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Worries about the strength of the economic recovery continued to rattle the markets on Wednesday as the S&P 500 suffered its fourth-straight selloff amid a surprise drop in new home sales, crumbling commodities and several disappointing earnings reports.
Today's Markets
The Dow Jones Industrial Average fell 119.48 points, or 1.21%, to 9762.69, the S&P 500 fell 20.78 points, or 1.95%, to 1042.63 and the Nasdaq Composite sank 56.48 points, or 2.67%, to 2059.61.The consumer-friendly FOX 50 sank lost 10.33 points, or 1.32%, to 770.21.
Wednesday's slide, which was led by heavy losses for the Nasdaq Composite, makes this pullback one of the deepest since stocks began their six-month surge off the March lows. Up until this point, the markets faced little resistance as the bears were cast aside by signs the economy had emerged from the recession, forcing traders to boost stock valuations.
“We’ve been talking about some sort of pullback for three months. I think its’ probably overdue and a healthy thing. We’ll just find out if this pullback causes buyers to come into the market or causes more sellers,” said Art Hogan, chief market strategist at Jefferies & Co.
In addition to reports that showed durable goods orders grew by less than anticipated and new home sales fell for the first time in six months, the markets were hit by the dollar, which rallied for the fourth day in a row and helped send crude oil to two-week lows and basic material stocks sharply lower.
“I think the market basically is going to go through a broader correction period here. I’m not sure I’d say that the high is in for the year but the next few weeks are going to be under a lot of pressure,” said Nick Kalivas, vice president of financial research at MF Global. “We probably have to get some sort of a renewed idea that the economy is accelerating to bring people back in at this level.”
After not having consecutive triple-digit selloffs for four months, the Dow has now closed down more than 100 points three of the last four days. It was led down on Wednesday by economically-sensitive stocks Alcoa (AA), General Electric (GE) and Caterpillar (CAT).
The Nasdaq Composite, which is now down 2.96% in October, saw twice as much selling as the Dow on a series of negative developments. Global business software leader SAP (SAP) sank almost 10% after slashing its full-year revenue outlook and reporting disappointing results, GPS device maker Garmin (GRMN) plunged 16% on new competition from Google (GOOG) and education company Apollo Group (APOL) disclosed that it is the subject of a Securities and Exchange Commission inquiry.
“I think our markets are very confused at this point. We’re getting conflicting data and conflicting sentiment from investors,” Jonathan Corpina, senior managing partner at Meridian Equity Partners, told FOX Business.
Weak Dollar, Data Hit Stocks
As has been the case during this entire pullback, the markets were hurt by the dollar, which continued to strengthen against the euro, closing higher for the fourth day in a row after weeks of steep declines. While a stronger dollar is likely a long-term plus for the economy, in the short term it puts pressure on commodities and equities by making U.S. goods more expensive overseas.
Reflecting the currency action, the energy sector was the biggest percentage decliner on Wall Street as stocks like Schlumberger (SLB) and XTO Energy (XTO) closed lower as crude oil fell below $78 a barrel. Oil was also hit by an unexpected 1.6 million barrel increase in gasoline stockpiles. Suffering its worst day in a month, crude fell $2.09 a barrel, or 2.63%, to $77.46. Gold fell for the fifth-consecutive day, losing $4.80 an ounce, or 0.46%, to settle at $1029.90 -- a new three-week low.
The basic materials sector slumped nearly 3.1% as steel stocks U.S. Steel (X) and AK Steel (AKS) were dragged lower by the dollar and ArcelorMittal (MT), which missed estimates with a profit of $1.59 billion
Wall Street's economic worries were bolstered after the Commerce Department said new home sales fell 3.6% to a rate of 402,000 last month, widely missing forecasts for a rise of 2.6% and breaking a five-month streak of increases. Shares of home builders like Lennar (LEN) and Toll Brothers (TOL) fell sharply on the disappointing data.
