After The Close - The selective selling on Wall Street, which picked up during the last hour of trading on Friday, continued today. The bears were in the driver’s seat from the get-go and refused to relinquish their hold on trading at anytime during the rather ho-hum session. Trading volume was on the light side, as some investors may have taken the day off for Columbus Day—the banks and the bond markets were closed in observance of the holiday.
Today’s bearish sentiment was mostly fueled by growing concerns about the health of the global economy. Investors both here and abroad were a bit unnerved by the World Bank’s decision to cut its economic forecasts for the East Asia and Pacific regions. The downward revision was due to worries about the ongoing economic slowdown in China, the world’s largest consumer of basic materials. The concerns about Asia, along with the ongoing recessions in the euro zone, have offset decent data recently on the U.S. economy, which included an uptick in manufacturing and nonmanufacturing activity last month and a surprising drop in the nation’s unemployment rate. Among the weak international bourses today were Germany’s DAX (down 1.4%), France’s CAC-40 (-1.5%), and Hong Kong’s Hang Seng (-0.9%). On these shores, the largest loss among the major indexes was recorded by the NASDAQ. The tech-heavy exchange led the Dow Jones Industrial, the broader S&P 500 Index, and small-cap Russell 2000 lower today.
From a sector perspective, there was not much to smile about here. Nearly all of the major groups finished the session in the red, with the biggest laggards being technology and telecommunications stocks. The struggles of these two sectors were mostly responsible to the NASDAQ’s setback today. Shares of technology behemoth Apple (AAPL) were weaker, with selling prompted by supply concerns after China Labor Watch, a human rights group, said that a Foxconn plant in China making the iPhone 5 was crippled by a work stoppage. There also appears to be some concerns about pricing issues for the soon-to-be-released latest version of the iPad Mini. The feeling is that the new tablet needs to be competitive with low-cost alternatives from Google (GOOG) and Amazon.com (AMZN), but also fit into the pricing scheme Apple has already in place for its regular-sized iPads and its iPod Touch handhelds. Conversely, one technology stock that fared well in the latest session was Netflix (NFLX), which got a boost from a ratings upgrade from a major brokerage house. Google shares, meantime, were notably lower.
We believe that some of the weakness today in the technology and telecom spaces may also be due to some apprehension on the part of investors ahead of the third-quarter earnings reporting season, which kicks off after tomorrow’s market close with Alcoa’s (AA - Free Alcoa Stock Report) latest quarterly results. Meantime, basic materials stocks were lower, save for the steels, on the aforementioned concerns about the global economy. The stocks of construction materials companies were notably weaker. The price of crude oil also finished lower on the New York Mercantile Exchange, owing to the same economic concerns.
On a slow day for U.S. economic issuances, there were a few pieces of interesting news from the corporate world. Credit-card giant American Express (AXP - Free American Express Stock Report) announced that, along with Wal-Mart (WMT- Free Wal-Mart Stock Report), it plans to launch a prepaid card that will feature services designed to help Wal-Mart customers manage and control their everyday finances. We also learned today that UnitedHealth Group (UNH - Free UnitedHealth Group Stock Report), the newest member of the Dow 30, will buy a 90% stake in Brazil's Amil Participacoes SA for $4.9 billion in cash. Also in the healthcare area, shares of Allscripts Healthcare Solutions (MDRX) rose after rumors surfaced that the electronic health-records company, which is considering a leveraged buyout, received first-round bids from private-equity firms, including Blackstone Group (BX), Carlyle Group (CG), and Silver Lake Management LLC. - William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:30 PM ET - The U.S. stock market opened lower this morning, and has not been able to reverse course too much as we move into the afternoon. Some of the initial weakness may reflect renewed concerns about economic expansion in Asia. Notably, the World Bank cut its GDP forecast for the region, and that may have some investors worried. Meanwhile, on the Continent the news was also uninspiring. The major bourses were mixed today. Britain’s FTSE-100 posted modest gains, while losses were severe on France’s CAC-40, and on Germany’s DAX.
At just past noon in New York, the Dow Jones Industrial Average is down 33 points (-0.2%); the broader S&P 500 Index is off six points (-0.4%); and the NASDAQ , which has been leading the market lower, is surrendering 22 points (-0.7%). Market breadth is still weak, with declining issues outnumbering advancers by roughly 2 to 1 on the NYSE. No real leadership can be found in the various market sectors. There is notable weakness in the technology stocks, though. The conglomerates, healthcare, and consumer cyclical names are also trading lower. In contrast, there is some relative strength in the transportation and utility issues.
Technically, the S&P 500 Index attempted to move into high ground recently, but has been hitting some resistance. Given the run-up we have seen over the past couple of months, some traders may be getting concerned. The VIX is up sharply today. However, the current reading of 15 still suggests a great deal of complacency.
