Contact Form

Name

Email *

Message *

Friday, August 1, 2014

Is Yesterday's Selloff A Start Of A Decline Or A Respite Before Market Climbs Again?

Dow Average Erases 2014 Gain Amid Global Selloff as Exxon Slumps

Thursday, 31 Jul 2014 08:32 PM

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
U.S. stocks joined a global selloff, erasing the year’s gains in the Dow Jones Industrial Average, as Exxon Mobil Corp. to Micron Technology Inc. tumbled amid weaker corporate results.
Exxon and Murphy Oil Corp. dropped amid concern over output. Micron slid 6.1 percent after earnings from Samsung Electronics Co., the world’s biggest smartphone maker, trailed estimates. Nike Inc. declined 3.1 percent as its European rival Adidas AG slashed its full-year forecast. Sprint Corp. tumbled 5.3 percent, leading losses among phone stocks as France’s Iliad SA offered to buy a stake in T-Mobile US Inc.
The Dow fell 317.06 points, or 1.9 percent, to 16,563.30 at 4 p.m. in New York, for the largest one-day retreat since Feb. 3. The Standard & Poor’s 500 Index slid 2 percent, the most since April 10, to 1,930.67. The gauge dropped 1.5 percent in July, its first monthly decline since January. The Nasdaq 100 Index lost 2.1 percent. The MSCI All-Country World Index tumbled 1.5 percent for its worst loss in almost six months.

“The Fed is stepping out of the way and the market’s valuation is high enough that people are quick to take profit,” Wayne Wilbanks, who oversees $2.5 billion as chief investment officer at Wilbanks, Smith & Thomas Asset Management LLC in Norfolk, Virginia, said in a phone interview. “You are going to get more days like today, where investors are more trigger happy, quicker to liquidate. Everybody knows a correction is coming and it will come.”
The S&P 500, which is up 4.5 percent this year and reached a record on July 24, has gone without a 10 percent correction since 2011. It trades at 17.6 times the reported earnings of its companies, near the highest level since 2010.
Rising Volatility
The benchmark index had climbed 0.5 percent in July through Wednesday as companies from Facebook Inc. to Chipotle Mexican Grill Inc. reported a surge in profit, while Time Warner Inc. rallied as Rupert Murdoch’s 21st Century Fox Inc. made a takeover offer.
Market volatility is rising after the S&P 500 ended its longest stretch of calm since 1995. Including Thursday, the index has posted gains or losses of more than 1 percent three times in the past two weeks, compared with none during the 62 days through July 16, data compiled by Bloomberg show.
The Chicago Board Options Exchange Volatility Index, known as the VIX, surged 27 percent  to 16.95, the highest level since April 11.
The S&P 500 closed below its average price over the past 50 days for the first time since April. More than 7.9 billion shares changed hands on U.S. exchanges, the highest level since June 27.
Global Earnings
Fifty S&P 500 companies report quarterly earnings. About 76 percent of those that have released results this seasons have topped analysts’ estimates for profit, while 66 percent have exceeded sales projections.
Global equities fell amid weaker-than-projected earning from Europe and Asia. Deutsche Lufthansa SA and Adidas were among European companies sliding as they cited unrest between Russia and Ukraine for dimming growth prospects.
Banco Espirito Santo SA plunged by the most on record and the bonds slumped after the Portuguese lender was ordered to raise capital following a 3.6 billion euro ($4.8 billion) first- half net loss.
“Maybe the market is getting a little bit tired here,” David Chalupnik, the head of equities at Nuveen Asset Management in Minneapolis, said by phone. His firm runs about $120 billion. “It’s more concern around Europe. We’ve had an extremely easy monetary environment for the past six years. When that changes, it’s going to cause a lot of anxiety.”
Fed Decision
Concern grew that the improving economy may force the Federal Reserve to raise interest rates sooner than expected.
U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the central bank’s view that a first-quarter contraction was transitory. Data showed fewer Americans filed applications for unemployment insurance benefits over the past month than at any time in more than eight years, signaling employers are hanging on to workers as demand improves.
“The Fed may have to change course sooner than expected if reports continue to show the economy is gaining some strength,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview.
The Fed cut its monthly bond buying to $25 billion in its sixth consecutive $10 billion reduction. The Fed’s Open Market Committee reiterated that it’s likely to reduce bond buying in “further measured steps” and to keep interest rates low for a “considerable time” after ending purchases.
Argentina Debt
The central bank said slack in the labor market persists even though the economy is picking up. Data from Washington on Friday may show companies added 231,000 jobs this month, according to the median economist estimate.
Investors also watched developments in Latin America. Argentina missed a deadline to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn’t be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed. Standard & Poor’s said Argentina is in default.
“When events like this happen, investors try to figure out whether this is an isolated occurrence or the first domino in a chain,” Lawrence Creatura, who helps oversee $350 billion as a fund manager at Pittsburgh-based Federated Investors Inc., said in a phone interview. “In the early moments there is always a bit of uncertainty as to which we have on our hands.”
Broad Decline
All 10 S&P 500 main industries declined as energy, financial, phone and health-care companies fell at least 2 percent. Exxon, Nike and American Express Co. led declines in the Dow, slumping more than 3.1 percent.
Smaller companies tumbled as the Russell 2000 Index sank 2.3 percent. The measure has dropped 3.9 percent since July 14, one day before the Fed said in its Monetary Policy Report that valuations for smaller biotechnology and social media stocks are stretched.
The Dow Jones Internet Composite Index declined 2.3 percent, with TripAdvisor Inc. falling 5.2 percent. The Nasdaq Biotechnology Index plunged 2.6 percent.
Exxon Drops
Exxon tumbled 4.2 percent for the largest drop since August 2011. Oil and gas output dropped 5.7 percent to the equivalent of 3.84 million barrels of crude a day, the lowest since the third quarter of 2009, according to data compiled by Bloomberg. Exxon had been expected to post daily output equivalent to 3.96 million barrels, based on the average of six analysts’ estimates.
Murphy Oil dropped 6.9 percent. The oil and natural gas company lowered its full-year production forecast as second- quarter earnings trailed analysts’ estimates.
Micron Technology, the largest U.S. maker of memory chips, slumped 6.1 percent. The shares have rallied 40 percent this year. Samsung sank 3.7 percent in Seoul as it posted the lowest quarterly profit since it became the largest mobile-phone producer in 2012.
Kraft Foods Group Inc. lost 6.4 percent after reporting second-quarter sales of $4.75 billion, missing the average analyst projection of $4.83 billion.
Yum! Brands Inc. slid 4.9 percent. The owner of Pizza Hut and KFC said it cut ties with meat supplier OSI Group LLC globally after previously saying it would stop using it China, Australia and the U.S.
Bidding War
Sprint lost 5.3 percent while T-Mobile rallied 6.5 percent amid the prospects of a bidding war. Iliad, the French mobile- phone carrier founded by billionaire Xavier Niel, offered $15 billion in cash for a 56.6 percent stake in T-Mobile to enter the American wireless market.
A bid for T-Mobile would compete with SoftBank Corp. Chairman Masayoshi Son’s planned takeover offer. Son, whose company controls U.S. wireless carrier Sprint, had been planning to acquire T-Mobile for about $40 a share in stock and cash, the equivalent of about $32 billion, people with knowledge of the matter said earlier this month.
 

© Copyright 2014 Bloomberg News. All rights reserved.


No comments:

Post a Comment

Thanks for commenting. Your comments are needed for helping to improve the discussion.