The major U.S. stock market averages are down 1.5% or more making this the worst trading day of the year! It's the biggest decline since November 2009. Yet for all the wailing and gnashing of teeth stocks have only fallen to the bottom of their recent trading range. It was a big day for bank earnings and while the results were mixed investors took a pessimistic view of the results. The real story today seems to be China.
News that China was tightening its lending standards sparked a worldwide sell-off. There was not an official announcement but banking executives in China said regulators told some of the bigger banks to curb their lending. The government is trying to stop the economy from overheating and prevent a problem with inflation. If China slows down its growth that should mean there will be less demand for commodities. Naturally the commodities and related stocks were hit hard today. The Chinese Shanghai index lost 2.9% snapping a four-day winning streak. The Hong Kong Hang Seng fell 1.8%. The Japanese NIKKIE lost 0.25%.
Another big story today is the rising concerns over Greece potentially defaulting on its debt. I discussed this in yesterday's intraday update. If Greece defaults it could spark a domino effect leading countries like Ireland, Italy, Spain and Portugal to default. The euro has been plummeting on these concerns and the dollar is breaking out through some key resistance levels. This dollar strength is also weighing on commodities, which were already weak due to the China news. European markets were down across the board. The French CAC-40 and the German DAX both lost 2.0%. The English FTSE closed down 1.6%.
We did have some economic data that was buried under the avalanche of earnings news and the China story. The Labor Department said wholesale prices (PPI report) rose 0.2% due to a rise in food prices. Excluding the more volatile food and energy the core PPI was unchanged, which matched expectations. The Commerce Department said building permits shot higher while housing starts actually stumbled. Economists were expecting permits to fall to 580,000 and housing starts to fall to 572,000. The government's report this morning showed an 11% jump in permits to an annual pace of 653,000 and a 4% decline in housing starts to a 557,000 pace. The rise in building permits is the highest level since October 2008, which is somewhat surprising since yesterday the homebuilder confidence index ticked lower.
There was a wave of earnings news. You've probably heard about IBM's earnings report last night. IBM beat earnings estimates and the revenues estimates and gave a positive outlook and yet the stock is down 3.2% as investors sell the news. In the banking sector we had several companies report. Bank of America (BAC), the biggest U.S. bank by assets, reported a loss of 60 cents a share, which was worse than analysts' estimates for a loss of 52 cents. Some of BAC's loan loss reserves are actually starting to tick lower, which is a good sign. Shares of BAC are up about 0.5% in what seems to be a relief rally that the quarter wasn't worse.
Morgan Stanley (MS), one of the world's biggest brokerage firms, is down 1.3% on a disappointing report. Wall Street expected a profit of 42 cents per share. MS delivered a profit of only 14 cents. Revenues were $6.84 billion versus estimates at $7.81 billion. Wells Fargo (WFC), the fourth-largest U.S. bank, delivered a profit of 8 cents per shares versus estimates for a loss of 1 cent. Shares are down slightly (less than 1%). U.S. Bancorp (USB) reported earnings of 30 cents per share compared to estimates at 29 cents. Revenues were better than expected at $4.38 billion versus $4.28 billion.
Tomorrow we'll get earnings reports from American Express (AXP), Goldman Sachs (GS), and Google (GOOG).
Currently the market is hovering near its lows for the day. The selling has stalled at the bottom of the recent trading range for the S&P 500, the NASDAQ composite, and the Russell 2000 index. The transports are trying to bounce from their 50-dma. While the SOX semiconductor index isn't moving much at all. Some of the worst performers are miners (-4%), casinos (-3.1%), railroads (-3.0%), oil services (-2.6%), and healthcare (-2.3%). Crude oil futures are down 2.2% near $77.25 a barrel. Gold futures are plunging on the dollar strength with a $28 decline to $1,111 an ounce.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
With widespread declines in the market it's not surprising to see similar moves on our play list. AAPL is down 1.9%. ESRX is down 3.2% and testing its 50-dma. Unfortunately the intraday low in ESRX hit our stop loss. FUQI is breaking support and has hit our stop loss. LLL is breaking short-term support and hit our stop loss. UNH gapped open and hit our final target to exit at $36.00 this morning. YZC is plunging with the mining stocks down 4.7% and getting close to our stop loss. Oddly enough IOC is ignoring weakness in the oil sector and shooting higher with an 8% gain on a big analyst upgrade and a price target of $165. IOC has hit our stop loss.