Goldman Sachs added to the economic gloom as the investment bank's economists downgraded its third-quarter gross domestic product forecast to 2.7% from 3%. Most economists expect the government to say on Thursday GDP rose 3.3%.
Also, the Commerce Department said durable goods orders rose 1% in September, missing analysts’ projections for a rise of 1.5%. However, excluding transportation, durable goods orders rose 0.9% last month, topping consensus forecasts.
Underscoring the skepticism on Wall Street, a number of companies saw their shares fall even after reporting better-than-expected quarterly reports, including health-care giant WellPoint (WLP), oil and gas company Hess (HES), ConocoPhillips (COP) and Goodyear (GT).
Corporate Movers
GMAC Financial Services (GMA) is in advanced talks with the U.S. to receive its third capital injection to help fill a large hole in the balance sheet of the General Motors’ finance arm, The Wall Street Journal reported. The U.S. is expected to provide between $2.8 billion and $5.6 billion in fresh capital to GMAC, most likely through the form of preferred stock, the Journal reported.
CIT Group’s (CIT) shares spiked 10.4% after the struggling commercial lender said it has secured a $4.5 billion credit facility from a group of lenders that includes some bondholders. The funds add to a $3 billion loan secured in June and come as it attempts to convince bondholders to accept a debt exchange.
WellPoint’s (WLP) net income sank 11% last quarter but the largest U.S. health provider’s non-GAAP EPS of $1.78 exceeded estimates. The Blue Cross/Blue Shield health-care provider’s revenue fell 0.7% to $15.21 billion, beating estimates.
Garmin (GRMN) plunged more than 15% as the GPS device maker was slammed by cautious comments from rival TomTom and a new Google (GOOG) powered phone that will feature a turn-by-turn voice guided GPS program.
ConocoPhillips (COP) disclosed a 71% dive in third-quarter net income but topped estimates with EPS of $1 per share. Analysts had forecasted EPS of just 94 cents. Conoco also announced a 6% increase in its quarterly dividend to 50 cents per share.
Hess (HESS) beat the Street with third-quarter non-GAAP earnings per share of 74 cents. However, the oil and gas giant’s revenue slumped by a worse-than-expected 36% to$7.27 billion, missing consensus forecasts for $7.52 billion.
Goodyear Tire & Rubber (GT) doubled its third-quarter net income from a year ago and posted better-than-expected adjusted-earnings of 45 cents per share. The tiremaker’s revenue sank by 15% from a year ago to $4.4 billion but topped estimates. Goodyear's shares plunged on a cautious outlook and disappointing results for its North American unit.
Qwest Communication (Q) beat the Street with EPS of 8 cents per share and lifted its full-year earnings guidance. However, the telephone operator’s revenue sank 9.6% to $3.05 billion, narrowly missing estimates.
Lazard (LAZ) swung to a better-than-expected third-quarter profit of 41 cents per share. The investment bank’s revenue climbed 1.5% to $411.7 million, narrowly beating expectations.
International Paper (IP) more than doubled its net income during the third quarter on a one-time tax gain and reported better-than-expected non-GAAP earnings. The paper and packaging company’s revenue fell 13% to a mostly in-line $5.9 billion.
Owens Corning (OC) swung to a third-quarter profit and easily beat the Street with non-GAAP EPS of 61 cents. The maker of insulation and other building products said its revenue fell 17% to a better-than-expected $1.4 billion.
General Dynamics (GD) saw its net income sink 9.8% last quarter but the defense contractor’s EPS of $1.48 beat the Street. General Dynamics also liftedits 2009 earnings forecast.
Global Markets
Asian markets closed mixed overnight as Tokyo's Nikkei 225 dropped 1.35% overnight to 10,075.05 and Hong Kong's Hang Seng fell 1.84% to 21,761.58 but China's Shanghai Composite rose 0.33% to 3031.33.
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