The stock market, which has been under pressure this month, and spent a topsy-turvy five-day stretch last week, really hit the panic button yesterday morning, as a confluence of factors took equities down at the open and through the first half of the day. Among the issues affecting traders were the intensifying problems on the international political and economic fronts. Specifically, there is the standoff between Turkey and Saudi Arabia, the worsening problems in Italy, and the ongoing trade dispute with China. Add in our own political uncertainty, as the midterm elections approach, and the equity market had logical reasons for its latest slump.   

Then, another key ingredient was added, namely quarterly earnings. Here, a major support for the market in recent years, strong top-and bottom-line results, was suddenly on the wane. To be sure, most companies still have been exceeding consensus forecasts. On point, the latest results show that more than 80% if the companies already posting their metrics have topped their targets. But the data also have included some notable outliers, with the latest session featuring two major industrial companies and components of the Dow Jones Industrial Average, Caterpillar(CAT – Free Caterpillar Stock Report) and 3M Company (MMM – Free 3M Stock Report), which disappointed the Street.

These two issues fell sharply during the morning, and that selling, along with the other problems outlined above, took the Dow off at one time by more than 500 points. In fact, as we passed the noon hour in New York, that blue-chip composite was off by some 450 points. Even worse performances, proportionately, were logged by the S&P 500 Index and the NASDAQ. The small-cap indexes were likewise not spared, with the S&P 400 and the Russell 2000 also tumbling by nearly 2% at that point. Moreover, all 10 of the leading sectors were lower, with energy, basic materials, and the industrials leading the way lower.

However, the early afternoon brought some much-needed relief, as we saw significant buying for a time, Overall, the key indexes remained well into the red, with the telecom companies showing impressive buying. In all, the Dow Industrials, once off by nearly 550 points, stormed back to pare that deficit to fewer than 200 points as we neared the start of the final two hours of trading. Some backing and filling took hold, as traders went back and forth between bargain hunting and nervous selling as earnings reporting season moved along.
     
As we headed into the final hour, the averages came storming back further, with the buying at a similarly hectic pace as the selling had been earlier. In all, the averages would go near the neutral line during the first part of the last hour of trading. Some of the late buying could be attributed to technical factors. For example, there was a decided recovery after the Dow and the S&P 500 Index fell below the prior lows set earlier this month. Specifically, the bargain hunting intensified after the Dow traded well below 25,000 and the S&P 500 Index dipped below 2,700. This sharp descent on the S&P had started from a 52-week high of 2,940.  

The stock market then would weaken into the close, albeit just moderately, with the Dow, for example, ending matters off by 126 points--or just about a quarter of its late-morning deficit. Other losing indexes included the S&P 500 (off 15 points) and the NASDAQ (lower by 31 points). Now, this morning, after a mixed session in Asia and a generally higher start in Europe, the U.S. futures are mostly lower ahead of a slew of earnings reports, data on new home sales, and some Fed speeches.  
 
- Harvey S. Katz, CFA 
 
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.