Stocks Slump Amid Deutsche Bank Fears

Advertisement

U.S. equities finished sharply lower on Thursday amid reports hedge funds are pulling collateral out of troubled German financial titan Deutsche Bank AG (USA) (NYSE:DB) amid ongoing concerns about its balance sheet health as it struggles with a tepid European economy, Brexit costs and fresh regulatory fines here in the United States. Spiking the punch have been indications the German government is reluctant to get involved with state aid to the bank.

DB shares lost 6.7% as headlines filled up with stories eerily reminiscent of the 2008-2009 financial crisis — full of questions about counterparty risk, contagion, increased credit default swap prices and tightening interbank liquidity. As a result, the bank’s market cap dropped below beleaguered new-tech disappointment Twitter Inc (NYSE:TWTR). Which is sort of funny.

In the end, the Dow Jones Industrial Average lost 1.1%, the S&P 500 Index lost 0.9%, the Nasdaq Composite lost 0.9% and the Russell 2000 lost 1.4%. Treasury bonds were stronger on safe haven flows, the dollar was mixed, gold gained 0.2% to end its recent selloff and oil extended its OPEC-driven rally from Wednesday adding another 1.7% (despite early pushback from Iraqi oil officials on its production level).

EU_Financials

Volatility surged higher as investors sought safe havens. That pushed the Velocity Shares 2x VIX (NASDAQ:TVIX) recommended to Edge subscribers earlier this week to a gain of 12.3%.

Financial stocks were weak, down 1.5% as U.S. bank shares were pulled down in sympathy. The chart above, of credit default swap prices, shows the contagion effect in play. Morgan Stanley (NYSE:MS) lost 2.3% to push the Oct $31 puts recommended to Edge Pro subscribers to a gain of nearly 23%.

Healthcare stocks lost 1.8% as Mylan NV (NYSE:MYL) lost 4.4% on ongoing EpiPen price headlines. Fitbit Inc (NYSE:FIT) lost 11.3% after being downgraded to underweight by analyst at Pacific Crest on concerns over the longevity of consumer interest in fitness trackers.

DB

It was a busy day on the economic front. Pending home sales dropped 2.4% in August, worse than the 0.3% gain that was expected. This is the lowest level since January and the third decline in the last four months.

Second-quarter GDP growth was revised slightly upward to 1.4% from 1.1%. And the trade deficit for August was smaller than expected as exports increased for the third straight month, boosting estimates of Q3 GDP growth.

Federal Reserve officials were out in force again today. Federal Reserve Board Chair Janet Yellen talked up the possible need for Congress to expand their statutory authorization to allow the purchase of a wider range of financial assets — including stocks — should the purchase of Treasury bonds no longer be sufficient to boost the economy.

Philly Fed president Harker said December would be appropriate for a rate hike and would prefer tightening sooner rather than later. Atlanta Fed president Lockhart said the September policy statement suggested a rate hike could occur before too long. Kansas City president George reiterated her view that it’s time to hike rates, referring to her dissent at the September meeting. And Fed governor Powell said policymakers can continue to be patient.

DJI

Technically, the market looks vulnerable to a break by the Dow Jones Industrial Average back below support at the 18,000 level — a level that proved a recurring hurdle since first reached in late 2014.

The DB concerns won’t be easily fixed, since they get at the heart of many of the problems that have been swept under the rug by central bankers and policies in recent years: lingering bad debt, incomplete financial market reforms, tepid economic growth and the fragility of the Eurozone.

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.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/stock-market-today-nyse-dow-jones-industrial-average-investing-news-fed-deutsche-bank/.

©2024 InvestorPlace Media, LLC