After The Close - The bears for the first time in quite a while flexed their muscles today, building off of yesterday’s mild setback on Wall Street. Declining issues led advancers by a wide margin on both the New York Stock Exchange and the NASDAQ. The bearish sentiment was fueled by another disquieting report on the global economy and a weak showing from the technology sector. The latter was primarily due to the continued correction in Apple’s (AAPL) stock after it moved above the $700 mark late last month. Not surprisingly, the technology heavy NASDAQ led the major U.S. equity indexes lower. It is also worth noting that investors’ recent appetite for risk eased a bit, as the more volatile small-cap Russell 2000 suffered a bigger loss than both the broader S&P 500 Index and the Dow Jones Industrial Average. In the same vein, demand for safety picked up, with bond prices rising in the latest session.
From a sector perspective, there was not much to like unless you held energy issues. Energy stocks strengthened, as the price of crude oil rose sharply (more than $3 a barrel) on the New York Mercantile Exchange. Even with the dour outlook on the global economy (more details below), oil prices jumped as tensions between Turkey and Syria escalated. The fear is that increasing conflicts in the fractious Middle East could lead to pipeline disruptions and reduced worldwide oil supplies. Steel, coal, and metals and mining stocks also turned in relatively decent showing on an otherwise dour day on Wall Street. The aluminum area will also be on the minds of investors after the market’s close, with Dow-30 component Alcoa (AA - Free Alcoa Stock Report) scheduled to release its latest quarterly results. Meantime, shares of Wells Fargo (WFC), another company scheduled to report quarterly results this week, traded lower after reports surfaced that the U.S. Attorney for the Southern District of New York Preet Bharara has filed a civil lawsuit against the big bank for millions of dollars in damages for mortgage fraud.
The biggest laggard among the major sectors was technology. Several factors contributed to the setback, most notably the aforementioned weakness in the shares of technology behemoth Apple. In addition to Apple’s struggles, China’s Internet stocks were down after a major brokerage house lowered its rating on Internet search engine giant Baidu.com (BIDU). Similarly, shares of blue-chip Intel were in the red today after an analyst downgrade. Besides technology, those sectors most closely tied to the health of the global economy faltered today, with notable declines recorded by consumer cyclical, financial, and industrials stocks. Even the defensive-oriented healthcare, consumer noncyclical, and utilities groups also struggled in the latest session, despite the growing demand for safer securities.
On a rather quiet day on both the domestic economic and earnings fronts, news from overseas had a major impact on trading today. Drawing the most attention of investors were comments from the International Monetary Fund (IMF) that the global economic slowdown is worsening and European policymakers that fail to fix their country’s economic ills would prolong the slump. The IMF cut its forecast for global output in 2012 from 3.5% in July to just 3.3%, its second downward revision since April, and lowered its GDP growth forecast for China from 8.0% to 7.8%. Asia’s indexes had a mixed reaction to the latter report, as investors were hopeful that the IMF data will prompt China’s monetary policymakers to enact another round of stimulus for the world’s second-largest economy.
Meanwhile, tomorrow will bring some more insight on the health of the global economy, particularly that of the United States, when the Federal Reserve’s latest Beige Book summation of economic conditions is released shortly after 2:00 P.M. (EDT). Today, the IMF called on European and U.S. policymakers to deal proactively with their major short-term economic challenges. The Beige Book findings may provide some more insight on how much wiggle room the U.S. central bank has left to tackle the global economic problems, especially given the recent rounds of quantitative easing.
It is our sense that if the third-quarter earnings season, which commences in a matter of minutes, were to disappoint, a selloff may occur on Wall Street, especially with the challenging outlook on the global economy in place right now. The S&P 500 Volatility Index is still well below 20—a level that typically suggests the equity market is overextended and susceptible to even the mildest of shocks. - 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 got off to weak start today, and the major averages have been slipping further. As we pass the noon hour in New York, the Dow Jones Industrial Average is down 80 points (-0.6%); the broader S&P 500 Index is off 11 points (-0.8%); and the NASDAQ is shedding 42 points (-1.4%). Market breadth shows widespread selling, as declining issues are outnumbering advancers by roughly 3 to 1 on the NYSE. Weakness can be found in most of the market sectors, with sharp losses in the technology, and consumer cyclical names. Weakness in the technology area reflects a downside move by Apple (AAPL) today. That stock is roughly 10% off its all-time high and has fallen through support at $660. Although there are no strong sectors today, the energy and utility issues are holding up better than the broader market.
Technically, the S&P 500 Index seems to have run into some resistance at the 1,460 level. The Index attempted to move beyond this area in mid-September, and again in early October, and has been unable to sustain a rally. The market has staged a good run over the past few months, and some profit taking may be in order. Further, concerns may be heightened, as we approach the third-quarter earnings season. We have already received a handful of downside guidance adjustments, particularly from some large technology companies, and that may have some traders worried.
