CSHessman: U.S. stocks suffer biggest selloff in more than 2 months
Published: Dec 3, 2015 4:39 p.m. ET Reuters
European markets were rattled by the ECB stimulus expansion, which fell short of expectations.
By ELLIE ISMAILIDOU MARKETS REPORTER
BARBARA KOLLMEYER MARKETS REPORTER
U.S. stocks sold off on Thursday, pushing both the Dow industrials and the S&P 500 further into negative territory for the year, after the European Central Bank unveiled a smaller-than-expected expansion of its monetary stimulus program.
The drop came amid a sharp surge in the euro and a selloff in government bonds and European stocks, while Federal Reserve chief Janet Yellen once again signaled a U.S. interest-rate hike in mid-December.
The S&P 500 SPX, -1.44% fell 29.88 points, or 1.4%, to 2,049.63, its biggest decline since Sept. 28. The benchmark index turned negative for the year. The Dow Jones Industrial Average DJIA, -1.42% dropped 251.74 points, or 1.4%, to 17,477.67, further into negative territory for the year. The Nasdaq Composite COMP, -1.67% ended the session down 85.70 points, or 1.7%, to 5,037.53
Analysts described Thursday’s stock rout as a violent unwind of a crowded trade. See also: Beware the crowded central bank trade.
Investors had piled into the short euro/long European stocks trade, and quickly reversed the trade after the ECB’s announcement fell short of the market’s expectations, analysts said.
The details of more QE “are not the big bang that some had thought and/or hoped for,” said Peter Boockvar, chief market analyst at The Lindsey Group.
The ECB’s announcement prompted heavy short covering in the euro EURUSD, -0.1188% which jumped more than 3% versus the U.S. dollar, posting its largest one-day move since 2009.
But as investors sold the U.S. dollar, they also sold liquid dollar-denominated assets, mainly U.S. Treasurys and liquid U.S. equities, said Douglas Coté, chief market strategist at Voya Investment Management, pushing Treasury yields to fresh 5½-year highs and stocks deep into negative territory.
Even though oil CLF6, +0.56% was up 2.9% to $41.08 a barrel, several of the worst-performing stocks belonged to oil companies, including Chesapeake Energy Corp. CHK, -11.78% which closed down 12%, PVH Corp. PVH, -11.09% down 11%, and Southwestern Energy Co. SWN, -7.46% , down 7.6%. OPEC will meet Friday, and many investors expect the cartel will finally cut output, which could lift oil prices and put a floor under oil stocks.
Meanwhile, health care was the worst performer on the S&P, closing down 2.2%, mainly due to end-of-year profit-taking from one of the year’s best performing sectors, to make up for losses in bad performers, mainly energy and utilities, said Kim Forrest, senior portfolio manager at Fort Pitt Capital.
Earlier Thursday, in her testimony to Congress, Fed chief Yellen largely reiterated comments she made on Wednesday, which laid out the groundwork for a rate increase at the U.S. central bank’s Dec. 15-16 meeting.
Yellen said she’s looking for a continued solid trend of job creation in November’s employment report, to be released on Friday morning at 8:30 a.m. Eastern. “But we can’t overweight any one number,” she said.
The theme of monetary-policy divergence is expected to dominate trading in the near future, said Ninh Chung, head of investment strategy for Silicon Valley Bank. But the notion that the Fed is confident enough in the U.S. economy to raise rates could eventually help push stocks higher, according to Chung.
Mixed U.S. data: Weekly jobless claims rose but held near 15-year lows, while the Institute of Supply Management’s nonmanufacturing index posted in November its largest one-month decline since November 2008.
Meanwhile, factory orders climbed in October but missed economists’ expectations.
Stocks to watch: Shares of Avago Technologies Ltd. AVGO, +9.51% closed up 9.5% after the company posted a stronger-than-expected profit after the closing bell on Wednesday.
Dollar General DG, +4.24% shares rose 4.2% after the company topped profit views, but reported a sales miss.
Amazon.com Inc.’s AMZN, -1.44% stock AMZN, -1.44% reversed earlier gains, falling 1.4% after the online retail giant said its Fire tablet is now available in China.
Yahoo Inc. YHOO, -3.67% fell 3.7%, as several potential suitors have emerged for its core Internet business. Verizon Communications Inc. VZ, -0.80% and Barry Diller’s IAC/InterActive Corp. IACI, -2.90% are among the companies interested, reported The Wall Street Journal, citing people familiar with the matter.
Oil on the rebound: In other markets, U.S. crude CLF6, +0.56% recaptured the $40-a-barrel mark, pushing higher as investors sought bargains in the wake of Wednesday’s fallout and as leaders from the Organization of the Petroleum Exporting Countries begin to gather. Gold prices GCG6, +0.09% rose modestly. Read: Barclays slashes oil forecast ahead of OPEC meeting
Asian markets saw a mixed day. The Shanghai Composite Index SHCOMP, -1.24% gained on hopes for stimulus measures after data showed a slower pace of growth for China’s services sector. The Nikkei 225 index NIK, -1.92% finished flat.
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The Lone Ranger and Tonto stopped in the desert for the night. After they got their tent all set up, both men fell sound asleep.
Some hours later, Tonto wakes the Lone Ranger and says, “Kemo Sabe, look towards sky, what you see?”
The Lone Ranger replies, “I see millions of stars.”
“What that tell you?” asked Tonto.
The Lone Ranger ponders for a minute then says, “Astronomically speaking, it tells me there are millions of galaxies and potentially billions of planets.
Astrologically, it tells me that Saturn is in Leo. Time wise, it appears to be approximately a quarter past three in the morning.
Theologically, it’s evident the Lord is all-powerful and we are small and insignificant. Meteorologically, it seems we will have a beautiful day tomorrow.
What’s it tell you, Tonto?”
Tonto is silent for a moment, then says, “Kemo Sabe, you dumber than buffalo pies. It means someone stole tent.”
We know our sky is full of stars…..bountiful stars….and we are thankful.