The good feelings from the Fed’s minute yesterday has evaporated as stocks plunge, led by American Express (AXP), Visa (V), Alexion Pharmaceuticals (ALXN), Facebook (FB) and Bed Bath & Beyond (BBBY).
REUTERS The S&P 500 fell 2.1% to 1,833.08 today, while the Dow Jones Industrial Average dropped 266.96 points, or 1.6%, to 16,170.22 and the tech-heavy Nasdaq Composite declined 3.1% to 4,054.11, its largest one day drop since 2011. At the same time, the 10-year Treasury yield fell to 2.63%, while the 30-year bond yield dropped to 3.51% after a very successful auction.
Lower bond yields helped clobber American Express fell 3.8% to $85.36, while Visa dropped 2.9% at $201.55, as both would benefit from higher interest rates. Alexion Pharmaceuticals plunged 7.5% to $144.19 as the selloff in biotech stocks resumed, while Bed Bath & Beyond declined 6.2% to $63.72 after forecasting disappointing earnings. Facebook fell 5.2% to $59.16.
Even today’s stellar jobless claims data–300,000 Americans filled for first time unemployment insurance last week–was taken not as an indicator of good times ahead, but a sign of still how far there is to go. RBC Capital Market’s Tom Porcelli and team explain:
There was a time when hitting a fresh cycle low in initial jobless claims was something to cheer. That doesn't seem like the appropriate response this cycle. The labor backdrop at present is punctuated not by the fact that layoffs are diminishing, but rather by the sheer lack of hiring. We have gone through this calculus ad nausea but it bears repeating. The pace of hiring (as measured by the hiring rate, which is hiring relative to employment) at present is not just lower than the previous cycle low, it also shows a stunning lack of momentum. Make no mistake, the level of hiring is trending in the right direction, but at best the pace is quite modest. Part of the problem is the difficulty filling job openings…while the hiring rate remains weak by any standard, the ratio of hires-to-job openings continues to print cycle lows and remains at levels that are more consistent with a very tight labor backdrop
The Lindsey Group’s Peter Boockvar explains what lower bond yields are telling us:
Bottom line, the rally in the longer end of the curve lately is telling a message of still ordinary economic growth, not the acceleration that many are estimating. I will AGAIN bring this back to the process of ending QE in that Treasuries also rallied after QE1 and QE2 ended as the equity markets rolled over which in turn impacted the economy and was followed by another round of monetary stimulus. The Fed has created a construct where the equity market has driven the economic bus (via wealth effect, etc…) so while the macro conditions in the US don't point to a threat of economic slowing, an equity market selloff can be just the concern for growth that the US Treasury market is sniffing out.
Rhino Trading Partners’ Michael Block notes that not only is the S&P 500 getting hammered, but Brazil’s stock market is rallying. He explains why:
The liquidation and violent rotation going on is not only hurting popular longs (read: liquid U.S. large cap stocks) but it is also squeezing popular shorts (read: emerging markets stocks and ETF like that in Brazil.) This is not a fundamental paradigm shift driving this bizarre negative correlation this week. It's all about flow of funds and who is long and short which securities.
I continue to see this as a pain/risk driven trade, and think this is a false dawn for emerging markets ETFs. When fundamentals reign again, we do think U.S. large caps should outperform emerging markets. The anomaly of this week's action is all about pain but it certainly got our attention.
U.S. investors better hope that’s all it is.
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