A surprise increase in unemployment claims and lingering doubts about Europe’s economy sent stocks lower on Thursday, putting breaks on the September rally which has vaulted major averages up at least 6.5% this month. However, a rise in existing home sales from 15-year lows helped stocks trim those losses.
Even as investors appeared jittery about the market’s ability to sustain the recent rally, they were greeted with more dour economic reports from Europe. A lower-than-expected reading on business activity in 16 eurozone countries reminded investors of the state of affairs in the eurozone. Then, a report on Ireland’s economy, already reeling under recession, painted a rather disappointing picture. Ireland said its economy shrank 1.2% in the April-to-June period. The country’s first-quarter growth was also revised downwards to 2.2% from 2.7%.
Weighed down by these worries, the Dow industrials closed down 77 points, extending their decline to a second consecutive day. The blue-chip average closed at 10662.42, off 0.7%. The S&P 500-stock index fell below the closely watched technical mark of 1131. The widely followed index closed at 1124.83, off 9.45 points or 0.8%. The tech-heavy Nasdaq dropped more than 7 points, or 0.3%, to 2327.08. On the New York Stock Exchange, two stocks fell in price for each one that advanced.
The market’s measure of volatility, the CBOE Vix jumped 6% to 23.87, as traders grew uncomfortable at their desks. US Treasuries also continued higher, with the 2- and 10-years up 1/32 in price, as their respective yields eased to 0.420% and 2.551%, respectively.
Financials were under pressure. Shares of Goldman Sachs (NYSE:GS) dropped 2.1%, Morgan Stanley (NYSE:MS) fell 0.8%, and Citigroup (NYSE:C) closed off 2.1%. Bank of America (NYSE:BAC) warned that the “severe summer slowdown weighs on trading,” and cut its earnings estimates for Goldman, Citigroup, and Morgan Stanley. Dick Bove cut his profit estimates on Morgan Stanley for this year and next.
This morning’s US dollar’s strength against the yen briefly sent the Nikkei higher as shares of exporters recorded gains.
Among the S&P500’s ten industry sectors, only technology shares could record some gains on the day, up a slight 0.01%. Financials led the decliners, off 1.8%. Also closing in the red were industrials (-1.4%), utilities (-1.0%), basic materials (-0.9%), consumer goods (-0.8%), oil and gas (-0.7%), consumer services (-0.5%), health care (-0.4%), and telecommunications (-0.4%).
Shares in housing companies fell, with both Pulte (NYSE:PHM) and DR Horton (NYSE:DHI) closing off 2.5%. Amid concerns on housing, former Fed Chairman Volcker opined the US mortgage market is “absolutely broken.”
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis Report
Zacks Investment Research
