The new trading week got started on a bearish note, mostly spurred by news that China’s government wasn’t going to prop up its market by buying stocks itself.
Even so, U.S. stocks may have been destined to slide lower anyway despite another heroic rally for oil prices. All told, crude oil gained more than 7%, while the S&P 500 Index lost 0.84% of its value.
It was much worse for Merck & Co., Inc. (NYSE:MRK), Wayfair Inc. (NYSE:W) and Alibaba Group Holding Ltd (NYSE:BABA) shareholders, however. Here’s why.
Alibaba Group Holding (BABA)
Most Chinese stocks finished in the red for the last day of August — an unforgettable month (and not in a good way) for the nation’s equities. A beleaguered Alibaba Group Holding led the bearish charge on Monday, much as BABA led the bearish charge for the entire month.
Monday’s 5.7% meltdown from BABA wasn’t driven by any specific news from, or even about, the company. Rather, investors simply got a stark reminder that China’s economy was still on the ropes, and that Alibaba was one of the more vulnerable high-profile names.
The Street dropped the bomb in North America, while on the other side of the world, Australia’s Sydney Morning Herald did the deed, pointing out that Moody’s cut its 2016 economic growth forecast for China from 6.5% to 6.3% on Friday.
Merck (MRK)
Were it just one or the other, Merck shares may have been able to fend off the ill effects of the news. To see two headaches piled on at the same time, however, just proved to be more than MRK could withstand on Monday.
The first punch of a one-two combination actually materialized on Friday, but didn’t materialize today when the news began to proliferate — diabetes drugs in the DPP-4-inhibitor category may be linked to severe joint pain. The much-ballyhooed Januvia, from Merck, is one of these DPP-4 inhibitors.
The proverbial knockout punch for MRK, however, may have come on the realization that competitor Eli Lilly and Co. (NYSE:LLY) is working on a diabetes treatment that could easily replace the questionable Januvia. Eli Lilly’s Jardience, a SGLT-2 inhibitor, showed very encouraging top-line results, particularly in regard to cardiovascular safety.
MRK shares closed 2.7% lower for the trading session.
Wayfair (W)
Just when it looked like online retailer Wayfair might quell its pullback without actually snapping a long-term uptrend, the stock gets blindsided.
The crux of the 11.7% selloff from W was courtesy of Citron Research’s Andrew Left, who deemed in a lengthy, and seemingly well-founded reach piece published today, that W shares themselves are worth less than $10 apiece.
If the names rings bell, it may be because Citron Research’s Left is the same Andrew Left that recently hammered Ambarella Inc. (NASDAQ:AMBA) with the same kind of bent. But, Left has a long list of companies he’s shredded in the past.
Only time will tell if Citron Research is right this time around. But, as is so often the case, the market concluded he was right enough to pull the rug out from underneath the stock today.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
