Closing Market Summary: Stocks Slide Amid Geopolitical Concerns
The stock market finished the Thursday session on a lower note with the Russell 2000 (-1.5%) posting its third consecutive loss that took the small-cap index below its 200-day moving average (1140.82). For its part, the S&P 500 fell 1.2%, which represented the first move in excess of 1.0% over the past 63 trading days.
The benchmark index spent the entire session in the red with the early weakness attributed to concerns about the impact of the latest set of U.S. sanctions against Russia. The sanctions targeting two banks (Gazprombank and VEB), two energy companies (Rosneft and Novatek), and several defense contractors were announced shortly after yesterday's closing bell and they pressured markets in Europe as well.
Despite the lower start, the S&P 500 was on the brink of turning positive at the end of the opening hour, but slid to fresh lows after it was reported that a Malaysian Airlines jet, with nearly 300 passengers and personnel on board, crashed in Ukraine near the border with Russia.
After the initial reports crossed the wires, subsequent headlines indicated that the plane did not crash due to mechanical reasons, but instead, was shot down. One pro-Russian rebel group in the east denied having any involvement, while Ukraine's President Petro Poroshenko said that the country's army has not taken any action "against airborne targets" either.
With no clarity regarding who was responsible for bringing down the jet, airlines in France and Germany said they will avoid Ukrainian airspace, while the Federal Aviation Administration prohibited U.S. carriers from flying in the area as well.
Equities attempted an afternoon rebound, but fell to new lows during the last hour of action in reaction to reports indicating Israel has launched a ground offensive in Gaza.
The pair of worrisome reports ensured a lower finish for equities, while safe-haven assets like gold, Treasuries, and the yen rallied. Gold futures rose 1.5% to $1319.70/ozt, while Treasuries ended on their highs with the 10-yr yield down seven basis points at 2.46%. For its part, the dollar/yen pair fell to 101.25, less than 60 pips away from the lowest level of the year for the risk-sensitive pair.
All ten sectors ended in the red with influential cyclical groups like energy (-1.6%), industrials (-1.6%), and technology (-1.3%) finishing at the bottom of the leaderboard. The energy sector diverged from crude oil, which rallied 2.1% to $103.29/bbl, while the industrial sector saw weakness among airline stocks. Delta Air Lines (DAL 36.57, -1.30) and United Continental (UAL 43.35, -1.55) both lost near 3.5%, while the Dow Jones Transportation Average lost 1.4%.
Elsewhere, the tech sector was pressured by chipmakers as evidenced by a 2.5% decline in the PHLX Semiconductor Index. The high-beta group ended broadly lower after SanDisk's (SNDK 93.21, -14.62) cautious guidance overshadowed its above-consensus results.
Staying on the earnings theme, eBay (EBAY 51.03, +0.33) and SAP (SAP 80.68, +1.04) added 0.7% and 1.3%, respectively after beating bottom-line estimates.
While most sectors posted losses larger than 1.0%, materials (-0.5%) outperformed thanks to a boost from mining shares that sent the Market Vectors Gold Miners ETF (GDX 26.99, +0.71) higher by 2.7%.
Another big move took place in the CBOE Volatility Index (VIX 14.71, +3.71), which surged more than 33.0% off a depressed base to levels not seen since late April as participants rushed for volatility protection.
Despite the news-filled day, participation remained below average with 690 million shares changing hands at the NYSE.
Economic data included weekly initial claims, June Housing Starts and Building Permits, and the Philadelphia Fed Survey for July:
The initial claims level dropped to 302,000 from an upwardly revised 305,000 (from 304,000), while the consensus expected an increase to 311,000
After stabilizing in the 310,000 -- 320,000 range, the initial claims level has moved another leg down over the last couple of weeks. If these trends hold, we would expect to see monthly payroll growth close to 300,000
The continuing claims level fell to 2.507 million from an upwardly revised 2.586 million (from 2.584 million), while the consensus expected the level to fall to 2.563 million
Housing starts fell 9.3% in June from a downwardly revised 985,000 (from 1.001 million) in May to 893,000. The consensus expected an increase to 1.020 million.
The drop in starts brought new residential construction levels to their lowest point since 863,000 homes were started in September 2013
Concerning was the new downward trend in single-family construction. This sector tends to produce stable trends yet starts have now fallen precipitously in both May (-2.6%) and June (-9.0%). Construction levels for new single-family homes are at their lowest point since 569,000 homes were started in November 2012
The Philadelphia Fed's Business Outlook Survey strengthened in July, increasing to 23.9 from 17.8, while the consensus expected a decline to 23.9. That was the best reading since March 2011 with nearly all sub- indices showing significant improvement in July
Tomorrow, the Michigan Consumer Sentiment Index for July (consensus 84.0) will be released at 9:55 ET, while the Leading Indicators report for June (consensus 0.5%) will cross the wires at 10:00 ET.
S&P 500 +5.9% YTD
Nasdaq Composite +4.5% YTD
Dow Jones Industrial Average +2.4% YTD
Russell 2000 -2.6% YTD