Stocks moved lower again on Tuesday after Apple Inc. (NASDAQ:AAPL) dropped 3.2% on word its Chinese smartphone market share had fallen to third place behind domestic rivals Xiaomi and Huawei. This added to the pressure on the tech giant after its recently quarterly numbers were widely panned on weaker-than-expected iPhone sales and tepid market response to the Apple Watch.
Things are tough technically as well after AAPL shares dropped below their 200-day moving average on Monday for the first time in two years.
At Tuesday’s end, the Dow Jones Industrial Average lost 0.3%, the S&P 500 lost 0.2%, the Nasdaq Composite lost 0.2%, and the Russell 2000 lost 0.2%.
Weakness in small caps has pushed up the ProShares UltraShort Russell2000 (ETF) (NYSEARCA:TWM) recommended to Edge subscribers to a total gain of 10% since added on June 24.
The other big catalyst was word from Atlanta Federal Reserve Bank President Lockhart, widely viewed as a centrist, that there is a rather high bar for not raising rates at the Sept. 17 policy announcement. He noted it would take a significant deterioration in the economic data to hold off now — ostensibly because of the damage it would do to the Fed’s credibility.
He cited positives such as ongoing tightening in the labor market, the Q2 rebound from Q1 GDP growth weakness and increased confidence that inflation will return to target. These echoed comments from St. Louis Fed President Bullard last Friday that “we are in good shape” for a September liftoff.
The hawkish comments hit bonds hard, with the iShares 20+ Year Treasury Bond Fund (NYSEARCA:TLT) losing 0.8%. That pushed down yield-sensitive utility stocks by 1.6%. Tech was dragged down 0.7% due to AAPL. Semiconductors were also weak with the PHLX Semiconductor Index dropping 1.1% to close at a level not seen since November.
On the economic front: Factory orders here have expanded on a monthly basis only twice in the last 11 months. Ex-transportation, factory orders collapsed at a 7.5% annual rate in July — the worst since the maw of recession in 2009. And in corporate news, Baxalta Inc (NYSE:BXLT) jumped 11.9% after rejecting a $45.23 a share all-stock offer from Shire PLC (ADR) (NASDAQ:SHPG).
After the close, Walt Disney Co (NYSE:DIS) dropped 2% in response to weaker-than-expected quarterly earnings of $13.1 billion vs. the $13.2 consensus forecast. Free cash flow dropped 19% over last year. Online crafts marketplace Etsy Inc (NASDAQ:ETSY) collapsed 14.2% in after-hours trading, building on a 6.2% loss in the regular session, after warning on currency effects, higher spending and more difficult comps going forward.
Looking ahead, Wednesday will be a busy day on the macro calendar,D with the ADP Employment Report setting the stage for Friday’s non-farm payrolls. We’ll also get the ISM non-manufacturing index and a bevy of data out of the eurozone.
On the jobs front, Deutsche Bank economist Joseph LaVorgna notes that confidence is supported by the fact initial weekly jobless claims are hovering near a 42-year low while employee tax withholding receipts are growing at a 5%+ annual rate.
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.
