Dow Index Nears Seven-Month Low on Fed Fears
New York (Aug 20) Stocks suffered heavy losses on Thursday as uncertainty over Federal Reserve thinking left investors to panic. The S&P500 was down 1.6%, the Nasdaq slid 2.3%, and the Dow Jones Industrial Average neared a seven-month low after dropping 1.6% or 280 points.
Fears over a Fed rate hike in September pressured markets after better-than-expected housing and business activity data set the stage for a move from crisis-level rates sooner than later. Stocks closed lower on Wednesday after minutes from the most recent Federal Open Market Committee kept things ambiguous, though a September increase was not ruled out.
"Everything is adding to the uncertainty. It's an art to be that vague," Tim Dreiling of The Private Client Reserve of U.S. Bank told TheStreet. "To the extent that it gives no indication of direction and leaves so much uncertainty about lift-off, it is causing difficulties... It could be cathartic for all investors if they give us a move and then telegraph that they're just going to go low and slow."
Existing home sales jumped 2% to a seasonally adjusted annual rate of 5.59 million in July, according to the National Association of Realtors. That marked its highest level since February 2007 and a new post-recession high. Economists had expected a reading of 5.48 million.
Business conditions in the Philadelphia area improved to a reading of 8.3 in August from 5.7 in July, according to the Philadelphia Fed Business Outlook survey. The reading was better than an expected increase to 7.
Initial jobless claims climbed for the fourth consecutive week for the week ended Aug. 15. The number of new filings for unemployment benefits increased 4,000 to 277,000, above an expected 271,000 reading. However, initial claims remained below 300,000 for a 24th week, the best run in 15 years.
"While minutes of the July 28-29 FOMC meeting offered no 'smoking gun' suggesting imminent rate hikes, we believe there was plenty in the minutes to suggest that the Fed could still begin rate hikes in September," said Gennadiy Goldberg, U.S. strategist at TD Securities.
Consumer and tech stocks were the hardest hit, which pulled the Nasdaq more than 2% lower. Disney (DIS - Get Report) dropped nearly 6% after Bernstein downgraded shares to 'market perform' from 'outperform' on concerns for media stocks in general. Analysts said valuations need to be revised given the risk associated with declining affiliate fees.
Other media stocks such as Comcast (CMCSA - Get Report), CBS (CBS - Get Report), Time Warner (TWX - Get Report), Viacom (VIAB - Get Report) and Twenty-First Century Fox (FOXA) were all sharply lower. The Consumer Discretionary SPDR ETF (XLY) fell 2.4%.
Among the worst tech performers, Apple (AAPL) fell 2%, Amazon (AMZN) tumbled 2.9%, Google (GOOGL) slipped 2%, and Microsoft (MSFT) was down 1.5%. The Technology SPDR ETF (XLK) slid 2%.
Greece added to uncertainty by mid-afternoon on news Greek prime minister Alexis Tsipras had submitted his resignation after losing parliamentary majority. Tsipras had squared off with members of his Syriza party who objected to the bailout agreement with eurozone creditors. Early elections will take place on September 20.
The European Central Bank confirmed it had received a 3.2 billion euro repayment from Greece on Thursday afternoon. The repayment is the last for the next 11 months. Greece recently secured a fresh 86 billion euros ($96 billion) in bailout funds.
Valeant Pharmaceuticals (VRX) was lower after it agreed to acquire for $1 billion Sprout Pharmaceuticals. The all-cash deal would also include a one-off $500 million payment, according to The Wall Street Journal.
NetApp (NTAP) added more than 3% after reporting better-than-expected quarterly profit and sales in its first quarter and guiding for an above-consensus second quarter. An increase in software and hardware maintenance sales helped to offset a decline in product sales.
Sears (SHLD) shares fell 1.2% after the embattled retailer reported a heavy net loss and double-digit slump in sales. The company posted a net loss of $2.40 a share on revenue of $6.21 billion, down 23% from a year earlier.
Source: TheStreet
