U.S. equities skidded lower in relatively quiet trading as investors responded to the reappearance of negative headlines surrounding Deutsche Bank AG (USA) (NYSE:DB) and braced themselves for the start of what is historically a pretty spooky month for stocks.
In the end, the Dow Jones Industrial Average lost 0.3%, the S&P 500 Index lost 0.3%, the Nasdaq Composite dropped 0.2% and the Russell 2000 ended the day 0.5% lower. Treasury bonds were weaker, the dollar was stronger, gold lost 0.3% and crude oil gained 1.2% to continue its recent run of strength.
Defensive telecom stocks led the way higher with a 0.1% gain. Yield-sensitive real estate investment trusts and utility stocks led the decliners, down 1.8% and 1.4%, respectively, as inflation expectations rise (alongside energy prices) and pressure long-term Treasury yields higher. That boosted the ProShares UltraShort Lehman 20+ Yr(ETF) (NYSEARCA:TBT) recommended to Edge subscribers to a gain of 1.2%.
A better-than-expected ISM manufacturing activity report played into this, with the measure returning to growth in September with a 51.5 gain vs. the 50.5 expected and the contractionary 49.4 reading in August. New orders surged to 55.1 from the 49.1 seen in August.
Twitter Inc (NYSE:TWTR) gained 4.1% after Bloomberg reported Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) retained Lazard to evaluate a potential bid for the company. Tesla Motors Inc (NASDAQ:TSLA) rose 4.7% after reporting Q3 deliveries of around 24,500, ahead of the 22,290 expected and up 70% quarter-over-quarter. Outdoor outfitter Cabelas Inc (NYSE:CAB) gained 15% after agreeing to an acquisition by Bass Pro Shops for $65.50 a share in a $5.5 billion deal.
The big story was a denial, in the Wall Street Journal, that DB and the U.S. government were near a deal to lower a possible settlement related to residential mortgage backed securities from $14 billion to a number near $5 billion (as was rumored in the media on Friday, boosting stocks). Instead, it was reported that negotiations between the bank and regulators are still in the early stages.
While German markets were closed today, DB shares lost 0.8% in trading in New York while credit default swaps surged higher — reflecting the reappearance of doubts over the bank’s liquidity position after reports last week that hedge funds and other clients were pulling excess cash and looking for third parties to be brought in on bilateral trades.
All are echoes of the loss of confidence that ultimately doomed Lehman Brothers and Bear Stearns during the financial crisis.