Dow Hits Lowest Level Since July as Fed, China Fears Weigh; Financials Lag
October 13, 2016 | Category: Money and Credit
| Author: CNBC
U.S. stocks traded sharply lower on Thursday as weak data out of China coupled with a possible Federal Reserve rate hike weighed on investor sentiment.
The Dow Jones industrial average dropped more than 150 points before holding about 140 points lower, with Goldman Sachs (GS) contributing the most losses. The index briefly broke below the 18,000 mark and hit its lowest level since July 7. The S&P 500 fell 0.7 percent after sliding more than 1 percent earlier in the session, with financials shedding more than 1.5 percent to lead decliners. The Nasdaq composite underperformed, falling 0.8 percent.
China exports tumbled 10 percent last month in dollar terms, while imports fell 1.9 percent. Asian equity markets closed mixed overnight, with mainland China's Shanghai composite ending flat and Honk Kong's Hang Seng index falling 1.61 percent.
"Weak global trade should be a surprise to no one but this certainly highlights it in bold lettering," said Peter Boockvar, chief market analyst at The Lindsey Group, in a note. "China macro has taken a back seat of late but data such as this should highlight again the mediocre state of global economic activity."
European stocks followed Hong Kong lower, with the pan-European Stoxx 600 (^STOXX) index dropping approximately 1 percent. U.S. stock futures fell sharply, with Dow futures trading more than 100 points lower, while S&P and Nasdaq futures fell 14 and 32 points, respectively.
"I think this all points to a discounting of a Fed rate hike," said said Peter Cardillo, chief market economist at First Standard Financial. He also said sovereign bond yields had been rising, along with the U.S. dollar, as the market prepared for the Fed to potentially raise interest rates later this year.
Global bond yields eased from their recent rally on Thursday. The U.S. two-year note yield fell to trade at 0.847 percent, while the benchmark 10-year yield slipped to 1.743 percent a day after hitting its highest level since early June. Ten-year German bunds also rose, pushing the yield down to 0.031 percent.
In U.S. economic news, weekly jobless claims held at a 43-year low, while import prices rose less than expected in September.
"The interesting thing about the jobless claims number is that it's more of a forward-looking mechanism than the monthly payrolls report, and it's telling us the labor market is very healthy," said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
"I think that's also helping pave the way for the Fed to raise rates, and that's getting the market a little jittery," he said.
The market is largely anticipating the Fed to raise interest rates later this year, with fed funds futures pricing in a more than 65 percent probability for a hike in December, but just 20 percent for November, according to RBS .
Investors also kept an eye on quarterly corporate reports from U.S. firms, as earnings season begins to ramp up. Before the bell, Delta Air Lines (DAL) reported mixed quarterly results, missing estimates on the top line while beating on the bottom.
"While the sample set is still very small, earnings season feels lackluster," said Art Hogan, chief market strategist at Wunderlich Securities. "Without any data other than the jobless claims [and import prices], it's hard to move the needle" for the broader market.
On Friday, financial giants JPMorgan Chase (JPM), Citigroup (NYSE:C) and Wells Fargo (WFC) will be reporting earnings. Wells Fargo announced Wednesday afternoon that John Stumpf would leave his post of CEO immediately , following Wells' cross-selling scandal.
In oil markets, U.S. crude (New York Mercantile Exchange: @CL.1) traded 0.54 percent lower at $49.99 per barrel after the Energy Information Administration said oil inventories rose by 4.9 million barrels.
The U.S. dollar fell 0.3 percent against a basket of currencies, with the euro near $1.104 and the yen around 103.5.
The Dow Jones industrial average (Dow Jones Global Indexes: .DJI) fell 142 points, or 0.79 percent, to trade at 18,001, with DuPont leading decliners and Merck and Wal-Mart the only advancers.
The S&P 500 (^GSPC) dropped 15 points, or 0.71 percent, to 2,123, with financials leading nine sectors lower and utilities and real estate the only risers.
The Nasdaq (^IXIC) shed 41 points, or 0.8 percent, to 5,197.
About three stocks declined for every advancer at the New York Stock Exchange, with an exchange volume of 270 million and a composite volume of 1.207 billion in late-morning trade.
The CBOE Volatility Index (VIX) (^VIX), widely considered the best gauge of fear in the market, traded near 17.5, up 10.31 percent.
Gold futures for December delivery (CEC:Commodities Exchange Centre: @GC.1) rose $4.60 to $1,258.4 per ounce.
Source - CNBC, Yahoo Finance