Dow Jones Tests 18,000 on China Disappointment

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U.S. equities finished in the red on Thursday after recovering from steep early morning losses driven by overnight disappointment with the latest trade data out of China.

Additional pressure was applied by renewed concern about the balance sheet health of Deutsche Bank AG (USA) (NYSE:DB), on reports of a hiring freeze and lingering unease about the strong odds of a December interest rate hike by the Federal Reserve, following relatively hawkish September meeting minutes on Wednesday.

In the end, the Dow Jones Industrial Average lost 0.3% after falling below the 18,000 level near the open and testing levels not seen since July. The S&P 500 Index lost 0.3%, the Nasdaq Composite lost 0.5% and the Russell 2000 lost 0.9%. Treasury bonds enjoyed a safe haven bid, the dollar was weaker in a reversal of recent trends, gold gained 0.3% and crude oil gained 0.5%.

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Defensive utility stocks led the way again with a 1.3% gain while financials were the laggards, down 1.1%. GoPro Inc (NASDAQ:GPRO) fell 3.2% on a report by Piper Jaffray analysts that the company is not currently shipping to Amazon. The company plans to resume shipments at the end of October — likely an effort to clear an inventory backlog and prepare for a big holiday push with new products including the Karma drone.

In U.S. dollar terms, Chinese exports dropped 10% from last year (versus expectations of a 3.3% drop) while imports fell 1.9% (versus expectations of a 0.6% gain). The numbers showed the largest drop in exports in seven months.

As noted by Deutsche Bank analysts, “the data will pose downside risks to the Q3 GDP print next week and will also likely put the focus back on the currency.”

Indeed, the Chinese yuan weakened in response to the data. As a reminder, poor data out of China, a weakening currency and higher inter-bank lending rates have been responsible for the two largest and most sustained market pullbacks of the last two years: In August 2015 and again in January of this year.

This, in turn, plays into two major structural concerns with China: A massive bad debt problem and accelerating capital outflows. In other words, this is no mere flash in the pan; the Chinese have some serious problems on their hands.

And it’s affecting the entire region: There was weak trade data out of South Korea and Taiwan as well.

The Q3 earnings season rolls on Friday with reports from Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), and JPMorgan Chase & Co. (NYSE:JPM). Both C and WFC are expected to report earnings declines from last year.

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Given all the headwinds — the meat the of Q3 earnings season, China woes, Fed hikes, the election, weak GDP growth, declining market breadth and more — I continue to recommend a defensive positioning.

This includes picks like the Oct $29.50 General Electric Company (NYSE:GE) puts that are up more than 72% for Edge Pro subscribers since recommended on October 5 or the VelocityShares 2x VIX (NASDAQ:TVIX) that is up 9% for Edge subscribers since Sept. 27.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/stock-market-today-nyse-dow-jones-industrial-average-investing-news-china/.

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