Thursday was another rough day for stocks as a rise in jobless claims extended the S&P 500's losing streak to three days, good for the index's worst three-day run since early July. The index slipped almost six points to close just below 1084 while the Dow Jones Industrial Average gave up almost 59 points to continue three days of its own losses and settle around 10,320. Cisco (CSCO) predictably hampered the Nasdaq as the tech-laden index tumbled 18 points to close below 2200 at 2190. Small-caps were in the red as well with the Russell 2000 losing 3.4 points to settle just under 617.
For the week ended August 7, initial jobless claims rose by 2000 to 484,000, the highest level since February, according to the Labor Department. Economists were actually forecasting a decline in initial claims and the pop in new claims is just fuel on the fire for those that believe the economic recovery is losing steam in a big way. The median forecast of 42 economists in a Bloomberg survey called for a drop in jobless claims to 465,000 and the Labor Department revised last week's number up to 482,000 from 479,000.
Making matters worse was a sharp increase in the number of folks receiving supplemental unemployment benefits. That number jumped to 1.34 million thanks in part to Congress extending unemployment eligibility. Predictably, none of this is good news of stocks. I found an interesting chart on Seeking Alpha that highlights the correlation between jobless claims and the performance of the S&P 500.
Jobless Claims vs. S&P 500
The Federal Reserve's comments earlier this week that we should brace for slower economic growth, a decline in Chinese imports, disappointing action in equities and today's jobless claims news makes for a toxic combination of factors unless you happen to be long gold. The yellow metal's safe haven status has apparently been restored as gold rallied to its best one-day performance in two months today.
For the day, COMEX gold for December delivery was up $17.50, or 1.5%, to $1216.70 an ounce, but the bulk of those gains were seen in the moments immediately following release of the jobless claims data. Gold surged $10 an ounce following that release. Analysts said today's close above $1214.30, critical resistance and the 50-day moving average, is a bullish sign. Despite a nasty tumble from the June highs, gold is still up 11% year-to-date.
No surprise here: Tech stocks were the biggest losers among the 10 industry groups in the S&P 500. Cisco, the largest maker of networking gear, got that ball rolling Wednesday after the close with an earnings report that was obviously disappointing. Making matters worse, the company said it expects revenue in the current quarter to come in as low as $10.64 billion while analysts had been forecasting $10.95 billion.
To top all of that off, Cisco CEO John Chambers, a man whose every word tech investors hang on every quarter, was less than cheery in his outlook for the economy. While Chambers did say Cisco did some hiring last quarter and expects to continue doing so, he added that his company is seeing ''unusual uncertainty'' and ''mixed signals'' about the strength of the economy.
Oppenheimer & Co. cut its rating on Cisco to ''perform'' from ''outperform,'' helping the shares lose almost 10% on the day. Cisco traded as low as $21 today, just 32 cents away from the 52-week low. Rival Juniper Networks (JNPR) tumbled almost 7% and JDS Uniphase was skewered to the tune of almost 6%.
The retail sector was also done in by the slack economic data and some troubling profit reports of its own. Proving that the stock market really is a game of not what did you for me yesterday, but what will you do for me tomorrow, we have Kohl's (KSS). The Wisconsin-based retailer that is more along the lines of a Target (TGT) than a Nordstrom (JWN) said its second-quarter profit rose 14% to $260 million, or 84 cents a share, from $229 million, or 75 cents a share, a year earlier. Analysts had been expecting a profit of 82 cents a share.
Unfortunately, Kohl's committed the big no-no in this market environment and that is to cut its full-year outlook. Kohl's pared the high end of its annual outlook because of sluggish sales growth and the uncertain economy. The company is now forecasting 2010 profit of $3.57 to $3.70 a share compared with previous guidance of $3.57 to $3.75 a share. Analysts were expecting $3.76 a share. The news sent Kohl's shares lower by $1.28, or almost 3%, to close at $46.50, but the stock traded as low as $45.57, just 28 cents off the 52-week low. Volume was more than triple the daily average.
