Materials Stocks Lead Markets Sharply Lower as China Takes Focus
New York (Sept 22) Basic Materials stocks dragged markets deep into the red on Tuesday as renewed fears over the health of China's economy sent commodity markets tumbling.
The S&P 500 was down 1.8%, the Dow Jones Industrial Average fell 1.6%, and the Nasdaq slid 2.2%. The Volatility Index, otherwise known as the "fear index," spiked 16.9% to 23.54.
Among the worst performers in the materials sector, Rio Tinto (RIO) fell more than 3%, BHP Billiton (BHP) dropped 4%, Dow Chemical (DOW - Get Report) was down 1.5%, and LyondellBasell Industries (LYB - Get Report) slid 2.5%. The Materials Select Sector SPDR ETF (XLB) slumped 2.2%.
Crude oil prices were sharply lower, driven by fears over weakening demand from China, the world's second-largest energy consumer. Prices were also pulling back from big gains seen over Monday's session. West Texas Intermediate crude was down 3.1% to $45.25 a barrel.
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China's economy is expected to grow less than 7% this year, according to forecasts from the Asian Development Bank. The bank revised growth forecasts down to 6.8% from 7.2% set in March, lower than the Chinese government's targets for 7% growth this year. Separately, China's President Xi Jinping said the government is preparing a number of economic reforms to target weakness.
"Any ship, however large, may occasionally get unstable sailing on the high sea," he told The Wall Street Journal ahead of his trip to the U.S.
Uncertainty over the Federal Reserve time-line for rate hikes also was hurting sentiment on Tuesday. Stocks have been under pressure after the Fed made it clear last week that a rate increase this year was still likely. The Fed's dot plot forecast showed that Fed members expect interest rates to close out the year at 0.40%, meaning a hike in October or December is a possibility.
"It's a market that's gripped with fear, fear of uncertainty of the growth of the global economy and its own growth strength and that's due to the Fed sending the wrong signals to the market," Peter Cardillo, chief market economist at Rockwell Global Capital told CNBC.
Bank of America's (BAC) Brian Moynihan will remain as both chairman and CEO, according to a shareholder vote on Tuesday. Moynihan has held the chairman position since last October, though certain vocal shareholders including the California State Teachers' Retirement System argued the roles of CEO and chairman should be separate.
Democratic presidential candidate Hillary Clinton is set to unveil a plan to target escalating drug prices on Tuesday. The announcement on Monday had pressured biotech stocks. The iShares NASDAQ Biotechnology Index (IBB) fell 3.1%, while the SPDR S&P Biotech ETF (XBI) stumbled 4%.
Goldman Sachs (GS) shares were on watch following news CEO Lloyd Blankfeinhas been diagnosed with a curable form of lymphoma. Blankfein is expected to undergo chemotherapy and, while he will work as normal, will have to reduce the amount of travel.
Apple (AAPL) will reportedly launch its first electric car in 2019, according to the The Wall Street Journal. The project, code-named Titan, recently received the go-ahead to expand its current 600-person team to as many as 1,800 workers.
Volkswagen (VLKAY) shares were down nearly 16% for a second session after news broke of software that gamed emission tests. CEO Martin Winterkorn has been ousted as a result with his last day on Friday, according to German media. The company had disclosed that 11 million cars worldwide were affected. Volkswagen said it would set aside $7.3 billion for costs associated with the scandal.
General Mills (GIS) reported a 24% increase in profit in its fiscal first quarter with earnings of 79 cents a share a dime over estimates. However, currency fluctuations cut into revenue with total sales down 1.4% even as constant-currency sales improved 4%.
AutoZone (AZO) shares moved higher after an 8% jump in quarterly sales. The car parts retailer reported domestic same-store sales improved 4.5% over the quarter, driven by an 8.1% increase in auto parts sales.
Darden Restaurants (DRI) raised full-year profit forecasts after a better-than-expected first quarter. The restaurant operator expects fiscal 2016 profit as high as $3.30 a share, up from a range as high as $3.20 and analysts' estimates of $3.13.
ConAgra Foods (CAG) shares were on watch after the food processor earned 45 cents a share in its first quarter, 5 cents above estimates. Total revenue climbed 1.1%, while sales in its commercial foods segment grew 3.5%.
Carnival (CCL) dropped 4.8% despite a better-than-expected third quarter. The cruiseliner earned $1.75 a share, 13 cents above forecasts, while revenue of $4.9 billion cleared estimates by $80 million. Its bottom-line was boosted by lower fuel prices which cost $439 per metric ton this quarter compared to $650 a year earlier.
Source: TheStreet
