Wall Street Beat: Shares Take a Beating Ahead of Fall

Stocks on Wall Street have taken a beating this week as fear grows ahead of the Labor Day weekend, which traders say marks the true start of fall in the U.S.

"We head into September which is historically a rough month for investors," wrote David Fry, a stock commentator and publisher of the subscription newsletter ETF Digest. "We've come a long way from the March lows and many pundits are predicting terrible things ahead. But you never know what Mr. Market has up his sleeve and that's why they play the game."

Although the autumn season doesn't officially start in the U.S. until later this month, stock market traders joke that the nickname fall comes from the propensity for markets to drop during the season, usually after the U.S. Labor Day holiday, which is on Monday.

So far, the three major U.S. indices have supported the fall myth by starting early. The technology-laden Nasdaq Composite Index dropped 2.25 percent this week to close at 1983.20 on Thursday, while the Dow Jones Industrial Average is off 2.1 percent at 9344.61 and the Standard & Poor's 500 Index is down 2.5 percent to 1003.24.

Fry noted that even good news has been met by selling this week, a turn from earlier in this months long stock market rally, when news that was "better-than-expected" -- though still bad -- has been met with buying. Stocks have been on a run since hitting lows in early March. The S&P 500, for example, is up 50.5 percent since March 6, when it bottomed out at 666.79. Many market pundits predict a looming pullback, but have been making such predictions for months now.

Somehow, they say, September is different. The month started out on a sour note Tuesday when a report said noted hedge fund manager Paul Tudor Jones was wagering against the market, arguing the economic recovery is not sustainable. High unemployment, lower wages, toxic assets in banks and government missteps may stifle economic growth next year, the report says. The fund manager is known for predicting the banking industry decline last year.

The pessimism in the broader market is in sharp contrast to optimism in the technology sector.

Expectations for stronger PC sales in the second half of this year compared to the first as well as last week's increased revenue forecast by bellwether Intel are causes for optimism, analysts say. The launch of Microsoft's new operating system, Windows 7, on Oct. 22 is also expected to provide a boost to sales in the tech sector.

Investment banker Credit Suisse believes the PC industry is poised to benefit from increased technology spending because many companies have put off replacing old computer systems for a long time already and will have to start buying soon. The average corporate desktop is 5-years old now, Credit Suisse estimates, while the average laptop is 4-years old. Emerging markets will also boost the industry, as will new products built around the latest chips, Atom and Nehalem.

There are potential flies in the ointment for technology. A negative turn to the global economy would impact tech stocks and gadget purchases, analysts say, and some argue the Windows 7 upgrade cycle could come much later than expected as companies seek new ways to save money.

Indeed, the world's largest contract electronics manufacturer, Hon Hai Precision Industry of Taiwan, noted in its second quarter earnings statement Monday that although the computing business remains relatively strong, "visibility remains short." Hon Hai is the world's largest PC assembler and makes a slew of popular products from iPods and iPhones for Apple to PlayStation game consoles for Sony.

Going forward, stock traders expect Friday's unemployment report to be the big news of the week and dictator of future market trends.

"The scary thing is Monday's holiday following the employment report," Fry wrote. "If the report is poorly received Friday, Monday could see a serious sell-off... Let's see what happens."

The Bureau of Labor Statistics is expected to release the report at 8:30 a.m. Eastern Time on Friday.

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