You might be wondering why I brought up Nordstrom in comparison to Kohl's. Here's why: The Seattle-based luxury department store operator delivered second-quarter results after the market closed today and said profit jumped 39% to $146 million, or 66 cents a share, from $105 million, or 48 cents a share, a year earlier. Revenue surged 13% to $2.5 billion. Those numbers were basically in line with Wall Street estimates and that is not going to be enough to excite investors in this environment.
Nordstrom did not do itself or its shareholders any favors by maintaining full-year guidance of $2.50 to $2.65 a share. Analysts are forecasting a profit of $2.62 a share. Reading between the lines here, it is reasonable to surmise that if Nordstrom is not boosting its outlook, then even the most affluent consumers are either tightening their own purse strings, feeling the pinch of the lethargic economy along with the rest of us or both. Nordstrom shares are down $1.45, or 4.34%, to $31.99 in the after-hours session.
Highlighting the fact that even the bluest of the blue chips are not safe places to hide these days, industrials slipped 0.8% as a group, good for the second-biggest loss in the S&P 500 behind technology issues. Aerospace giant Boeing (BA) lost just over 1% and has slid 4% in the past week, that is worse than the S&P 500's 3% swan dive.
Mr. Market has been even less kind to another Dow component, Caterpillar (CAT), the world's largest maker of mining and construction equipment. The shares were off nearly 2% today and have shed 5% in the past week. Caterpillar announced that it is building a new plant in Texas today and on a day when the employment picture, or lack thereof, continued to hamper stocks, this should have been good news.
Caterpillar did not say how many jobs it would create, but the facility is going to be 600,000 square feet and will take until mid-2012 to complete, so it is reasonable to assume a decent amount of new jobs will be needed to build the plant and then operate it once it is ready for production. In addition, Caterpillar said it would double the number of workers in the U.S. building excavators, but even that was not enough to salvage a winning day for a stock that now has an ugly chart.
I am reluctant to call any major U.S. bank not named Goldman Sachs (GS) a blue chip name, but if nothing else, Bank of America (BAC) is the largest U.S. lender by assets, a Dow component and one of the most widely held stocks out there. I bring up Bank of America because there has been plenty of chatter from various pundits lately about the fact that financials have been conspicuously absent from the most recent rally.
Bank of America is the poster child for that thesis. A flatter yield curve is becoming an issue for banks as yields for short- and long-term Treasuries drifter closer to each other. That is bad news for bank profits and their stocks. Bank of America touched another 52-week low today and the shares have shed 7% in the past week.
Taking a look at the charts, support at 1100 for the S&P 500 did not hold today and I would point to old support at 1085 as the next support level, but sell-off helped the index violate that area as well. That brings 1060 back into play. On the upside, the S&P 500 will now have to make its way back above 1100 before dealing with the 1125 area again.
S&P 500 Chart
The Dow is having similar issues. The 200-day moving average didn't act as support yesterday and the Dow came within just three points touching the 50-day line today. Support was supposed to be 10,500, but that did not hold. I am not a big fan of relying on a collection of just 30 stocks for trading indicators, but with the Dow below 10,500, a return to the 10,100 neighborhood is not out of the realm of possibilty.
Tech's historical weakness in August has been widely documented, so the Nasdaq's bearish ways are not altogether surprising, but there is something to worry about. The period Cisco delivered earnings for yesterday is usually the company's BEST quarter. The quarter the company is now in is usually the WORST. Support for the Nasdaq did not hold at 2200 and a break of 2100 could take the Nasdaq back to the 2065 area.
Simply put, this is a challenging time for small-caps and the Russell 2000 reflects that sentiment. The index has plunged through the 200-day moving average around 640 and with a pattern of lower highs evident, it might be best just to take a pass on small-caps at this juncture.
I understand the urge to be involved in the market, but if you are shopping for stocks in the next few days, window shopping may be the way to go because August is only half over. Better prices could and probably should become available before Labor Day. Do not buy just for the sake of buying.