Peter Cecchini Comments: Optimism Fades, As Do Stocks

July 20, 2010, The Wall Street Journal

After resisting for much of the week, the stock market finally toppled under a barrage of disappointing economic news and mixed earnings reports.

The Dow Jones Industrial Average on Friday sank 261.41 points, or 2.5%, to 10097.90, its lowest since July 7. It was the worst one-day selloff since June 29. The Nasdaq Composite Index fell 70.03 points, or 3.1%, to 2179.05, its lowest since July 8. The Standard & Poor's 500-stock index fell 31.60 points, or 2.9%, to 1064.88.

Every Dow component was down. The least-bruised names were relatively defensive companies like AT&T and Procter & Gamble, each down about 1%.

The worst performers were Bank of America and General Electric, down 9% and nearly 5%, respectively. Each reported second-quarter earnings that beat Wall Street forecasts, but also declines in revenue at an inopportune moment, just when the economy seems to be losing momentum.

The latest evidence of that came from the University of Michigan, which reported its consumer-confidence index dropped in July to its lowest level since last August. Economists expected a much smaller decline.

The report followed a string of downbeat data throughout the week, including a second consecutive monthly decline in retail sales, which caused research firm Macroeconomic Advisors to cuts its estimate of annualized second-quarter economic growth to 2.1% from 3.2%.

Until Friday, the stock market had weathered the bad news, thanks to some solid earnings reports. Many observers had hoped that the market had put in its lows for the year during its late-June swoon.

But Friday's selloff erased all of the gains the market had made during the week and left its course again in doubt. The Dow ended the week down 1%.

"There is a high likelihood that we'll see quite bit of weakness going into the end of the year and into 2011," said Peter Cecchini, chief strategist at BGC Capital. "The S&P below 1000 by the end of the year would not be surprising to me."