The two-week-old reprieve from the selling seen earlier this month was shattered Tuesday after Microsoft Corporation (NASDAQ:MSFT) fell 9.3% after reporting disappointing forward guidance and suffered a bevy of analyst downgrades as a result.
That dragged down the entire tech sector and hit the Dow Jones Industrial Average hard for a loss of 291 points or 1.7%. The S&P 500 lost 1.3%, the Nasdaq lost 1.9%, and the Russell 2000 lost 0.5%.
The winter storm in New York was less severe than expected (though it still was doing heavy damage across other parts of the Northeast). And stocks finished off their lows. But the overall impression is that another downward slide is just getting started.
The list of concerns is growing after a weaker-than-expected U.S. durable goods report suggested that the slowdowns in Europe and Asia are finally having an effect here at home. Orders dropped 3.4% in December for the fourth consecutive contraction and the worst reading since August.
The sets the stage for disappointment should the Federal Reserve, at their policy announcement tomorrow, stick with their mid-2015 rate hike timing as is widely expected.
Other hurdles include the simmering tension in the eurozone as the new anti-bailout/anti-austerity Syria-led government in Athens prepares for its standoff with the “troika” of the European Union, the European Central Bank, and the International Monetary Fund. Greek stocks lost 3.5% as investors worried about the wide gap between Syriza’s campaign promises and the limited flexibility on bailout terms offered by Troika officials so far.
A standoff is coming. And it could result in a Greek exit from the euro, which would immediately shift focus to anti-austerity parties on the rise in Spain, Italy and France.
There’s more, from increased fighting in Ukraine to the worst decline in Chinese industrial profits since 2011 to signs that the Japanese are realizing the limits of its aggressive money printing stimulus as it worries about the negative impacts of a severely weakened yen. And finally, the shine has been taken off of last week’s enthusiasm about the unveiling of the ECB’s sovereign bond buying purchase program.
Back to earnings. Microsoft wasn’t the only source of disappointment, with blue-chip titans Caterpillar Inc. (NYSE:CAT) and Procter & Gamble Co (NYSE:PG) dropping 7.2% and 3.5%, respectively, today on earnings. A slowdown in PC demand, weak overseas demand, the impact of the collapse in energy prices and currency drag from a strong dollar on repatriated foreign profits were all fingered as problems.
As a result, FactSet reports that analysts are now looking for Q1 S&P 500 earnings per share growth of just 0.1% down from 4% at the start of the quarter while revenues are expected to drop 1.9% vs. growth of 1.6% that was expected just a few weeks ago.
I’ve been recommending a defensive posture with a focus on precious metals and put option plays. That strategy was in the sweet spot today, with the VelocityShares Daily 2x VIX Short Term ETN (NASDAQ:TVIX) recommended to Edge subscribers on Monday jumping 7% while the Market Vector Junior Gold Miners ETF (NYSEARCA:GDXJ) recommended on Jan. 6 is carrying a gain of more than 13%.
In options, the Feb $37 Intel Corporation (NASDAQ:INTC) puts recommended to Edge Pro subscribers on Jan. 14 are up nearly 71% while the Barrick Gold (NYSE:ABX) Feb $11 calls are up nearly 330% since Jan. 13.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
