After The Close
Stocks fell on Monday, owing to lingering geopolitical concerns. At the end of the day, the Dow Jones Industrial Average was off 125 points; the NASDAQ lost 19 points; and the S&P 500 gave back 11 points. The broader market reflected the poor sentiment, with decliners outpacing advancing issues by nearly two to one on both the New York Stock Exchange and the NASDAQ.
Trading began with a dose of optimism that bargain hunters might step in after the bears took charge late last week. Not long after the opening bell rang, the Dow Industrials were up 68 points. Hope that troubles abroad, focused most recently in Turkey and that nation’s sliding currency, would decrease were not fulfilled, though. Weak European stock markets seemed to foretell that problems in Turkey would not abate right away.
Investors are temporarily pulling back as a few caution flags have been raised around the globe. In addition to Turkey, there are signs of stress in other emerging markets. In Argentina, for instance, the monetary authorities today raised already sky-high interest rates even higher. The weak Russian currency and China’s slowing economy are also giving Wall Street some pause.
One related international development is the strengthening of the U.S. dollar, which makes it tougher for nations with dollar-denominated debt to pay back their borrowings. A strong dollar also makes purchasing goods produced stateside more expensive. That tends to weigh on the performance of the large, multinational companies.
Shares of basic materials and energy companies were among those showing relative weakness today.
Overall, the lack of much in the way of economic data and corporate earnings news may have magnified the focus on difficulties overseas.
Investors will have more to digest as the week moves along, with retailers beginning to report their quarterly results and a steady stream of high-profile business news due to begin on Wednesday. In particular, a report on retail sales at midweek is expected to show that consumers are still spending freely. The importance of consumer spending cannot be overstated, since it makes up the biggest part of the economy.
Assuming that conditions abroad stabilize, investor sentiment could improve in the coming days, given further signs that the economy is on track at home.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
In fact, Turkey's stock market, already reeling this year, plummeted further on Friday, as did stocks in Europe before U.S. equities even opened for trading. Deteriorating political relations between Turkey and the United States, which contributed to the higher tariffs, came as our nation remained embroiled in a serious trade conflict with China. In other news, as earnings season winds down, the Labor Department reported a 0.2% increase in the Consumer Price for July. That slight uptick, which was the same for the headline CPI and the CPI excluding food and energy, was, as expected, and had little impact on trading.
But the geopolitical flare-up across the world did have an effect on U.S. trading, as stocks sold off notably, with the Dow Jones Industrial Average tumbling more than 240 points at the morning's low before recovering somewhat as the noon hour approached in New York. The S&P 500 and the NASDAQ, each of which had been on the cusp of all-time highs, retreated as well, albeit not as severely. The small-and mid-cap indexes were less affected by the global events and eased just modestly. Our sense is that with the recent earnings season increasingly in the review mirror, the focus will be more on global affairs for a time.
On balance, the sellers were still dominant as the morning concluded, and as we crossed into the afternoon, there was nibbling in a number of sectors and individual issues. However, this mid-session comeback gave false hope to the recently triumphant bulls, as the market fell on even harder ground as the afternoon got under way and we entered the final two hours of trading. Stocks would then hit their session lows, as the Dow fell to loss of just under 300 points. Significant setbacks also were suffered by the S&P 500 and the NASDAQ. It was primarily a reversal in the large caps.
Yet one more attempt to cut the losses was made as the final hour began, and the near 300-point deficit in the Dow was pared measurably, to less than 180 points in late trading. Still, the financial crisis in Turkey, and worries about how serious it could become going forward, was a concern for Wall Street's traders. In a predictable development, given the uncertainty in the markets, the bond market rallied, and yields fell, with the 10-year Treasury note backtracking to 2.86% in late dealings. A day earlier, the note had been priced at 2.94%. The VIX Volatility Index rose, however, reflecting the growing uncertainty at that point.
As we hit the end of trading, the markets could go just so far. Thus, the blue chip composite still would close off by 196 points; the S&P 500 would descend 20 points; and the NASDAQ would lose 53 points. Meanwhile, all 10 of the key equity groups would fall in price, led lower by basic materials, the financials, and the telecom issues, and losing stocks would eclipse winners on the Big Board by two to one. What made the selloff so harsh was that earnings, which had helped to cushion prior attempted declines in the past month, were now less of a support, as reporting season has all but concluded save for the retailers, which will now report.
Now, a new week is under way, and after the bearish fireworks last Friday, we see that stocks in Asia were lower in dealings overnight, with an especially sharp retreat in Japan. In Europe, a casualty of the global concerns late last week, the bourses are weaker, as well, this morning, as concerns about Turkey linger on. Also, oil is down a bit; U.S. Treasury yields, which, as noted, fell on Friday to 2.86% on the 10-year note, now at 2.87%. Finally, as earnings season concludes and we await data on retail sales and industrial production on Wednesday and housing starts Thursday, the U.S. equity futures are mostly pointing to early losses as the crisis in Turkey persists.
