The Wall is Weeping

In an apparent reaction to talks that a second government stimulus plan is in the offing as earlier pump-priming did not meet expectations,Wall Street tanked to its lowest level in 10 weeks after rising 40% since March. Rumours of weak corporate earning reports due soon also helped in magnifying the dive.

"It's clear that over the last three plus weeks that investors are becoming concerned that the recovery in the economy will not come as soon as expected and will not be as strong as expected," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York.

"When there's talk about another stimulus plan that adds fuel to that fire, it intensifies the concerns about the timing and strength of the recovery."

Cyclical stocks in the materials, energy, and industrial sectors, which had ridden a recent upswing in raw material prices on recovery hopes, led the market down as commodity prices eased. Copper, a barometer of global economic strength, fell nearly 2 percent.

An initial snapshot of the second-quarter performance of natural resource companies will come today when Alcoa Inc kicks off quarterly earnings season. The aluminium producer, a Dow component, is expected to post a third consecutive quarterly loss.

S&P 500 corporate earnings are expected by analysts to have declined about 36 per cent from a year ago, according to data compiled by Thomson Reuters. That would be roughly the same as the decline seen in the first quarter.

Doubts about the strength of an economic recovery and subsequent demand for oil have sent crude prices tumbling in the last week. New York crude CLc1 fell 1.8 per cent yesterday and is down about 14 per cent from the intraday peak hit on June 30. Its slide has pressured energy stocks.

Non-cyclical areas of the market, which have been stronger in recent weeks as investors sought out companies better positioned to weather a weak economy, initially withstood the sell-off on Tuesday. But by the end of the day even the defensive sectors fell victim to selling.

Health care, a classic defensive sector, traded in positive territory for most of the day but by the close the S&P healthcare index fell 0.3 per cent — still outperforming the wider market.

Drug maker Pfizer Inc, one of the few Dow stocks to finish in positive territory, edged up 0.1 per cent to US$14.59.

The world awaits the dawn of the second stimulus package.

Can Obama deliver?