On Tuesday, stocks were slammed as disappointing earnings took first place in investors’ worries.
Alcoa Inc (NYSE:AA), traditionally the first major company to report earnings, announced lower-than-expected revenues and earnings. Additionally, management cut revenue targets, and the stock fell over 11%. And AA was not alone in disappointments: Illumina, Inc. (NASDAQ:ILMN) fell almost 25% after its management warned that third-quarter and Q4 revenues would be below analysts’ expectations.
FactSet said that their recent poll of analysts resulted in an estimated earnings decline for the sixth consecutive quarter. This is in sharp contrast to their statement in June, which stated that analysts projected an increase in earnings growth in Q3.
The continued strength in the dollar has created concerns about the near-term growth picture for large multinational companies and the economic expectations for stocks in “emerging markets.”
On Tuesday, the dollar rose 0.8% against a basket of 16 currencies. This, plus a report from the International Energy Agency, added pressure to crude oil prices. The agency reported that the global oil supply increased by 0.6 million barrels per day in September. Crude oil (WTI) fell 1.2% to $50.71 per barrel.
All of the 11 S&P sectors finished the day in the red, with healthcare (-2.5%) followed by utilities and technology, each falling 1.2%.
Perhaps today will turn in a better result, with the early release of the weekly MBA Mortgage Index. And, the Department of Energy will release its latest inventory numbers, while the Federal Reserve will release the minutes from its September FOMC meeting at 2 p.m. Eastern time.
At the close on Tuesday, the Dow Jones Industrial Average fell 200 points, closing at 18,129; the S&P 500 lost 27 at 2,137; the Nasdaq fell 82 points at 5,247, and the Russell 2000 fell 23, ending the day at 1,228. The NYSE’s primary exchange traded 834 million shares, with total volume of 3.4 billion shares, and the Nasdaq crossed 1.8 billion shares. Decliners outpaced advancers by over 4-to-1 on the NYSE and over 5-to-1 on the Nasdaq. Blocks on the NYSE increased to 5,233 from 4,166 on Monday.
Monday’s turn from the 50-day moving average of the S&P 500 resulted in the penetration of the important line at 2,145. This puts the index squarely in the support range that, until September, had held since July. The bottom of the current trading band is at 2,115, and a close below that would put the 500 in an intermediate downtrend.
Sticking with analysis of the S&P: When we split out the mid-cap component of the index, it appears in a more tenuous condition than the 500. The exchange-traded fund SPDR S&P 400 Mid-Cap ETF (NYSEARCA:MDY) (an ETF for the mid-caps) shows a large increase in sellers and a low of the day at its important support line at 275.
Conclusion: The mid- and small caps appear to be gathering sellers as pressure from lower earnings (mostly from global giants), currency fluctuations and commodity-related adjustments have increased their volatility.
Even if the immediate support lines of the indices are broken, watch for a gathering of big buyers waiting in the wings to scoop up bargains. Corrections in bull markets can be nerve-wracking, but they also provide those with fortitude and assets to buy low and later, sell higher.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
