Stocks fell for the fourth consecutive day on Friday to cap the Dow Jones Industrial Average’s worst week since last December. For small caps, it was the worst week since last October.
The sellers were emboldened by a number of catalysts in play today: From weak PMI manufacturing data out of Europe and China overnight to ongoing losses in crude oil, which has now fallen into a bear market this week, declining more than 20% off of the highs hit in early May to trade near $48 a barrel. New-home sales fell for the third month in a row as well.
But the biggie was the accidental release of Federal Reserve staff projections prepared for the June 16-17 policy meeting showing policymakers have penciled in a single rate hike for 2015 in September. This is well ahead of where the market is, so the takeaway was considered hawkish, especially in light of projections showing inflation to remain below the Fed’s 2% target through 2020.
As a result, the Dow Jones Industrial Average lost 0.9%, the S&P 500 lost 1.1%, the Nasdaq Composite lost 1.1%, and the Russell 2000 lost 1.5%.
Crude oil lost another 0.6% to close at $48.16 a barrel. That bolstered the ProShares UltraShort Crude Oil (NYSEARCA:SCO) recommended to Edge subscribers in late May to a month-to-date gain of nearly 50%.
Technically, the Dow Jones is back below its 200-day moving average in a revisit of the Greek panic lows set earlier in the month. The index is down nearly 600 points from its Monday high, off nearly 800 points from the high set in May and negative year-to-date.
Some big blue-chip names are getting caught in the downdraft as biotech and big tech stocks in the Nasdaq try to hold the averages aloft amid narrowing breadth. One example is General Electric Company (NYSE:GE), which sliced to levels not seen since April after falling 1.9% on Friday for its fifth consecutive decline. That boosted the Aug $27 puts recommended to Edge Pro subscribers to a gain of 240% since the position was recommended on Monday.
The second-quarter reporting season has been a problem.
There have been a few earnings bright spots, such as the big surprise beat by Amazon.com, Inc. (NASDAQ:AMZN) that pushed shares up 10% on Friday. Pandora Media Inc (NYSE:P) jumped 15% on a earning beat.
But the losses have stung harder from Apple Inc. (NASDAQ:AAPL) reporting underwhelming iPhone sales to International Business Machines Corp. (NYSE:IBM) missing on revenue, McDonald’s Corporation (NYSE:MCD) reporting another comp-store sales drop, and Caterpillar Inc. (NYSE:CAT) reporting a 13% drop in revenues as the energy and materials industrials take it on the chin amid a price collapse.
Economic slowdowns in Asia and Europe are weighing on markets, too.
In China, the PMI flashing manufacturing index slid to 48.2 from 49.4, indicating the fifth consecutive month of contraction in activity. In Europe, new business activity expanded at its slowest pace in five months mainly due to a smaller rise in manufacturing.
Investors will have a lot to contend with next week as well, with the Federal Reserve wrapping up its last two-day meeting before its pivotal September conclave on Wednesday while the Bureau of Economic Analysis will release its advance estimate of Q2 GDP growth on Thursday. Deutsche Bank economists are looking for GDP growth of 2.5% last quarter on a 3.0% rise in real consumption vs. the -0.2% contraction logged in Q1.
The BEA will also release its annual revision to the GDP time series, with possible seasonal adjustments to persistently weak Q1 results expected.
The second-quarter earnings season will keep rolling on as well, with names like United Parcel Service, Inc. (NYSE:UPS), Ford Motor Company (NYSE:F), and Exxon Mobil Corporation (NYSE:XOM) scheduled to report.
With so much on their plate, and stocks at risk of returning to their January lows, investors will have their hands full in the days to come.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