There was no material economic news released today in the United States. Tomorrow will be a light day for reports, as well. On Wednesday, we get a look at wholesale inventories for the month of August. The Fed’s Beige Book summation for September is also due out.
In corporate news, traders are preparing for the start of the third-quarter earnings season. Alcoa (AA - Free Alcoa Stock Report) is slated to report late tomorrow. Today, Affymetrix (AFFX) stock is sharply lower after the technical instrument’s company lowered its sales outlook. In technology, Oclaro (OCLR) stock is also slipping as that company also reduced its guidance. In merger and acquisition news, United Health (UNH) is increasing its international business, as it has agreed to purchase a large provider located in Brazil.
Stocks moving higher include: Netflix (NFLX), Navistar (NAV), and CarMax (KMX). Stocks moving lower include: Progress Software (PRGS), and Power One (PWER). - Adam Rosner
At the time of this article's writing, the author had a position in Alcoa (AA).
Stocks to Watch from The Survey – Earnings season kicks off in earnest tomorrow, but the trend of downward top- and bottom-line revisions ahead of actual reports continues. The latest to do so is medical supplies company Affymetrix (AFFX), which warned that third-quarter revenues will likely be weaker than previously expected. The stock is trading sharply lower in the premarket as a result.
There is some M&A news out as well. Health insurer and Dow-30 component UnitedHealth Group (UNH – Free UnitedHealth Stock Report) has agreed to pay $4.9 billion to acquire a 90% stake in Brazil-based Amil Participacoes, that country’s largest health insurer and hospital operator. UNH shares are up slightly in pre-market trading. Staying in the healthcare industry, the stock of Allscripts Healthcare Solutions (MDRX) is indicating a notably higher opening this morning, on reports that a number of private-equity firms have submitted bids to buy the provider of electronic health record systems. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Good news on the employment front on Friday did not translate into a stellar session on Wall Street Friday, as the bulls ended a generally solid week on a ho-hum note. True, stocks started out the session in high gear, but those strong gains soon evaporated, and the day closed on a mixed note. All told, the Dow Jones Industrial Average added 35 points, but the NASDAQ, hurt by a sharp setback in the shares of iconic tech behemoth Apple Inc. (AAPL) fell 13 points. The Standard and Poor's 500 Index, meanwhile, was basically unchanged, easing by a scant half point.
As for the employment situation, the report was a stunner, but not for the level of jobs created. Specifically, going into the report, expectations had been for the addition of some 115,000 non-farm payrolls in September. The number just about matched that consensus, as payrolls rose by a modest 114,000 last month. At the same time, job estimates were increased for July and August, rising from gains of 141,000 and 96,000, respectively, to increases of 181,000 and 142,000.
However, it was the jobless rate that made the instant headlines. Going into the issuance, expectations had been for a flat-to-slightly higher unemployment rate of 8.1% or 8.2%. The rate had, after all, held above 8% without exception for 44 months. Thus, one can imagine the shock when the data were released showing that the jobless rate had fallen to 7.8%. Importantly, this was not a case of more of the unemployed falling out of the labor force by giving up their search. That had been the pattern in some prior months in which joblessness had declined. Actually, the workforce grew in September, indicating that this was a real and possibly longer-range improvement.
The reaction, as noted, was immediate. Not only did stocks rally from the outset, but Treasuries sold off on the good news, causing yields on the 10- and 30-year Treasury notes and bonds to rise. In all, the 10-year note is now yielding 1.73%, a minuscule rate, to be sure, but notably better than the prior day's 1.67% return.
Going back to the stock market, the blue chips rolled to the aforementioned 35-point gain during Friday's session, and in the process neared another five-year high. The late fade in prices, though, suggested that whatever our situation over here, thoughts of Europe are never far from investors' minds these days. Indeed, debt problems on the Continent continue to escalate. For example, early on Friday, there was a European Central Bank report from one executive board member expressing doubts that Greece would receive an aid payment in November. There also have been questions about Spain's commitment to austerity. Finally, there was a report out showing that Germany's monthly manufacturing orders had fallen more than expected.
And if all of that wasn't enough, world stocks are falling this morning and our futures are lower with the Standard and Poor's 500 Index futures off by more than four points and the NASDAQ futures lower by some 11 points after the World Bank cut its growth forecast for East Asia. The markets are also a bit wary ahead of third-quarter earnings season, which kicks off late tomorrow with the first report from Dow-30 member Alcoa (AA - Free Alcoa Stock Report).
As for economic news, the big events of the week will be Wednesday's release of the Federal Reserve's Beige Book, Thursday's issuance of the monthly trade figures, and Friday's report on September producer prices.
All told, it should be a critical week and one that could well start to set the tone for the fourth quarter. Expectations for earnings are not very upbeat, so how well Corporate America meets its lowered targets will say much for the resilience of the bulls over the final three months of this year. Stay tuned. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.