Wall Street Shares Slump

17 August 2011 - Which Way to Pay

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Wall Street Shares Slump

The catalyst for today’s slump on Wall Street was the plunging share prices of the world’s No.2 PC maker, Dell Inc. Dell cut its sales forecast yesterday after the market closed in response to consumers, governments and companies reducing their spending on technology. Dell shares plunged more than 9% subsequent to reducing its full-year revenue growth outlook to between 1-5% from the earlier 5-9% forecast.

However, Dell was not the only company to see reduced quarterly earnings. Rival Hewitt-Packard Co also expected to report lower than forecasted quarterly earnings. The dwindling profit in the PC manufacturing industry reflects the growing market preference for tablets and smartphones over computers. An analyst at Gleacher & Co, Brain Marshall, told Reuters, that “we are going to see similar trends” when HP reports its results as well as “some weakness in the topline”. Marshall also commented that a “pause” has been observed in business technology spending, in particular that of the US government.

Despite needing to rein in U.S. finances, in a bid to stabilise the economy and improve re-election chances, President Barack Obama plans to reduce unemployment by asking Congress for billions of dollars. The U.S. unemployment rate currently stands at 9.1% and is reflected by the country’s ever slowing economic. Obama’s plan would hopefully steady unemployment figures in the short-term, but at the price of an increase to the nation’s already sizable long-term deficit. Early next month the world will bear witness to Obama’s plans which we have reason to believe will include a mixture of tax cuts and infrastructure spending proposals.

In spite of the weakness in the world’s biggest economy, not all U.S. companies are suffering. Staples Inc reported a better-than-expected profit this quarter as did retailers Target Corp and Abercrombie & Fitch Co, however the latter warned they forecast “a period of greater uncertainty” ahead.

The Dollar Index, which measures the U.S. currency against a basket of its major counterparts, declined 0.42%. In European markets, the Stoxx 600 Index ended the day with a 0.2% increase.

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