Markets Lower, Closing News 8/18/11

Markets slid today on renewed concern about the European banks as well as disappointing economic reports and bearish comments from NY Fed President Dudley. The Dow fell 419 points (3.68%) and the S&P closed 53 points (4.46%) lower. The decline was broad based as five of the ten S&P 500 sectors finished down over 5% on the day.

Morgan Stanley issued a report today, indicating it is cutting its outlook for global growth, saying the United States and Euro-zone are “dangerously close to recession.” The note indicates that Morgan Stanley has cut its view for global GDP to +3.9%, down from 4.2% for 2011, and to 3.8% from 4.5% for 2012. The note also predicted that the European Central Bank will cut its rates after hiking the rate twice this year.

The Wall Street Journal is reporting that the Fed is taking a closer look at European banks who have operations in the United States. The Fed is looking into the banks’ access to funds on a daily basis, gauging their ability to operate amid the pressure the debt crisis in Europe has created. The report follows the news that an unnamed European bank borrowed $500 million from the ECB yesterday, for the first time since February.

The Philadelphia Fed released their report on Mid-Atlantic manufacturing, showing that the index has hit a two and a half year low. The index unexpectedly fell to -30.7 in August (readings below 0 signal contraction), down from 3.2 in July. Economists’ had been expecting the reading to increase to 3.7.

The Consumer Price Index rose 0.5% in July, higher than the 0.2% economists were expecting, driven higher by gasoline prices. The reading complicates the justification for any easing efforts the Fed could make, however the core figure (ex- food and gas) which the Fed keys in on, was in-line with expectations of 0.2%.

Jobless claims rose 9k last week, and back over 400k for the 18th time in the last 19 weeks. The previous week’s reading was revised to a shade under 400k (399k) up from 395k.  Businesses are reluctant to add workers because consumer confidence continues to be hampered by concerns about European debt, the S&P downgrade of the US credit rating and turmoil in the markets.

New York Fed President Dudley made comments this morning that the economy is growing slower than the Fed expected, and although he has revised down his expectation for the pace of the recovery, he expects we will see stronger growth in the second half. Dudley would not give specific comment on the monetary policy set forth in the FOMC statement last week, but did say that he thinks the actions taken will support economic activity and jobs.

President Obama has accused Syrian President Bashar al-Assad of “torturing and slaughtering” his people, and both the United States and EU have called for the President to step down. In addition to condemning the actions, President Obama ordered that Syrian government assets in the United States be frozen. A United Nations investigation has revealed that President al-Assad’s forces have killed over 1,900 civilians in systematic attacks.

Market Indices/Statistics:

  • Dow closed down 419.63 pts/-3.68% to 10990.58
  • S&P closed down 53.24 pts/-4.46% to 1,140.65
  • Nasdaq closed down 131.05 pts/-5.22% to 2,380.43
  • 29 of the 30 Dow stocks closed lower / Wal-Mart closed higher
  • All 10 S&P 500 sectors closed lower
  • Materials was the worst performing sector (down 5.80%)
  • The VIX was up 11.09 points to 42.67
  • Oil is down $6.03 to $81.74
  • Nat Gas is down $0.022 to $4.062
  • Gold is up $34.80 to $1,823.40
  • Euro vs. Dollar down $0.0089 to $1.4335
  • Dollar vs. Yen down $0.06 to $76.55

Companies in the News:

Hewlett Packard closed lower (-3.12% to $30.41) after confirming it is in discussions regarding a possible business combination with Autonomy Corporation plc in a deal that is being reported as worth up to $10 billion. HP also announced that it is discontinuing its operations for webOS devices, pursuing strategic alternatives for its Personal Systems Group, and announced their Q3 earnings. HPQ reported Q3 earnings of $1.10, in line with expectations, but its FY revenue view came in at $127.2-127.6 billion, just below analysts’ forecasts of $129 billion.

Shares of Scana Corp.  traded higher today (+1.37% to $39.15) following a report from dealreporter.com that the company is a potential takeover target.

Noble Energy (-5.58% to $83.03) announced a strategic partnership with Consol Energy (+0.40% to $42.59) for CONSOL’s Marcellus Shale acreage in a deal valued at $3.4 billion.

Coca-Cola announced it will invest $4 billion over the next three years, beginning in 2012, for long-term sustainable growth in China. The investment will be used to enhance the consumer experience, ensure product affordability and build brand loyalty.  Shares of KO closed lower (-2.19% to $67.76) on the day.

Earnings:

Gamestop Corp. traded higher (+4.74% to $21.43) after reporting Q2 earnings per share before the bell this morning. GME reported Q2 earnings per share of $0.22 on sales of $1.74 billion vs. estimates of $0.21 per share on $1.81 billion in sales. Shares were pushed higher because the results, while missing expectations were not as bad as investors had feared.

Shares of CACI International Inc. were flat today (-0.02% to $48.81) after reporting earnings per share of $1.28 for the fourth quarter on $963 million in revenue, ahead of expectations of $1.17 per share on $958 million in revenue.

The Toro Company reported earnings per share of $1.11 in Q3, slightly lower than analysts’ forecasts of $1.13 per share. The company also confirmed their FY guidance, saying it sees FY earnings per share around $3.60, in-line with expectations of $3.62. Shares of TTC traded 4.76% lower to $47.22 in today’s session.

Coming Friday:

Economic Reports: None; Earnings from New York & Co. and Ann Inc.