity markets across the globe.

Yesterday the materials sector inched up 0.34 per cent while energies climbed 0.24 per cent.

Mining heavyweight BHP Billiton fell 3? to $43.60 and Rio Tinto closed flat at $80.95. David Jones's rival Myer also lost ground yesterday, shedding 17?, or 6.42 per cent, to $2.48, while Westfield Group lost 20?, or 2.32 per cent, to close at $8.42.

The big four banks finished lower.

Commonwealth Bank shed 58? to $49.02, NAB dropped 30? to $23.46, Westpac lost 37? to $20.77 and ANZ gave up 18? to $20.98.

The spot price of gold was $US1585.30 an ounce shortly before 5pm yesterday, up $US16.25 on Wednesday's close.

Goldminer Newcrest Mining was among the leading movers yesterday rising 84? to $39.80.

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Frequently Asked Questions about this Article…

Why did the S&P/ASX 200 fall yesterday and what drove the market lower?

The S&P/ASX 200 fell 24.1 points (0.53%) to 4,490.7 as struggling retail and banking sectors weighed on the market. A forecast dip in sales from retailer David Jones and persistent concerns about US debt problems — including a possible downgrade review — triggered investor nerves and broader selling.

How did David Jones' guidance cut affect its share price and why did the company revise forecasts?

David Jones said an unprecedented and rapid deterioration in trading conditions forced it to cut sales and profit guidance. The announcement sent its shares down sharply — the stock dropped 18.2% to $3.20 following the guidance cut.

Which sectors were hit hardest and which sectors performed better on the day?

Consumer discretionary was the weakest sector, falling 2.18%, while the financials index dropped 1.15%. By contrast, the materials sector inched up 0.34% and energies gained 0.24% on the day.

How did Australia’s big four banks perform and what were their closing prices?

The big four banks finished lower. According to the report, Commonwealth Bank closed at $49.02, NAB at $23.46, Westpac at $20.77 and ANZ at $20.98 — all showing declines on the session.

What role did US debt ceiling concerns and Moody’s review play in market moves?

Concerns about the US possibly running out of money and the debt ceiling negotiations increased market volatility. Platypus Asset Management’s Prasad Patkar noted investors feared a US default (a low-probability but high-impact outcome), and The Wall Street Journal reported Moody’s was reviewing the US rating — factors that added to selling pressure.

How did mining stocks and gold react amid the market decline?

Mining names were mixed: BHP Billiton fell to $43.60 while Rio Tinto closed flat at $80.95. Gold-related stocks moved higher — Newcrest Mining was among the leading movers and rose to $39.80 — and the spot gold price was US$1,585.30 an ounce, up US$16.25 on the prior close.

Are markets expected to remain volatile and what did market commentators say?

Yes — market commentators in the article expected continued volatility. Prasad Patkar said a combination of domestic and global economic worries had triggered nerves and that markets would likely remain volatile in coming weeks, particularly while US debt-limit negotiations continue.

What practical points should everyday investors take from this market update?

The article suggests everyday investors should note that: retail and financial stocks can amplify market moves when trading conditions deteriorate; geopolitical and sovereign-credit concerns (like US debt-ceiling talks and rating reviews) can quickly increase volatility; and defensive or commodity-linked assets (like gold and some miners) may behave differently in these episodes. Monitoring company updates (for example, guidance cuts such as David Jones’) and major macro headlines can help you understand short-term market swings.