Closing Market Summary: Mediocre Data and Earnings Send Stocks Lower
The major averages ended the midweek session on a lower note with the S&P 500 (-0.5%) registering its second consecutive decline. The benchmark index settled near its worst level of the day while the Nasdaq Composite (-0.3%) outperformed.
Equities displayed modest gains in the early going, but relative weakness in several influential sectors prevented the S&P 500 from holding its early gain. The index made another brief appearance above its flat line during the early afternoon, but slid to lows before the closing bell.
The reasons for today's retreat were not particularly difficult to find as economic data reported this morning disappointed while quarterly earnings received since yesterday's closing bell did not inspire confidence either.
Eight sectors registered losses with four falling 1.0% or more. The financial sector (-1.0%) settled among the laggards after showing relative weakness throughout the day. Three major components reported earnings with Bank of America (BAC 15.64, +0.17) adding 0.8% in reaction to a bottom-line beat on in-line revenue while JPMorgan Chase (JPM 59.99, -1.56) and Wells Fargo (WFC 51.50, -0.36) surrendered 2.5% and 0.7%, respectively. JPMorgan Chase reported in-line earnings on below-consensus revenue while Wells Fargo delivered a one-cent beat.
Wells Fargo's report highlighted a quarter-over-quarter decline in mortgage originations, which was roughly in-line with seasonal trends. That being said, the news was met with selling in the homebuilder space that sent the iShares Dow Jones US Home Construction ETF (ITB 26.86, -0.69) lower by 2.5% while the consumer discretionary sector (-1.0%) ended among the laggards.
With the Q3 earnings season heating up, investors have begun receiving reports from the technology sector. Today, the focus was on Intel (INTC 32.80, +0.76) as the stock erased its early loss to end higher by 2.4% after the company reported better than expected results, but lowered its capital expenditures guidance.
Elsewhere among semiconductor names, SanDisk (SNDK 68.70, +6.93) soared 11.2% after Bloomberg reported the company is exploring a sale with Micron (MU 18.82, +0.64) and Western Digital (WDC 83.19, -1.18) identified as potential suitors. A separate report from Bloomberg indicated that Fairchild Semiconductor (FCS 16.35, +2.21) has hired bankers in preparation for a sale.
The M&A speculation was not done there as the late afternoon featured reports indicating Analog Devices (ADI 60.99, +4.94) may merge with Maxim Integrated (MXIM 38.33, +3.62). The two names posted respective gains of 8.8% and 10.4% while the PHLX Semiconductor Index surged 3.8%.
Moving to the countercyclical side, the health care sector (-0.3%) settled a bit ahead of the broader market while the consumer staples sector (-1.1%) struggled with shares of Wal-Mart (WMT 60.03, -6.70) diving 10.0% after the company's Chief Financial Officer said operating expenses are expected to exceed sales growth during fiscal year 2016.
The retreat in stocks lured some money into the Treasury market. The 10-yr note climbed to a high during the late afternoon, sending its yield lower by seven basis points to 1.98%.
Today's session saw the strongest volume of the week as more than 860 million shares changed hands at the NYSE floor.
Economic data included PPI, Retail Sales, Business Inventories, and MBA Mortgage Index:
- Producer prices declined 0.5% in September after being unchanged in August while the consensus expected a decrease of 0.3%
- Final demand for goods declined 1.2% in September after decreasing 0.6% in August, representing the largest decline since a 1.9% drop in January
- Excluding food and energy, core PPI declined 0.3% in September after increasing 0.3% in August while the consensus expected an increase of 0.1%
- Retail sales increased 0.1% in September after a downward revision resulted in no growth (from 0.2%) in August while the consensus expected an increase of 0.2%
- The one bright spot in September was the motor vehicle sector as spending at auto dealers rose 1.8%, which was in-line with the impressive reports from the motor vehicle manufacturers that were released a couple of weeks ago
- Excluding autos, retail sales declined 0.3% in September after declining a downwardly revised 0.1% (from +0.1%) in August while the consensus expected a decline of 0.1%
- Business inventories were flat for a second consecutive month in August following a slight downward revision (from 0.1%) in July. The consensus expected an increase of 0.1%
- Manufacturer (-0.3%) and merchant wholesalers (0.1%) already reported their August results. The only piece of new information was that retailer inventories increased 0.3% in August after increasing 0.7% in July
- The weekly MBA Mortgage Index tumbled 27.6% to follow last week's 25.5% spike
Tomorrow, weekly Initial Claims (consensus 269K), September CPI (consensus -0.2%), and October Empire Manufacturing survey (expected -8.0) will be released at 8:30 ET while the Philadelphia Fed Survey for October will cross the wires at 10:00 ET. Also of note, the September Treasury Budget (consensus $95.00 billion) will be released at 11:00 ET.
