Monday saw the U.S. stocks take a beating, with the Dow industrials slumping below the lows they hit during last month's "flash crash," as worries about the euro and global growth kept markets volatile.
After seesawing in a tight range, the major stock indexes pulled decisively lower in the final 30 minutes of trade. The Dow Jones Industrial Average (DJIA - 9,816.) fell 115.48 points, or 1.2%, to end at 9,816.49, below the blue-chip average's May 6 low of 9,869.
There didn't appear to be one new spark for the latest wave of selling, but the markets remain jittery over Friday's weaker-than-expected jobs report that drove a 324-point plunge on the Dow. While some predicted bargain hunters would be enticed by the beaten-down stock prices, the bulls failed to post a sustainable rebound and the markets ended near session lows and at their worst levels since Nov. 2009.
“The market couldn’t get any kind of traction,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “It’s more a lack of buy interest than it is a real new catalyst.”
Equities that are considered to hold the most risk took the biggest hit, meaning heavy losses for technology, industrial and financial names. Economically-sensitive commodities like copper also slumped. Those groups were also hurt by a fresh four-year low for the turbulent euro, which remains under fire from the European debt crisis.
”We definitely would have liked to have seen better action based on Friday’s market movement. This is pretty bearish action we’re seeing down here,” said NYSE trader Maier Tarlow of Raven Securities.
"This is more of what we've been seeing for weeks," said Brian Battle, vice president at Performance Trust Capital Partners. "We have a lot of uncertainty in the market, and when that happens, you take your chips off the table and wait."
He said that uncertainty surrounds the economic outlook, financial reform bill, solvency situation in Europe, fluctuating euro and upcoming mid-term elections in the U.S.
On Friday, stocks dropped sharply after the Labor Department's May employment report pointed to a slowdown in hiring in the private sector.
"Before Friday's number there was a sense of cautious optimism, now there's a pessimistic sense out there," said Jay Suskind, senior vice president at Duncan-Williams Inc.
Wall Street's bearish mentality comes along with "the looming clouds out there of a global slowdown," said Suskind.
"Up until a couple of weeks ago, the U.S. wasn't part of that equation, but with Friday's employment number, it at least enters into the discussion," said Suskind of the disappointing May payrolls report.
A report that U.S. consumer credit, excluding real-estate loans, rose by $1 billion in April also weighed on sentiment.
"Last Friday's jobs report inspired very little confidence in terms of the economic recovery," said Erick Maronak, senior portfolio manager at Victory Capital Management. "Add to that the anxiety about Europe and investors are very skittish."
The Energy Sector
Shares of BP PLC (BP)were off 1.1% after the Coast Guard said a containment cap is now collecting about 15,000 barrels of the oil in the Gulf of Mexico and Goldman Sachs pared its rating from buy to neutral on the oil giant, facing what the White House estimates are "many billions" in fines.
"Until that oil gets stopped, I think it's more of a problem in the marketplace from an investor-confidence standpoint," added Jay Suskind, senior vice president at Duncan-Williams Inc.
However, a number of other energy shares rose, including Exxon Mobil (XOM) and Chevron (CVX).
The rise in select energy shares helped temper the selling in the broad market, as energy is one of the biggest components of the S&P 500.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 9,816.49) finished with another loss of 115.48 points, or 1.16%. The S&P 500 Index (SPX – 1,050.47) also had loss on the day, of 14.41 points, or 1.35%, whilst the Nasdaq Composite (COMP – 2,173.90) fared even worse, losing 45.27 points, or 2.04%.
The Russell 2000 index of smaller companies fell 15.48, or 2.4 percent, to 618.49.
Large manufacturers' shares ranked as the biggest drags on the Dow, with United Technologies Corp (UTX) down 2.9 percent at $63.22, and Caterpillar Inc (CAT) fell 3.3 percent to $55.83.
The Nasdaq fared the worst as investors unloaded positions in the most liquid large-cap technology shares. Research in Motion Ltd (RIMM) fell 5.2 percent to $56.56 on worries about the BlackBerry's sales and after the introduction of Apple's latest iPhone. Apple Inc (AAPL) lost 1.9 percent.
The industrial sector took the biggest tumble out of the major industry groups, reflecting the ongoing economic unease in the wake of Friday's jobs report and more weakness for the euro. The sector lost more than 2.5% and individual names like United Technologies (UTX) and Foster Wheeler (FWLT) slumped even further.
Banking stocks were also under pressure after the Financial Crisis Inquiry Commission issued a subpoena to Goldman Sachs (GS) for "failing to comply" with a request for documents and interviews. The news weighed on big banks like Morgan Stanley (MS) and Citigroup (C).
