Subject: Stock Selloff Starting to Get Serious Date: Tue, 20 Aug 2013 06:51:23 -0400 From: WSJ Editors Reply-To: [email protected] To: [email protected] The Wall Street Journal Morning MoneyBeat US Morning MoneyBeat: Stock Selloff Starting to Get Serious By Steven Russolillo MARKET SNAP: At 6:30 a.m. ET, S&P 500 futures down 0.1%. Treasury yields lower. Nymex down $0.54 at $106.32. Gold 0.1% higher at $1366.70. In Europe, FTSE 100 down 0.6%, DAX down 1.1% and CAC 40 down 1.5%. In Asia, Nikkei 225 up 0.8% and Hang Seng down 0.2%. WATCH FOR: No major economic data on tap. Analog Devices, Barnes & Noble, Best Buy, Dick’s Sporting Goods, Home Depot, Intuit, J.C. Penney, La-Z-Boy, Medtronic, Saks, TJX and Trina Solar are among companies scheduled to report quarterly results. THE BREAKFAST BRIEFING This selloff is proving to be more than just a blip on investors’ radars. The Dow and S&P 500 are each riding their first four-day losing streaks of the year and have fallen in nine of the past 11 trading days. The Dow is down 4.1% from its record high hit earlier this month, a skid that has brought back memories of the spring swoon that was also driven by worries about future Fed stimulus. A lackluster earnings season, negative technicals – the S&P 500 fell through its 50-day moving average with authority on Monday – and historically tough months ahead are making some investors nervous that this selloff could be worse than what transpired a few months back. “What makes this all a bit unnerving is that stocks are historically weak from mid-August into October,” said Paul Nolte, managing partner at Dearborn Partners, which manages about $4 billion in Chicago. “Given the huge run so far this year and the very long period since our last 10% correction, it would not be hard to imagine that one is on the horizon.” To Mr. Nolte’s point, the last time the S&P 500 suffered a pullback of at least 10% came in October 2011, when stocks briefly flirted with bear-market territory before quickly bouncing back. Despite the S&P 500′s 3.7% from its all-time high earlier this month, the stock index is still up 15% this year, which follows last year’s 13% advance. The worry now is the Fed could be poised to pull back on its stimulus programs as soon as next month’s policy meeting. Such a prospect has pushed the yield on the benchmark 10-year Treasury note up to a two-year high and within striking distance of 3%. Mr. Nolte predicts stock investors will have “a rough time pushing the market up” from current levels, especially amid uncertainty about what the Fed will do next. “The stock market is doing a great imitation of a two-year old that has had his favorite toy taken away,” he said. “Whether ‘Father Ben’ will acquiesce and keep the QE is still up in the air.” To be sure, the final two weeks are historically a quiet time on Wall Street. There’s a school of thought that says the market could rebound once traders return from summer vacation. But even as trading volume in stocks has declined, the market for protective options remains active. Options on the S&P 500 saw nearly 743,000 contracts exchange hands on Monday, 107% of the daily average during the past month. Of that volume, 64% was in put options, which protect against a decline. That suggests investors are increasingly preparing for rockier times ahead. “The coming weeks are fraught with the risk of an extremely choppy market with a downside bias,” said Jason Goepfert, founder of Sundial Capital Research and author of the SentimenTrader Daily Report. Morning MoneyBeat Daily Factoid: On this day in 1938, NY Yankee legend Lou Gehrig hit his 23rd career grand slam, a major-league record that was all his until last season. In June 2012, Alex Rodriguez hit the 23rd grand slam of his career in a game against the Atlanta Braves, matching Gehrig’s record. -By Steven Russolillo (Kaitlyn Kiernan contributed to this column.) STOCKS TO WATCH Best Buy is likely to report second-quarter earnings of 11 cents a share, according to a consensus survey by FactSet. The stock’s price target was raised to $36 from $29 on Monday at J.P. Morgan. “Best Buy re-platformed its store with Samsung and Microsoft sections, in addition to optimizing space allocation and adding a product clearance. We believe these efforts will help stabilize sales and margin declines before other initiatives including e-commerce capabilities and conversion rates become more apparent later in the year,” Christopher Horvers at J.P. Morgan said in a note. J. C. Penney is forecast to post a second-quarter loss of $1.07 a share. Hedge-fund manager Bill Ackman, who owns about 18% of the retailer, resigned from the board last week. Home Depot is projected to report second-quarter earnings of $1.21 a share. MUST READS (LINKS) J.P. Morgan Faces New Probe on Energy Trades: “The Justice Department is investigating whether J.P. Morgan manipulated energy markets, marking the latest legal hurdle for a bank already facing a mountain of litigation and regulatory scrutiny.” Summer Selloff in Treasurys Continues: “The summer selloff in U.S. Treasurys has taken the benchmark 10-year note’s yield within striking distance of 3%, though some investors question whether yields will fall once vacationing traders return to the market after Labor Day.” Current Account: Activist Investors: Roar or Bark? “The debate over activist investors holds new urgency as big names such as Icahn, Ackman and Loeb take on the likes of Apple, Penney and Sony, writes Francesco Guerrera.” Asian Emerging Markets Plunge: “Major emerging markets in Asia plunged Monday on growing concerns among foreign investors that many of the region’s largest economies look increasingly fragile as a period of global easy money appears to be coming to an end.” MoneyBeat: Google’s IPO, Nine Years Later: Only Nine Stocks Beat It: “Nine years ago, Google Inc. started trading on the public markets at $85 a share. The stock price has since risen by more than 900%. Only nine stocks in the S&P 500 have exceeded that gain over the same timeframe.” Falcone Admits Wrongdoing, Agrees to Five-Year Ban: “Hedge-fund manager Philip Falcone agreed to pay more than $18 million, admit wrongdoing and be barred from the securities industry for at least five years in a settlement he and his firm reached with regulators, the U.S. Securities and Exchange Commission said Monday.” Ahead of the Tape: Home Depot’s Foundation Appears Fragile: “Since the beginning of 2012, Home Depot’s shares have rallied 79%, 13 percentage points better than an index of home builders. But this leaves the stock valued at 19 times the next 12 months’ projected earnings. Despite the promise of further gains in home prices and renovation work, today’s valuation looks full.” Volume in ‘Repo’ Market Drops: “Volume in the short term-funding market known as “repo” has thinned to a 20-month low, as new rules crimp the risks banks can take and other financing alternatives have emerged.” Fed Boosts Pressure on banks Over Capital Levels: “The Federal Reserve is raising its expectations for the largest U.S. banks, signaling that firms need to go above and beyond regulatory minimums when capital planning and safeguarding against future market stresses.” Heard on the Street: Central Banks Risk Clash of Titans: “Immovable object, meet irresistible force. Central banks want to be the former, at least on short-term interest rates, but markets, in the role of the latter, may have different ideas.”
Posted on: Tue, 20 Aug 2013 14:15:50 +0000
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