- Nasdaq Composite +1.0% YTD
- S&P 500 -3.1% YTD
- Dow Jones Industrial Average -5.0% YTD
- Russell 2000 -5.6% YTD
gold has retraced almost 50% of the move from high of the year to low of the year...
Banks Face Ring-Fencing Capital Bombshell link : http://bit.ly/1OwqjZF
Regulators will say on Thursday that lenders need billions of pounds more capital as part of industry reforms, Sky News learns.
Britain's five biggest lenders will be told on Thursday that they need to find billions of pounds of additional capital as part of industry reforms designed to shield taxpayers in a future industry crisis.
Sky News has learnt that the fresh bombshell will be delivered by the Bank of England in a consultation paper to be published on the implementation of the new ring-fencing framework that will be introduced in 2019.
The affected banks - which each have balance sheets of more than £25bn - are Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander UK.
Banking industry sources said they understood the Prudential Regulation Authority (PRA) would publish an aggregate capital figure that the biggest banks would have to find collectively to properly insulate their new ring-fenced operations.
The size of the multibillion pound figure was unclear on Wednesday night, but it will be in addition to Government estimates of up to £3bn in one-off costs triggered by the restructuring, as well as annual running costs forecast at between £1.7bn and £4.4bn.
Some of the banks will have a greater exposure than others, with analysts suggesting that Barclays' sizeable investment banking operations would mean it was likely to have to find a greater sum than Lloyds Banking Group, which is principally a retail and corporate lender.
The aggregate sum outlined by the PRA will not necessarily mean that the banks are required to raise capital externally, sources indicated.
Some of the shortfall could be addressed by the capital-accretive sale of assets, while it might also be possible to transfer some capital from banks' non-ring-fenced operations into their segregated entities.
The ring-fencing regime was the principal recommendation of the Independent Commission on Banking chaired by Sir John Vickers, which delivered its verdict on banking reform in 2011.
The inquiry, ordered by George Osborne, the Chancellor, after the 2010 general election, was designed to reduce the risk of another banking crisis.
The new regime is designed to insulate taxpayers by making it easier to resolve a failed investment bank without affecting the day-to-day operations of high street lenders.
Taxpayers spent more than £65bn in 2008 and 2009 bailing out Lloyds and RBS, and tens of billions of pounds more rescuing Northern Rock and Bradford & Bingley.
Further support totalling hundreds of billions of pounds was funnelled into the banking system through emergency liquidity schemes to enable lenders to continue funding their operations.
Sir John has continued to maintain that ring-fencing is necessary, insisting that it is a "done deal", despite intense lobbying from bankers who argue that other domestic and international reforms mean that the industry is now sufficiently safe not to require it.
The Government has gone further with measures to 'electrify' the ring-fence separating retail and investment banking operations, meaning that regulators will have powers to order the full break-up of individual institutions if they do not comply with the new rules.
Thursday's paper will focus on structural issues relating to ring-fencing and will consist largely of technical detail, industry sources say.
The PRA has already set out other proposals relating to the governance and management of newly restructured banks, with strict regulations about the independence of directors of ring-fenced entities.
Those rules have led some banks to consider applying for waivers, while Lloyds is expected to seek a waiver for the broader restructuring because of its limited investment banking activities.
Neither the PRA nor the banks would comment on Wednesday.
FTC joins U.S. probe of Volkswagen emissions
The U.S. Federal Trade Commission, which probes companies accused of deceptive advertising, has joined the Justice Department and Environmental Protection Agency in investigating Volkswagen, which is accused of lying about emissions from diesel cars.
The FTC is coordinating with EPA and Justice, agency spokesman Justin Cole said.