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Financials and semiconductors weigh on markets

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After an early morning "pop" from some slightly better-than- expected August factory orders and September ISM services data, the rally has "fizzled" as sector weakness in financials and semiconductors has investors cautious.

At 10:00 AM EST, markets rallied after the August factory orders data came in at unchanged, which was better than economist's forecast for a decline of -0.3%.

The ISM Services Index rose to 53.9% in September, which was up from August's 50.9% and better than the forecast of economists for a more modest 51.4% reading. Levels above 50% are considered to be signs of expansion in the services portion of the economy. Earlier this week, the more industrial ISM Manufacturing Index fell to 49.5% and below the 50% level. Both data "confirm" past observations that the consumer has been the key component for keeping the economy above water, while the industrial portions continue to struggle.

Just after the 10:00 AM economic data, the Dow Industrials (INDU) 7,785 +0.38% (+35 points) surged to 7,913 (+158 points), but have since given back the bulk of those gains.

Financials continue to trade weak for the second consecutive session as depicted by the S&P Banks Index (BIX.X) 260 -3.9%, KBW Bank Index (BKX.X) 669 -3.39% and Securities Broker/Dealer Index (XBD.X) 353 -2.75%. Shares of Bank of New York (NYSE:BK) $24.13 -9.82% lead the declines after last night's earnings warning.

Other financials have NTRS -7.4%, PNC -6.7%, MEL -5.6%, FBF -5.4%, ZION -5.1%, KEY -4.8% and USB -4.4%.

The weakness in the financials have market theorists expressing concern over the weakness in the financials, as this group of stocks is often thought to be one of the stronger groups for a stock market recovery.

Technology stocks as depicted by the NASDAQ-100 Index (NDX.X) 841 -1% never really did show much of a bullish response to the economic data and the technology sector has see some heavy selling pressure in the semiconductors as depicted by the Semiconductor Index (SOX.X) 239 -4.3%. Sector weakness is being furthered after Advanced Micro Devices (NYSE:AMD) $3.89 -27% warned on earnings.

Jeff Bailey

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