It turned out to be a nasty day in U.S. stock markets on Thursday, but no one expected it to be this nasty.
Acombination of bad data from the retail sector combined with two disappointing reports related to the labor markets helped push stocks down near their lows of the year. The S&P 500 and Dow fell through some key technical boundaries, which indicated that the near future direction of the market is most likely solidly downward.
Today’s Market
At the 4 p.m. market close in NewYork, the Dow Jones Industrial Average plunged 344.65 points, or 3%, to 11188.23. The broader S&P 500 Index dropped 38.14 points, or 3% as well, to 1236.84, while the Nasdaq Composite dropped 74.69 points, or 3.2%, to 2259.04. The consumer-friendly Fox 50 fell 25.55 points, or 2.79%, to 891.14.
While there were significant losses mostly across the board, some of the bigger Dow components dragging on the market were Caterpillar (CAT), American International Group (AIG), American Express (AXP) and General Motors (GM), which were all down more than 5% each.
The only positive ray of light in the Dow were shares of Coca-Cola (KO), which rose a measly 0.1% today.
Alarger cause for the concern was the volume of Thursday's sell off. After being quite for most of the summer, the New York Stock Exchange saw quite-active 1.2 billion share change hands, which gives the indication that a 350-point drop is more Wall Street sentiment than low-volume summer volatility.
Treasury bond prices were moderately higher as investors moved their money out of commodities and stocks and into the relative safety of government bonds. The 10-year note yield fell to 3.643%. Treasury yields move opposite of bond prices.
While the market was down all day, but the downward momentum really started around 10:30 a.m. after the S&P 500 and Dow moved below key technical resistance levels.
"(The selloff started) this morning with jobless and retail sales, and just continued since then," said Jonathan Corpina, with Meridian Equity Partners, in an interview on FOXBusiness. "There’s nothing short term that would provide any positive catalyst to the market today."
Traders said the market's floor for months had been around a reading of 1260 on the S&P 500. Once the market moved below that level, trading programs kicked in and the market then moved even lower.
"It's a level that everyone was keying on," said Richard Sparks with Schaeffer's Investment Research, a firm that specializes in the technical phenomena of the markets. "Once that was broken, you got that sudden plunge. A lot of program trading was probably set at 1260 to automatically exit the market. This is an event in itself, on top of the economic news."
The Dow is now down 15% year to date, while the S&P 500 is down 15.5% in the same time period.
The next key level for the S&P is not as clear, Sparks said. The reason why the 1260 level was so important is because it was the level markets tested when then-suffering Bear Stearns collapsed in mid-March. The market has been lower than 1260 however.The S&P's all-time low for the year is in the 1210 range when U.S. financial markets briefly panicked on concerns about Fannie Mae (FNM) and Freddie Mac (FRE).
Not all momentum in the markets was related to technical moves in the market. The early impetus was related to two reports that showed continuing weakness in the jobs markets.
The U.S. Labor Department said weekly jobless claims rose by 15,000 to 444,000 last week, slightly higher than the 5,000 rise expected by economists. Another report by Macroeconomic Advisors said that showed that the private sector lost 33,000 jobs in August. Economists interviewed by Thomson Reuters expected the ADP report to show a loss of 19,000 jobs.
Both of these reports lead up to Friday's more-important U.S. Labor Department's jobs report. That report, issued tomorrow at 8:30 a.m., has the tendency to set the theme for the entire month's trading.
Retailers
The retail sector reported its August same-store sales, a key indicator for that industry, throughout Thursday morning. Once again, the discount retailers were the only bright spot in this slumping sector, as consumers turned to Wal-Mart and Target (TGT) to save money in the face of rising gas prices and a hurting economy. Both stocks were up in early market action.
But overall, the numbers showed that consumers were cutting back across the board. According a survey of retailers by Thomson Reuters, 14 of the retailers missed their same-store expectations, while 12 merchants beat estimates.
Wal-Mart, the world's biggest retailer, said August same-store sales were up 3%. That was more than double the estimate expected by industry analysts. Rival Target reported a 2.1% drop in August same-store sales.
The teen retailers Abercrombie & Fitch (ANF), Pacific Sunwear (PSUN), American Eagle Outfitters (AEO) and Hot Topic (HOTT) all reported drops in same-store sales from a year ago, btu the declines were less severe than expected.
Commodities
Commodities, which were a place for safety for most of Wall Street this year, weren't much help either in Thursday's trading. Crude fell $1.59 to $107.76 a barrel in New York. In the metals markets, gold reversed earlier gains and was now down $6.90 to $801.20 an ounce.
The U.S. Energy Department reported its weekly data on stockpiles, showing that crude inventories fell by 1.9 million barrels, though they were expected to rise. Gasoline stockpiles were down as well, but they were actually down less than expected. It's the first report after Hurricane Gustav hit the Gulf Coast, but the report is not expected to take that into calculation until next week.
Company News
American International Group (AIG) is considering creating a separate company to hold onto the firms more toxic assets as a way to offload the company's balance sheet, according to a report in The NewYork Post. A company spokesman said the article was "pure speculation" and that the company would announce any major changes to the company's portfolio on Sept. 25.
Insurance company Allstate (ALL) said it was still too early to estimate insured losses as a result of Hurricane Gustav, but it looked like the storm was "less severe" than originally thought, said Allstate Chairman and Chief Executive Officer Thomas Wilson, according to Dow Jones Newswires.
Boeing Co.'s (BA) labor union has voted to strike, but the union will postpone a walkout for 48 hours after federal mediators stepped in to see if a last-minute compromise can be reached between the two parties.
Luxury home builder Toll Brothers (TOL) reported a third-quarter profit of 35 cents a share, excluding one-time items. However, the homebuilder warned that the rising amounts of foreclosures are creating "low-priced competition" in certain geographic parts of the company's business.
Global Markets
The Dow Jones Euro Stoxx 50 Index, which tracks the 50 largest companies in Europe, was down 6.11 points, or 0.11%, to 3362.86.In the individual European markets, the London exchange was up moderately while the Germany and France markets traded downward by nearly 0.5%.
Both the European Central Bank and Bank of England voted to keep their respective interest rates the same. The decisions were widely expected by European investors.
In Asia, Japan's Nikkei 225 Index fell $131.93 points, or 1.04%, to 12557.66 while Hong Kong's Hang Seng dropped 195.58 points, or 0.95%, to 20389.48.
Data Dump
U.S. business productivity jumped at a 4.3% annual rate in the second quarter the Labor Department said Thursday. That was more than double the initial estimate of 2.2% growth.
The Institute for Supply Management said its service-sector index came in at a reading of 50.6 for the month of August up from from July's reading of 49.5. Economists had expected a reading of 49.5 for August, according to Thomson Reuters. A reading above 50 signals expansion in the sector.