Some of the weakness today may also reflect the markets overseas. In Asia, Japan’s Nikkei was off sharply, while the Shanghai Composite advanced. This may reflect confusion about economic expansion in the region. The IMF lowered its global growth estimate and GDP projections for China, which is somewhat worrisome. However, many traders are now looking for ongoing stimulus measures on the part of China’s government. On the Continent, there have been renewed concerns about Greece’s financial situation. The major bourses put in a weak session, in response.
Traders received no substantial economic news today. However, the attention now seems directed to the corporate arena. Notably, Alcoa (AA - Free Alcoa Stock Report) is set to kick off the third-quarter earnings parade after the closing bell. Edwards Lifesciences (EW) stock is sinking on a weak quarterly outlook. Owens Corning (OC) shares are also off on a reduced outlook. Further, several stocks including Intel (INTC - Free Intel Stock Report) and NetFlix (NFLX) are trading lower after Wall Street brokerage houses issued downgrades.
At the time of this article's writing, the author had a position in Alcoa (AA).
Stocks to Watch from The Survey – Today marks the unofficial start of third-quarter earnings season, as aluminum producer and Dow-30 component Alcoa (AA – Free Alcoa Stock Report) is scheduled to release September-period results after the market closes this afternoon. Also, restaurant operator Yum! Brands (YUM) is set to issue quarterly financials from its August interim late this afternoon.
In the meantime, several companies have trimmed their guidance, much to the chagrin of investors. To wit, shares of Edwards Lifesciences (EW) are plunging in pre-market trading, after the medical supplies company said that third-quarter revenues will likely come in below prior estimates. Management noted that product sales were hurt by European austerity measures and slower-than-anticipated growth in the United States. The stock of Owens Corning (OC) is also poised for a notably lower opening this morning, after the building materials company cut its 2012 earnings outlook.
In other news, shares of Spectrum Brands (SPB) are up nicely in the premarket on news that the household products company has agreed to pay $1.4 billion for Stanley Black & Decker’s (SWK) Hardware & Home Improvement Group. Stanley Black & Decker is a global producer of hand tools, power tools, mechanical access solutions, and more. – 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 - The U.S. stock market meandered about yesterday, with whatever modest bias there was being largely to the downside, in listless semi-holiday trading. The domestic markets mostly took their cue from overseas, and the overall performance offshore was disquieting in large measure. The seeming rationale for the latest selloff overseas were additional warnings that Asia and Europe were headed for either a marked slowdown or an outright recession. European pundits, for example, now put the odds of a new recession in the euro zone at some 80%. Although our outlook is measurably better, the chances of at least another six to 12 months understated economic growth are now quite high.
Meantime, with the banks closed for Columbus Day observance, volume was predictably light and stocks, as noted, moved mostly to the downside, especially on the NASDAQ, where that tech-heavy index, weighed down by atypically poor performances from both Apple (AAPL) and Google (GOOG), fell 24 points, or 0.76%. The Standard and Poor's 500 Index gave back five points, or 0.35%, while the Dow Jones Industrial Average avoided a major dip, easing by less than 27 points, or just 0.19%.
Of course, it wasn't just dour offshore news that hurt the stock market in the latest session, but also concerns ahead of the start of third-quarter earnings season. That debut occurs this afternoon, when Dow-30 component and aluminum giant Alcoa (AA – Free Alcoa Stock Report) issues its results after the close of the trading day. A breakeven bottom-line showing is the consensus forecast. That keenly anticipated result will be followed tomorrow by the quarterly earnings report from retailing giant Costco (COST). Friday, meanwhile, will bring data from two large banking houses, with Dow-30 component JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report) and fellow banking behemoth Wells Fargo (WFC) scheduled to issue their quarterly results.
As for other news, the economy takes a comparative pause this week, with data generally light. However, the Federal Reserve will release its Beige Book summation of economic conditions across the country and the accompanying outlook for the months ahead tomorrow afternoon. Then, on Thursday, we are due to get weekly jobless claims data and the monthly report on the international trade deficit. Finally, Friday will see issuances on producer prices for September and the University of Michigan survey on consumer sentiment.
As to the markets this morning, there is little impetus to buy globally, but our futures, after a modest selloff earlier this morning, especially on the NASDAQ, have stabilized, and with about a half hour to go before the start of the new trading day over here, the Standard and Poor's 500 Index futures are pressing a bit higher with a gain of almost three points, while the NASDAQ futures, once down more than a dozen points, are now advancing toward the breakeven line. Thus, a mixed opening would seem ahead when traders get down to business. The bull is still in the driver's seat, we sense but it may take some better metrics on the earnings front to keep it there over the near term. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.