The stock market selloff deepened Thursday as a growing list of individual issues tip into downtrends. One-time highfliers such as Walt Disney Co (NYSE:DIS), Apple Inc. (NASDAQ:AAPL) and Tesla Motors Inc (NASDAQ:TSLA) are joining already weak stocks such as Exxon Mobil Corporation (NYSE:XOM) to the downside. TSLA stock dropped 8.9% as investors reacted to the overnight announcement of weaker margins, mixed results, and underwhelming guidance.
The big catalyst for the day’s decline is the ongoing fallout from Disney’s revenue miss and warning about “cord cutters” dumping traditional cable/satellite service. That and weak Viacom, Inc. (NASDAQ:VIAB) earnings slammed media stocks hard.
In the end, the Dow Jones Industrial Average lost 0.7% to test six-month lows, the S&P 500 lost 0.8%, the Nasdaq Composite lost 1.6%, and the Russell 2000 lost 1.3%. As a result, 121 members of the S&P 500 are now down more than 20% from their highs, qualifying for their own individual bear markets.
Gold gained 0.4% while crude oil lost 1% to close at $44.72 a barrel. That pushed the ProShares UltraShort Crude Oil (NYSEARCA:SCO) recommended to Edge subscribers to a gain of 61%.
One-time bastions that held the indices aloft, despite the multimonth deterioration in market breadth measures, are beginning to buckle under the pressure. Just look at biotech stocks: The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) lost 4.3% to close below its 50-day moving average for the first time since early May.
Once stocks like Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB) and Microsoft Corporation (NASDAQ:MSFT) succumb to the selling, watch out below. Currently, only 52% of the stocks in the S&P 500 are in uptrends, well off of the high of 75% seen in April.
Don’t think the hype can die? Just take a gander at what’s happening with Keurig Green Mountain Inc (NASDAQ:GMCR), which dropped another 30% today and has fallen nearly 70% from the highs set late last year on disappointment with its 2.0 machine.
Aside from disappointing earnings, traders are growing increasingly nervous heading into Friday’s non-farm payrolls report. Another strong reading on job creation, given all the evidence of continued tightening in the labor market, will further raise expectations that the Federal Reserve will raise interest rates for the first time since 2006 during its Sept. 17 policy announcement.
The futures market has been downplaying the chances of a September rate liftoff, but the flow of economic data and comments from Fed officials has forced a reevaluation. Folks realized, as shown in the chart above of expectations from RBS, they were opening the door to a big negative surprise if Chairwoman Janet Yellen actually pulled the plug on eight years of 0% interest rates.
The increasing preparation for a rate hike explains the general sense of malaise in the financial markets in recent weeks, with commodities, high-yield bonds and foreign stocks taking the brunt of the damage so far.
But the contagion is spreading as investors feel the sting of fear — something they haven’t felt, in the midst of an actual 10%-plus market correction, since 2012. In response, I’ve recommended bearish positions including the Aug $27 General Electric Corporation (NYSE:GE) puts to my Edge Pro subscribers that are already carrying a gain of more than 170%.
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.