Also, Bank of America (BAC) tumbled 3% after agreeing to pay $108 million in fines to settle Federal Trade Commission charges that Countrywide Financial, its mortgage unit, misled borrowers.
Financial stocks are an “important component to the overall (market) structure. We do need to see them going along for the ride,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
Utility and gold stocks were among the few gainers, a sign that traders want investments considered safe in weak economies.
Utility company FirstEnergy Corp. rose 2.7 percent, while Barrick Gold Corp. climbed 4.1 percent.
"The market is playing defense and waiting for some resolution," said Mike Shea, managing partner at Direct Access Partners LLC in New York, pointing to the rise in gold stocks.
Decliners outnumbered advancers on the New York Stock Exchange by a ratio of 11 to 4, while on the Nasdaq, about five stocks fell for every one that rose.
About 9.70 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq -- just above last year's estimated daily average of 9.65 billion.
Manufacturing activity increased in Germany in April for a second month as the euro slid against the U.S. dollar, making European goods less costly in global markets.
Without any major economic or earnings reports to influence them, traders were once again keeping an eye on the euro, which lost more ground and closed at fresh four-year lows. Over the weekend Hungary, the new epicenter of the debt crisis, said its cabinet worked on an emergency economic plan after comments from an official about a potential default on its debt rattled the markets last week. Germany's cabinet also finalized a new austerity package worth almost $100 billion. The euro was down 0.21% to $1.915 as U.S. markets closed.
Investor sentiment brightened somewhat when Hungarian officials backed away from comments about a possible default that shook nerves on Friday.
“We’re waiting for the next shoe to drop in Europe on a daily, hourly and every minute basis,” said NYSE trader Keith Bliss of Cuttone & Co. “We still think we’re short-term oversold. We’re not going to get back to the highs of October 2007 any time soon but we still think we could see 1150 on the S&P shortly.”
Euro: The euro continued to drop Monday, trading at $1.192 after touching a four-year low of $1.188. The dollar fell 0.2% against the yen.
Weakness in the euro tends to be seen as a proxy for worries about the European debt crisis and its impact on the global economy. Worries that the United States could be in danger of falling into a so-called double-dip recession have plagued markets for the last month, sending the major stock indexes down more than 10% each.
European Markets: Britain's FTSE 100 lost 1.1%, Germany's DAX gave up 0.6% and France's CAC 40 retreated 1.2%.
Asian markets: tumbled. Japan's Nikkei lost 3.8% and Hong Kong's Hang Seng fell 2%. China's Shanghai Composite lost 1.6%.
Notes of Interest….
• The Dow Jones Industrial Average (DJIA) is now testing support in the 9,800 neighborhood, which contained its lows in early February.
• The S&P 500 Index (SPX) found a foothold at the 1,050 level, which provided a floor for the index earlier this year.
• The Nasdaq Composite’s (COMP) next potential area of support is the 2,150 neighborhood, which contained the tech-rich index's late-May low.
• By the close, crude oil for July delivery shed 7 cents, or 0.1%, to settle at $71.44 per barrel.
• The August-dated contract ended the day solidly higher, adding $23.20, or 1.9%, to finish at $1,240.80 per ounce.
• Copper, which tends to swing in tandem with economic sentiment, dropped 1.9% a pound to $2.7590 -- a new 2010 low.
Again, signaling the jitters on Wall Street, the CBOE Volatility Index (VIX), or the markets' so-called "fear gauge," was in vogue again and remains at an elevated level, though it has eased back since May. At one stage of the day it was as low as $34.43 to close out at $36.57 and increased by 3.1%.
Once again, we have done well on our options trading with this type of volatility.
Company Earnings Reports
There was one positive note today particularly from the earnings arena. The following company has presented an earnings report that exceeded the analysts’ expectations. This is:-
• G-lll Apparel Group (Glll)
G-III Apparel Group Ltd (GIII) posted a quarterly loss significantly narrower than expected, helped by strong spring business in its dress and sportswear categories, and forecast full-year earnings above market estimates.
For fiscal 2011, G-III sees earnings of $2.20 to $2.30 a share on revenue of $950 million.
Analysts on average expect earnings of $2.17 a share on revenue of $891.8 million, according to Thomson Reuters.
For the first quarter ended April 30, the company posted a net loss of $1.4 million, or 7 cents a share, compared with net loss of $6.8 million, or 41 cents a share, a year ago.
Revenue rose 43 percent to $154.3 million.
Analysts on average had expected loss of 19 cents per share on revenue of $134.8 million.
Company News and Movements:
• Apple: Chief executive Steve Jobs unveiled the iPhone 4 Monday at Apple's annual Worldwide Developers Conference in San Francisco. The newest version of the phone has around 100 new features, including a higher-resolution screen and a more industrial look.
