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By Jennifer Yousfi
Global markets sagged today on weak corporate earnings and subprime concerns, while investors wait for the Federal Reserve's decision later this afternoon (Wednesday). The U.S. markets were down at midday on news that U.S. gross domestic product failed to meet analyst expectations.
At noon today, all three major U.S. indices had slight losses. The blue-chip Dow Jones Industrial Average Index slumped 51.37 points (0.41%), to trade at 12,428.93. The tech-laden Nasdaq Composite Index was down 7.73 (0.33%), reaching 2,350.33. And the broader Standard & Poor's 500 Index lost 5.50 (0.40%) to trade at 1,356.80.
In overseas trading early today, Japan's Nikkei index lost 133.83 points, a 0.99% decline. Hong Kong's Hang Seng index dropped 638.11, a 2.62% loss.
"Investors are dumping shares since there really isn't any good reason to buy, with the Fed decision coming up along with a lot of U.S. indicators," Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management told Reuters.
One of those indicators came this morning when the advance estimate for fourth quarter GDP was released. The Bureau of Economic Analysis announced that GDP grew at a slower-than-expected 0.6% annual rate and gained only 2.2% for 2007 – the slowest full-year growth rate since 1.6% in 2002. While analysts had expected a decline from third quarter's 4.9% rate, the advance estimate did not meet expectations of a 1.2% growth rate.
"The initial estimate of fourth quarter GDP growth, which is sure to change over the next two revisions, was ugly, but only on the surface," Joel Naroff, president and chief economist of Naroff Economic Advisors, Inc. said today in a note to clients. "The housing sector fell so precipitously that it took 1.2 percentage points out of growth in the fourth quarter and one percentage point for the year."
Naroff feels the report was positive overall, as housing isn't likely to take a similar hit in 2008. And the trade deficit continues to decline on the back of a weak dollar as exports increase. Business spending also remained strong. The unemployment report will be released on Friday and if the job numbers are good, consumer spending could still help the United States avoid recession.
Despite its surprise move last week, when, its single-biggest reduction in nearly 25 years, Fed funds futures are point to another rate cut today. But Naroff cautions that the FOMC will read the GDP announcement as he has, seeing more good than bad in the report. The FOMC met yesterday and today, and will be making an announcement this afternoon at 2:15 PM ET.
Citigroup Inc. (C), Wachovia Corp. (WB), and other financials declined after Meredith Whitney, Oppenheimer & Co. analyst, said banks could write down as much as an additional $70 billion, Bloomberg News reported.
Nasdaq-listed shares were mixed as investors reacted to earnings reports. Yahoo! Inc. (YHOO) dropped over 9% on a disappointing fourth-quarter earnings report that failed to meet expectations, while Flextronics International Ltd. (FLEX) gained 10% on a fiscal third-quarter earnings report that beat analysts' expectations with a profit of 30 cents per share.
"The news that we continue to see with the economy and what's happening with talk of a recession has a pull on what investors are doing," Jason Cooper, with South Bend, Ind.-based 1st Source Investment Advisors told Bloomberg News. "If you're a company that's reporting earnings and you miss your number to any degree for any reason, you are punished dearly in the market. You're seeing it with Yahoo today."
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