U.S. equities finished lower on Thursday — snapping a nine-day winning streak for large-cap stocks — after investors were spooked by a combination factors. These included a “no change” decision by the European Central Bank, comments out of Japan that a “helicopter money” stimulus wasn’t forthcoming, and new weakness in crude oil prices.
In the end, the Dow Jones Industrial Average lost 0.4%, the S&P 500 Index lost 0.4%, the Nasdaq Composite lost 0.3% and the Russell 2000 lost 0.5%. Treasury bonds were stronger on safe haven inflows, the dollar lagged the yen cross (bad for carry trades), gold gained 0.9% and crude oil lost 2.2%.
Industrial and energy stocks were the laggards, down 1% and 0.9% respectively. Defensive utility stocks bucked the trend, rising 0.6%. The downturn in commodity prices, led by crude oil, threatens the “all hands on deck” uptrend the bulls have enjoyed since February and has accelerated since the Brexit vote in late June.
The negative dynamic happened despite a number of M&A related headlines. Joy Global Inc. (NYSE:JOY) gained 19.7% after agreeing to be acquired by Komatsu in a $3.7 billion all-cash deal representing a 48% premium to the 90-day average stock price. Exxon Mobil Corporation (NYSE:XOM) lost 0.1% after announcing a $2.5 billion deal to acquire Interoil.
In earnings news, Intel Corporation (NASDAQ:INTC) dropped 4% after reporting a slight revenue miss on Wednesday night and issuing a soft second-half outlook. eBay Inc (NASDAQ:EBAY) gained 10.9% on a top- and bottom-line beat. Southwest Airlines Co (NYSE:LUV) dropped 11.2% after issuing a dour outlook on rising fuel costs and ongoing evidence of industry overcapacity and margin pressure.
After the close, Starbucks Corporation (NASDAQ:SBUX) was down roughly 3% in extended trading after reporting a revenue miss of $5.24 billion vs. the $5.35 billion expected. Forward guidance was also soft as the company endeavors to boost U.S. same-store sales with initiatives like evening offerings of beer, wine, and small plates.
Pandora (NYSE:P) dropped 6.3% — adding to the 2.8% loss in the cash session — after reporting a loss of 12 cents per share (vs. a 14 cent loss expected) on weaker-than-expected revenues of $343 million. Total active listeners declined to 78.1 million from 79.4 million last year.
Turning to the central banks, Bank of Japan chief Kuroda reiterated his opposition to deeper stimulus efforts (saying there was no need or possibility of helicopter money), pushing European indices into the red. Then European Central Bank president Mario Draghi said policymakers didn’t have enough information on the impact of the Brexit vote on the European economy to justify additional action at this meeting — echoing a similar “no change” decision by the Bank of England recently.
With the odds of a 2016 rate hike from the Federal Reserve rising heading into their policy meeting next week, amid an ongoing tightening in the labor market and evidence of nascent inflation, all of this flies in the face of the justification given for the historic market rally of the last few weeks: That an epic, globally-coordinated surge of monetary policy stimulus was imminent.
That, along with deteriorating supply-demand dynamics (especially in refined products like gasoline) hit crude oil hard and by extension energy stocks.
The U.S. Oil Fund LP (NYSEARCA:USO) is down to levels not seen since April and is threatening a breakdown out of a two-month downtrend channel. The boosted the UltraShort Crude Oil (NYSEARCA:SCO) position recommended to Edge subscribers to a 4.4% gain.
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.
