Wall Street suffered its steepest selloff in three weeks on Thursday as the long-awaited pullback from the recent hot streak finally materialized despite new cause for economic optimism.
Today's Markets
The Dow Jones Industrial Average sank 102.43 points, or 1.20%, to 8409.85, the S&P 500 tumbled 12.14 points, or 1.32%, to 907.39 and the Nasdaq Composite lost 42.86 points, or 2.44%, to 1716.24. The consumer-friendly FOX 50 fell 6.51 points, or 0.97%, to 667.69.
“It just looks like we got a little too overcooked on the upside. So I guess now it’s giveback time,” NYSE trader Ted Weisberg of Seaport Securities told FOX Business. “This will be the real test for the market. We’ll find out if the market has any legs.”
Thursday's selloff appeared to be unprovoked for the most part, though some said weak demand in a 30-year auction helped fan fears of higher interest rates. The losses came in the face of a series of positive developments, including more clarity on bank stress tests, the lowest level for initial unemployment claims since late January, a surprise jump in April retail sales and positive comments from John Chambers, CEO of tech bellwether Cisco (CSCO).
“The bloom is off the rose. We’re finally seeing a little bit of traction on the sell side,” said Peter Kenny, managing director of Knight Capital Group. “What’s leading us lower is the financials and a dose of reality.”
Most of the Dow's 30 components tumbled, led by steep declines for Alcoa (AA) and JPMorgan Chase (JPM). On the upside, the index closed off its lows and financials Bank of America (BAC) and General Electric (GE) posted solid gains.
The Nasdaq Composite suffered much steeper losses than the broader markets as tech stocks like Dell (DELL) and Nvidia (NVDA) took big hits despite Chambers saying sales have stabilized and the decline in corporate spending may have leveled off.
'Healthy' Pullback
Analysts said they weren't at all surprised by the triple-digit tumble as signs of hope for banks and the broader economy had sent the benchmark index more than 30% above its March lows. On the contrary, they said it was both necessary and healthy for the markets to retrace one of the biggest rallies from a bear-market low on record.
“We’ve all been looking for a pullback now for 10 to 15 days for health reasons,” said Frank Davis, director of sales and trading at LEK Securities, adding that it was unreasonable for the markets to keep going straight up given economic obstacles. “We still have a tough sled ahead. We have a lot of bad things ahead but people are doing an amazing job of ignoring them.”
The bulls were skeptical that the pullback will last for very long despite those obstacles.
“There is a ton of money on the sidelines. There are a lot of people who have missed this 2,000-point move. They have their finger on the trigger,” said Weisberg.
Stocks hit session lows after weak demand for a $14 billion 30-year Treasury auction spooked Wall Street, sending the yield on 30-year Treasury notes to the highest level since November.
Test Day
After an initial rally, financial stocks closed lower almost 3% ahead of the release of the government's bank stress tests, which have been viewed as a positive by Wall Street. Even though leaked results have shown significant shortfalls for several banks like Bank of America and Wells Fargo (WFC), the markets have cheered the fact the tests have shed light on a previously murky area of the economy.
"The big day is finally here and yet it seems a bit anticlimactic," Dan Greenhaus, equity analyst at Miller Tabak, wrote in a note."As of now, we know the capital needs, or lack thereof, for the majority of the 19 banks that have been stress tested and as always, the question becomes 'what now?'"
Markets Shrug Off 'Less Bad' Data
Stocks failed to rally around the latest evidence that the recession may have stopped getting worse. The Labor Department said initial jobless claims unexpectedly fell last week by 34,000 to 601,000 -- the lowest level since Jan. 24. However continuing claims, which are filed by those on unemployment for more than a week, rose by 56,000to a new record of 6.26 million.
The big focus now shifts to Friday’s all-important monthly employment report, which is expected to show the U.S. lost 628,000 jobs in April.
The markets also shrugged off a slew of better-than-expected retail sales reports from companies like Wal-Mart (WMT), Aeropostale (ARO), Buckle (BKE) and Children’s Place (PLCE). Of the 31 retailers reporting results, 64% exceeded Wall Street’s low expectations and sales overall unexpectedly rose slightly from a year ago.
In a fresh sign of the trouble facing the U.S. auto industry, GM said it burned through $10.2 billion in the first quarter as its revenue plummeted 47% amid the deteriorating auto market. GM, which has until the end of the month to avoid a bankruptcy filing, lost $9.66 per share excluding items, within the range of expectations.
Energy stocks gave back some of Wednesday's gains as crude oil prices swung wildly. After soaring more than 3% to fresh 2009 highs, crude settled just slightly higher at $56.71 a barrel, up 37 cents on the day.
Corporate Movers
Chrysler LLC CEO Bob Nardelli told employees “it is crucial” the bankrupt auto maker’s alliance with Fiat be completed “in a timely manner” otherwise government funds and union agreements may be lost. According to AFP, Fiat CEO Sergio Marchionne will head up Chrysler after its alliance with Fiat is completed.
Microsoft (MSFT) CEO Steve Ballmer said he sees a chance to create a “better search product” with Yahoo! (YHOO) but wouldn’t say if the two tech giants are once again in talks. The comments come days after media reports indicated a search deal is in the works.
News Corp (NWSA) posted a 47% decline in quarterly profit late Wednesday amid falling ad revenue. While the parent of FOX Business and The Wall Street Journal reported a worse-than-expected revenue slide of 15.7%, CEO Rupert Murdoch said “it’s increasingly clear that the worst is over.”
Barclays (BCS) reported a 15% jump in quarterly profit thanks to investment banking growth. However, the Britain’s third-largest bank said impairment losses soared 79%.
Target (TGT)said it expects its quarterly earnings to be "well above" the Street’s current view of 52 cents per share. Target also said April same-store sales rose 0.3%, slightly less than expected.
Abercrombie & Fitch (ANF) said April same-store sales tumbled 22%, exceeding estimates of a 28% decline.
DuPont (DD) said it plans to cut another 2,000 jobs as part of a restructuring plan it already unveiled in April.
American Eagle Outfitters (ARO) posted a better-than-expected 5% decline in April same-store sales.
Limited Brands (LTD) disclosed a slightly worse-than-expected 6% slide in April comparable sales.
World Markets
A rally in European markets faded as stocks failed to rally around an interest rate cut from the European Central Bank. In London, the FTSE 100 rose 0.05% to 4398.68 while France's CAC 40 sank 0.97% to 3251.52 and Germany's DAX tumbled 1.57% to 4804.10.
In Asia, Japan's Nikkei 225 soared 4.55% to 9385.70 after returning from a holiday. Hong Kong's Hang Seng rallied 2.28% to 17217.89 while China's Shanghai Composite gained 0.19% to 2597.45.