Jobs was also expected to announce updates to Apple's Safari Web browser, iTunes, new Macs and a new Macintosh operating system. Nonetheless, Apple shares lost 2%, falling with the rest of the market.
• Grifols: In deal news, Spain's Grifols, a maker of blood-plasma products, said it is buying U.S.-based rival Talecris Biotherapeutics (TLCR) for about $3.4 billion. The deal gives Grifols roughly one-third of the U.S. market. Shares of Talecris rose 26%.
• Google Inc (GOOG) lost 2.7 percent to $485.52 after Connecticut's attorney general sent a letter to the dominant U.S. search engine company asking if it had collected data from personal and business wireless networks without the owners' permission.
• Bank of America Corp (BAC) fell 3.4 percent to $14.83 after the company's Countrywide Financial Corp unit agreed to pay $108 million to settle U.S. government charges of misleading and overcharging consumers.
• Goldman Sachs Group Inc (GS) shares tumbled 2.6 percent to $138.68 following news that a government commission investigating the 2008 financial crisis has issued a subpoena to the company after the bank flooded the panel with billions of pages of digitized records.
• Bristol-Myers Squibb Co. (BMY) rose 6.3% after Goldman Sachs hiked its rating on the drug manufacturer from neutral to buy.
• Boeing (BA) plans to team up with Italy’s Finmeccanica to make a bid to manufacture a new generation of U.S. presidential helicopters. Boeing said it will secure a license from Finmeccanica’s AgustaWestland unit for production of the AW101 medium-lift helicopter that could replace the current fleet of Marine One aircraft.
• Research in Motion’s (RIMM) closed down more than 5% after an analyst at Paradigm Capital said sales of the company’s BlackBerry smartphone were weaker in May due to increased competition. The analyst cut his price target from $77 to $66. RIM was also hurt by the iPhone 4 unveiling.
• CVS Caremark (CVS) tumbled 8% after Walgreen (WAG) said it won’t be the provider for any new or renewed drug plans handled by CVS Caremark’s pharmacy benefits manager. CVS said it was “surprised” and “disappointed” with the move and it remains “open to discussions” over the pharmacy benefits management networks.
• AT&T (T) is reportedly mulling acquiring a minority stake in telecom Reliance Communications, the No. 2 cell phone company in India. According to The Wall Street Journal, the two companies have been in informal talks that have been characterized as very early. The report comes after Reliance said over the weekend its board has signed off on a sale of up to 26% of its shares to help it pay down debt and upgrade its networks.
• Morgan Stanley (MS) plans to slash more than 1,200 jobs and shut down 300 branches over the next year as part of an effort to produce $1.1 billion in savings, FOX Business's Charles Gasparino reported. The job cuts are part of the bank's efforts to cut costs related to merging its brokerage division with Citigroup's (C) Smith Barney.
Traders gave in to another case of last-hour anxiety Monday and drove stocks to their lowest level in seven months.
The Dow Jones industrial average, down just 42 points at 3:15 p.m., was down 115, or 1.2 percent, by the close 45 minutes later. That extended the Dow's sharp drop from Friday, when it lost 323 in response to a disappointing May jobs report. Broader indexes had steeper percentage drops than the Dow on Monday. The technology-focused Nasdaq composite index fell 2 percent.
Treasury prices rose as investors again went in search of safe investments.
There was no obvious catalyst for Monday's late slide, although traders were again preoccupied with Europe's economic problems.
Traders know that Europe's business day begins before trading opens in the U.S., and they'd rather sell then wake up to an unpleasant surprise. The last-hour selling, which followed a similar move Friday, also recalled the 2008 financial crisis, when traders decided the best strategy was to dump stocks just before the close.
Monday's trading also showed how the markets own dynamics can trigger late selling. Shortly after 3 p.m., the Standard & Poor's 500 Index fell below 1,056.74, what had been its low close for the year that it reached Feb. 8. That psychological blow encouraged many traders to sell, and as prices came down, computer "sell" programs kicked in, leading to more selling.
Jim Thorne, chief investment officer for equities at MTB Investment Advisers in Baltimore, said traders are afraid they're seeing a repeat of the financial crisis of 2008. But Thorne said that although the jobs report Friday was disappointing, most numbers have pointed to an economy that is rebounding. The government said Friday that private employers hired just 41,000 workers in May, down from 218,000 in April and the lowest number since January.
"Right now the market is getting to the point where it's uninvestable. Fundamentals don't matter," Thorne said. "This is a period that will be looked back upon six to eight months from now as a wonderful investing opportunity."
Success is simple. Do what's right, the right way, at the right time.
Success is simple. Do what's right, the right way, at the right time.
Take control of your future prosperity the Easy way. Become a member of Stock Options Made Easy today!