Any chance of US markets enjoying a rally last week were torpedoed by warnings about weaker US growth and a sweeping indictment of the world’s largest banks.
The Dow Jones Industrial Average ended the five days down close to one per cent, after slumping heavily on Thursday amid a gloomier outlook from the Federal Reserve and Moody’s downgrades of 15 of the world’s largest banks.
The Dow was down 251 points on Thursday after the US central bank sharply revised down 2012 growth projections to between 1.9 and 2.4 per cent, a half-per cent cut.
Fed chairman Ben Bernanke warned of slower progress in reducing unemployment and of spillovers from Europe’s economic crisis.
Markets shrugged as the Fed announced a moderate renewal of its Twist stimulus programme of bond swaps which are designed to lower long-term interest rates.
The central bank will continue to switch short-term US bonds for those dated between six and 30 years. In total the programme will be worth around $267 billion.
Sentiment was also rocked on Thursday ahead of the widely expected Moody’s downgrade of the credit ratings of 15 major global financial firms including Goldman Sachs, Barclays, Citigroup, HSBC and Deutsche Bank.
‘All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,’ said Greg Bauer, Moody’s global banking manager.
Goldman Sachs ended the week down 2.1 per cent while Citi and Morgan Stanley were down 1.1 per cent.
There was little else the cheer about.
‘Data results this past week were generally unwelcome,’ said IHS Global Insight economists Paul Edelstein and Nigel Gault.
‘Single-family housing starts and permits increased in May, but existing home sales fell thanks to a drop in investor purchases.’
‘Initial unemployment claims retreated, but the four-week moving average still rose to a six-month high.’
One of the few bright spots came on the Nasdaq, which rose 0.7 per cent for the week.
It was propped up by Microsoft stock, which rose 2.3 per cent during a week in which the firm released its ‘Surface’ tablet.
The S&P 500 fell 0.6 per cent for the week.