Stocks in the U.S. trading session were sharply lower Thursday as weak economic data and ongoing credit concerns overshadowed more positive news on the earnings front.The Dow Jones Industrial Average was sinking 357 points, or 2.6%, to 13,428. The S&P 500 was down 45 points, or 3%, at 1473, and the Nasdaq was losing 68 points, or 2.6%, to 2581.
All three were off their worst levels.
Michael Sheldon, chief market strategist with Spencer Clarke LLC, said that it is important for investors to separate the short-term from the long-term picture during a session in which the major averages were getting walloped.
“A number of factors have contributed to this unattractive investment environment, with risk levels on the rise,” said Sheldon. “However, the intermediate- to long-term picture remains positive, and this will continue to be the case as long as the U.S. economy avoids recession in the months ahead.”
Traders were also monitoring the Treasury market, as prices were rallying and pushing long yields below the 5% level. The 10-year note was up 24/32 in price, yielding 4.80%, and the 30-year bond was higher by 30/32, yielding 4.96%.
John Canavan, market analyst with Stone & McCarthy Research Associates, said that growing problems in the credit and subprime markets are lifting Treasury prices.
“This impact is causing merger deals to be delayed or postponed, so the liquidity in the secondary spread market is drying up,” said Canavan. “It’s making it more difficult to trade this issues, so traders are seeking a safe haven until credit markets sort everything out. This is a straight flight to the Treasury market.”
The shock was felt in overseas markets, as London’s FTSE dropped 3.2% and Frankfurt’s DAX was off 2.4%. Overnight, Tokyo’s Nikkei lost 0.9%, and Hong Kong’s Hang Seng declined 0.6%.Bulls couldn’t find much good news in the day’s economic releases. The government said that durable goods orders rose 1.4% in June, below the 1.9% consensus. Excluding transportation, orders fell 0.5%, compared with estimates for a 0.6% rise.
“Overall, manufacturing is not in crisis, but neither is it charging ahead,” said Ian Shepherdson, chief economist with High Frequency Economics. “This supports our view that the strength in the ISM is due more or less entirely to a temporary surge in auto production and does not indicate broad or deep strength in most of the manufacturing sector.”
Elsewhere on the economic docket, the Labor Department said that initial jobless claims fell by 2,000 to 301,000 last week. The four-week moving average eased by 4,000 to 308,500.
Shortly after the opening bell, the Census Bureau said new-home sales dropped a greater-than-expected 6.6% in June to 834,000 annualized units. The data come a day after the National Association of Realtors said existing-home sales for June dropped 3.8% to 5.75 million annualized units, the lowest level since November 2002.
“The credit markets are in a state of chaos, and that’s where all of this is emanating from,” said Paul Mendelsohn, chief investment strategist with Windham Financial. “The takeover premium that’s been built into the market is falling apart. We have the stock market repricing the possibility that mergers or takeovers will not happen now.
“So far, the Federal Reserve hasn’t drained the liquidity of the system, but that’s happening now on it’s own as the stock market corrects,” he added. “Now the yen carry trade is unwinding along with this debt and stock problem. This should be specific to the financial side, but it’s crossing into every sector.”Indeed, virtually every subgroup was saddled with losses. Among the worst decliners, the Amex Airline Index dropped 6.4%, the Dow Jones Transportation Average slumped 3.6%, the Nasdaq Financial Index fell 3.6%, and the KBW Banks Index lost 3.3%.
Stocks in New York have had an up-and-down week thus far. The major averages fell hard Tuesday but recovered some of that lost ground on Wednesday.
Last time out, the Dow rose 68.12 points, or 0.5%, to 13,785.07. The S&P 500 added 7.05 points, or 0.47%, at 1518.09, and the Nasdaq was better by 8.31 points, or 0.31%, to 2648.17.
Following the close, Apple (AAPL – Cramer’s Take – Stockpickr – Rating) took center stage, and its earnings report had its shares on the move higher.
The stock jumped nearly 7% and was approaching $150 after it said third-quarter net income was 92 cents a share, topping estimates by 20 cents. Revenue rose 24% to $5.41 billion.
Elsewhere, Ford (F – Cramer’s Take – Stockpickr – Rating) had an unexpected profit for the second quarter, with earnings from continuing operations of $258 million, or 13 cents a share. Analysts had been calling for a loss of 35 cents.
Ford was climbing 29 cents, or 3.6%, to $8.26. Rival General Motors (GM – Cramer’s Take – Stockpickr – Rating) slid 4.2%, and DaimlerChrysler (DCX – Cramer’s Take – Stockpickr – Rating) eased 3.7%.Among other companies with quarterly results, 3M (MMM – Cramer’s Take – Stockpickr – Rating) raised its full-year forecast, and Royal Dutch Shell (RDS.A – Cramer’s Take – Stockpickr – Rating) said second-quarter profits climbed 18%. 3M was higher by 81 cents, or 0.9%, to $90.43. Royal Dutch gave back $1.48, or 1.8%, to $79.62.
Dow Chemical (DOW – Cramer’s Take – Stockpickr – Rating) got by analyst earnings estimates, as did Aetna (AET – Cramer’s Take – Stockpickr – Rating) and AstraZeneca (AZN – Cramer’s Take – Stockpickr – Rating).
Dow was giving back $2.14, or 4.7%, to $43.53, and AstraZeneca was off by $1.99, or 3.6%, to $53.01. Aetna was higher by 11 cents, or 0.2%, to $50.76.
Sony (SNE – Cramer’s Take – Stockpickr – Rating) said its first-quarter sales and revenue climbed more than 13% from last year with operating income that more than tripled. Meanwhile, Exxon Mobil’s (XOM – Cramer’s Take – Stockpickr – Rating) second-quarter net income fell slightly and missed estimates.
The stock was losing $1.25, or 2.4%, to $51.06. ExxonMobil was falling $4.14, or 4.5%, to $88.65.
Crude prices reversed ground after early gains. The front-month September contract was down $1.11 at $74.77 a barrel. Gasoline prices were off 1 cent at $2.08 a gallon.
