Closing Market Summary: Stocks Retreat Amid Concerns About Earnings and Europe
The stock market stumbled on Thursday, but a daylong rebound off the opening lows helped the major averages erase the bulk of their losses. The Russell 2000 was the weakest performer, falling 1.1%, while the S&P 500 settled lower by 0.4% after being down as much as 1.0% at the open.
The early stumble was not brought upon by any specific headline, but rather a series of developments that caused investors to reduce their exposure to equities. In Asia, China reported below-consensus exports (7.2% versus expected 10.6%) and imports (5.5% versus expected 5.8%), while Japan's Core Machinery Orders tumbled 19.5% against the expectations of an uptick of 0.7%.
As the night continued, news from Europe caused an exodus from regional equities (mainly financials) amid worries about Portugal's banking system after the parent company of Banco Espirito Santo missed a bond payment. Portugal's PSI 20 fell 4.2%, while Germany's DAX and Spain's IBEX lost 1.5% and 2.0%, respectively.
Domestically, participants received a sliver of good news on the economic front as weekly initial claims decreased to 304,000 (consensus 311,000); however, headlines out of the corporate world were not nearly as upbeat.
With the second-quarter earnings season set to heat up next week, two consumer discretionary components primed the market for disappointing results. Shares of Potbelly (PBPB 10.97, -3.68) plunged 25.1% to a new record low after the company said it expects its revenue to come in below estimates, while also guiding for a 1.6% decline in comparable store sales.
Yesterday, the CEO of The Container Store (TCS 24.58, -0.22) provided some cautious comments about the retail environment as a whole, and today his remarks were echoed by Lumber Liquidators (LL 55.25, -15.17). The home improvement retailer said that customer traffic during the quarter was well below expectations, which will result in disappointing results. The stock sank 21.5%, while peers Home Depot (HD 79.40, -1.33) and Lowe's (LOW 47.20, -0.66) both lost near 1.5%.
The relative weakness of the discretionary sector (-0.9%) was not enough to scare dip-buyers away. After putting in a session low during the first 15 minutes of the action, the S&P 500 spent the trading day in a steady rally that allowed the index to reclaim more than half of its losses. A rebound in the heavily-weighted health care (unch) and technology (-0.3%) sectors contributed to the partial recovery, but energy (-1.0%) and financials (-0.6%) were reluctant participants in the bounce, which prevented the S&P 500 from turning positive.
Treasuries, meanwhile, rallied throughout the night, registered their highs shortly before the start of the session, and spent the remainder of the day in a retreat. The 10-yr note trimmed its gain to four ticks, while the benchmark yield slipped two basis points to 2.54%.
Participation was below average with 640 million shares changing hands at the NYSE floor.
Economic data was limited to weekly initial claims and the Wholesale Inventories report for May:Tomorrow, the June Treasury Budget (consensus $70.00 billion) will be reported at 14:00 ET.
- The initial claims level fell to 304,000 from an unrevised 315,000, while the Briefing.com consensus expected the claims level to fall to 311,000
- Over the past several weeks, claims have stabilized between 310,000 and 320,000. While claims came in below this level, it was likely due to normal volatility stemming from the Independence Day holiday and not a change in trend
- The continuing claims level increased to 2.584 million from a downwardly revised 2.574 million (from 2.579 million), while the consensus expected continuing claims to slip to 2.567 million
- Wholesale inventories increased 0.5% in May following a downwardly revised 1.0% (from 1.1%) in April. The consensus expected wholesale inventories to increase 0.5%
- The increase in inventories came predominantly from a 1.9% increase in automotive inventories and a 2.1% increase in metals
- S&P 500 +6.3% YTD
- Nasdaq Composite +5.3% YTD
- Dow Jones Industrial Average +2.0% YTD
- Russell 2000 -0.1% YTD