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Stocks drop from five-year highs

TradingPub Admin | January 7, 2013

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If you want to learn more about the short-term movement in the stock markets, you might benefit from knowing that U.S. equities fell on January 7, after rising to a five-year high in recent sessions.

Equity surge 
Bloomberg reports that on January 4, the previous trading session, the benchmark S&P 500 Index closed at its highest level since 2007, as markets responded to strong data provided by the U.S. Labor Department.

The report provided by the government agency revealed that the nation's employers added roughly the same amount of positions in December as they did in November. In addition, the jobless rate held steady at 7.8 percent, after November was revised upward from 7.7 percent.

Fiscal Cliff resolution
On January 7, these stocks retreated, as investors grew concerned about the corporate earnings that major companies planned to release, according to Reuters.

The benchmark S&P 500 Index had a losing day, closing down 0.3 percent at 1,461.89 at 4 p.m. New York time. The Dow Jones Industrial Average, which represents fewer stocks, finished the day 0.4 percent lower at 13,384.29. This happened amid trading activity that was reasonably light, as 5.8 billion shares were exchanged on U.S. bourses, Bloomberg reports. This figure was 5 percent less than the three-month average.

"We've come a long way in a very short time," Tom Wirth, who contributes to the management of $1.6 billion as senior investment officer for Elmira, New York-based Chemung Canal Trust Co., told the news source during a phone interview. "I'm expecting better-than-anticipated earnings. Yet we need to see some consolidation first."

The S&P 500 surged the week before, after markets responded to news that Washington lawmakers had approved a deal to stave off the fiscal cliff. The group of stocks spiked 2.5 percent on January 2, after government officials hammered out a compromise.

Earnings concerns
It is important to know that earnings reports are a key factor in investors driving stock prices up and down. Reuters reports that global market participants tuned into these key figures during the last three months of 2012, as ongoing budget concerns weighed on the sentiment of both consumers and companies - and subsequently hampered their spending.

If lawmakers had not succeeded in arriving at a compromise for their budget concerns, it would have resulted in more than $600 billion in tax increases and budget reductions being automatically set in motion.

"There is little doubt that concerns about the fiscal cliff created spending hesitancy in both consumers and businesses in the fourth quarter, and it is likely that will adversely impact earnings season," Randy Frederick, managing director of active trading and derivatives at Charles Schwab in Austin, Texas, told the news source.

Many market experts predict that earnings will be only slightly better than the weak results generated in the third quarter, the media outlet reports. In addition, many analysts have reduced their estimates for these profits.

"I think it's going to be a disappointing one this time around," Peter Cardillo, chief market economist at Rockwell Global Capital in New York, stated in reference to the earnings season that will be kicked off when major aluminum producer Alcoa reports its earnings on January 8.

The concerns about earnings were not alleviated by the jobs report and data indicating expansion in the U.S. services sector, according to the news source.

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