Wednesday’s market action could be described with several choice words, but the word “ouch” sums them all up as well as any single word could.
Though renewed worries regarding China’s economy and a housing starts/building permits report that fell short of estimates got the bulk of the blame for Wednesday’s loss of 1.17% for the S&P 500, the session’s intraday action suggests traders had planned to dish out a steep setback no matter what.
On the other hand, it’s worth noting the S&P 500’s close of 1859.33 today was well off the intraday low, suggesting we may have already made a reversal.
As for the bearish leaders, there were plenty to pick from, though most of them were simply being pulled lower by the marketwide bearish tide.
Micron Technology, Inc. (NASDAQ:MU), Sprint Corp (NYSE:S) and Bank of America Corp (NYSE:BAC), however, fanned their bearish flames by adding a little extra reason for the sellers to dump these particular names. Here’s what investors need to know.
Sprint Corp (S)
The fact that wireless service provider Sprint is struggling isn’t exactly a veiled secret.
As of yesterday, S shares were down more than 72% from their mid-2014 peak, as investors have watched the outfit burn through a mountain of money and have little to show for their investment or effort. Sprint fell another 7% on Wednesday, however, as the point was once again hammered home by reports of even more cost-cutting.
Normally lowering expenses is a positive for a company. In this case, though, the cost-cutting measures appear to be more of a “have to” rather than a “want to”, as Sprint wrestles to find a formula that allows it to garner and retain customers profitably.
Adding the fiscal burden is a debt load at abnormally high interest rates, but until the company proves it can function profitably in perpetuity, it’s unlikely Sprint will ever find an affordable loan by issuing or reissuing bonds.
Faithfull S shareholders are finally starting to recognize the wireless company is simply too far underwater to save.
Bank of America Corp (BAC)
Bank of America already paid a post-earnings toll on Tuesday after it reported last quarter’s results. The market wasn’t done beating BAC down, however.
Encouraged by the bearish backdrop, traders sent BAC down nearly another 4% on Wednesday, largely fueled by — and this isn’t a typo — today’s 6% dip in the price of crude oil.
Although it’s been understood as a factor for a while, the extent of Bank of America’s exposure to the energy sector became crystal clear in Tuesday morning’s earnings report, which indicated an additional $250 million or so in credit charge-off losses stemming from its loans to oil and gas companies.
With crude oil prices reaching new multi-year lows again today, odds are good those charge-off costs could rise before they fall again.
Micron Technology, Inc. (MU)
Last but certainly not least, Micron Technology lost 7% of its value today, though the blame for the oversized setback rests squarely on the shoulders of MU industry peer Advanced Micro Devices, Inc. (NASDAQ:AMD).
Long story made short, Advanced Micro Devices expects revenue to fall by about 14% for the current quarter thanks to weak semiconductor demand from China. Intel Corporation (NASDAQ:INTC) also recently cited as a headwind.
In that all of these companies make parts for computers, phones and tablets, if one or more is struggling, odds are good they’re all struggling. This includes Micron Technology, which makes memory for such devices.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.