Just one day after the tech-heavy Nasdaq stock index notched a new record high, stocks moved sharply lower on Tuesday, dragged down by blue-chip industrials after the big revenue miss by IBM (IBM) Monday night. The drop has taken the Dow Jones Industrial Average back below the 18,000 level first crossed back in December.
In the end, the Dow lost 1%, the S&P 500 lost 0.4%, the Nasdaq Composite lost 0.2%, and the Russell 2000 lost 0.5%. Gold lost 0.3% for its ninth consecutive decline, while crude oil gained 0.4%.
Stocks are also being hit by a decline in the popular yen-dollar currency carry trade as the U.S. dollar, in a reversal of its recent trend, suffers its worst selloff in two weeks. The greenback’s drop accelerated after the Federal Reserve downwardly revised its industrial production and capacity utilization data.
The drop pushed the ProShares UltraShort Russell 2000 (TWM) recommended to Edge subscribers to a gain of nearly 6%.
That move raised investors’ hopes that the central bank could delay the timing of its first interest rate hike since 2006 until December or possibly into early 2016.
However, the revision is unlikely to alter the Fed’s rate timing. September “is by far the mostly likely lift-off date,” according to Paul Ashworth at Capital Economics, followed by another rate hike later in the year. The futures market is more dovish, expecting only a single hike in December.
We’ll know more when the Fed concludes its coming policy meeting next week. Ashworth suggested looking for language in the post-meeting announcement that inflation is “firming” as a sign that a September hike is on the way.
Earnings Were Likewise Disappointing
On the earnings front, Things haven’t been pretty. IBM was hit after quarterly revenues of $20.8 billion missed the $21 billion consensus estimate on a sizable drop in software revenue ($5.8 billion vs. $6.5 billion in the same period last year).
Big Blue’s top line dropped 13.4% from last year in what was the largest revenue pullback since 2009. It also marked the 13th consecutive quarter of falling revenues. With IBM’s heavy weighing in the Dow Jones industrials, the tech giant’s slide dragged the broad market lower.
Verizon (VZ) dropped 2.4%, or $1.14 — pulling other telecom stocks down in sympathy — after cutting its fiscal 2015 revenue growth target on lower wireless net subscriber additions. United Technologies (UTX) missed revenue targets and cuts its fiscal year guidance citing softness in Europe and China.
But all of this pales in comparison to what happened after the close today.
Market sweetheart Apple (AAPL) disappointed badly, casting a pall over the rest of Q2 reporting and pushing shares down 9% in aftermarket trading. Earnings of $1.85 beat the $1.80 consensus estimate (as is typical for the company), but iPhone shipments of 47.5 million missed the 50 million analysts were looking for. Moreover, China revenue fell a whopping 21% vs. the previous quarter to $13.2 billion.
Aside from Apple, other big tech firms reporting after the bell are also moving lower with Microsoft (MSFT) down 2.8%, Yahoo! (YHOO) down 1%.
The stakes were high for Apple with investors closely watching for the impact of the recent market turmoil in China as well as the ho-hum response to the Apple Watch. The stumble will likely keep the pressure on stocks when trading resumes on Wednesday.
Both IBM and AAPL are two of the most heavily weighted stocks in the market, with IBM the biggie for the price-weighted Dow while AAPL swings the market-cap weighted Nasdaq and S&P 500 (and is a member of the Dow 30 as well).
As of the end of last week, the S&P 500’s blended earnings growth rate improved to a -3.7% loss vs. the -4.4% loss last week and the -4.5% decline expected before second-quarter earnings started rolling out.
The flow of earnings will remain heavy with Boeing (BA) reporting Wednesday morning.
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.
