Welcome to the bear market. After five years or so of stock gains since the Great Recession/Credit Crisis ended, we may finally be heading for troubled times ahead. This week, the markets declined each day, but not after a hefty dose of volatility and several whipsaw movements.
The culprit? Less than rosy economic data. Several reports such as manufacturing numbers, existing home sales and durable goods orders, failed to live up to analyst hype. This dour news, as well as poor data coming from China and Europe, managed to crimp the market’s potential and send stocks into a tailspin all week.
Not helping were some speeches from key political and economic figureheads. Both democratic candidates Bernie Sanders and Hillary Clinton gave their two cents on biotech stocks during the week which sent shares plunging. Federal Reserve Chairwomen Janet Yellen also gave her opinion this week on the economy, rate hike and other data. The markets were not amused.
Also hindering the markets this week were poor forward guidance estimates issued by many firms reporting earnings. Ultimately, it may be a week investors will be looking to forget.
Monday started off slowly as the only piece of economic data for the day was existing home sales. However, that metric declined by more than expected. The National Association of Realtors data showed a 4.8% decline to an annual rate of just 5.31 million. This was enough to begin the market’s decline for the day. The real culprit could be attributed to a tweet by Hillary Clinton. Over the weekend, a story broke out about a drug company jacking up the price of a 62-year-old drug. Clinton and Bernie Sanders chastised the decision and vowed to cap price increases for biotech drugs if elected. Midday, the market fell hard.
And yet, by the close, the Dow managed to finish in the green. The Dow Jones Industrial Average rose 125.61 points to finish at 16,510.19. The S&P 500 also saw gains, increasing 8.94 points to 1,966.97.
- Investors got a dose of homebuilding earnings as Lennar Corporation (LEN ) reported earnings of 96 cents per share. There are no analyst estimates for LEN, so there were no earnings to beat or miss. However, investors did like what they saw. LEN yields 0.32%.
- Recreational vehicle and camper manufacturer Thor Industries Inc. (THO ) reported an earnings beat of $1.31 per share. Like LEN, investors cheered THO’s results. THO yields 2.1%.
Tuesday came in hot and heavy. Homeowners were happy as the Federal Housing Finance Authority reported a surprise increase to its House Price Index (HPI). That means homes with mortgages serviced by Fannie Mae and Freddie Mac increased in value by 0.6%. However, the enthusiasm for rising home prices was short lived as global economic concerns once again took hold.
Investors nervously awaited Chinese manufacturing data. That sent shares for the materials, energy and mining sectors downwards and the rest of the market was pulled into the spiral. Also adding to concerns was the emissions scandal plaguing German automaker Volkswagen. Several E.U. officials have now begun talks to widen an investigation to all automakers.
The Dow Jones Industrial Average tanked 179.72 points, or 1.1%. Both the S&P 500 and NASDAQ saw declines as well, falling 1.2% and 1.5%, respectively.
- Carnival Corporation (CCL ) reported a very nice earnings surprise of $1.75 per share. That was 13 cents more than analyst expectations. The owner and operator of cruise ships yields 2.4%.
- Purveyor of pickles, ketchup and other food, ConAgra Foods, Inc. (CAG ) also reported an upside surprise of 5 cents, with an EPS of 45 cents. CAG yields a tasty 2.4% as well.
- Not to be outdone, consumer staples giant General Mills, Inc. (GIS ) also reported an earnings beat. GIS reported a 10 cent beat on EPS of 79 cents per share. GIS yields 3.11%.
Wednesday featured low-key economic data in the United States. Crude oil inventories and Flash PMI/manufacturing index data basically came in as expected. However, investors could care less; the elephant in the room was once again China. The nation’s measure of manufacturing activity fell to a six-and-a-half-year low. Needless to say, investors and traders were spooked about the potential drag on the world’s economy.
As such, the Dow Jones fell 50.58 points and the S&P 500 fell 3.98 points. As for the tech-heavy NASDAQ, it also lost 3.98 points.
- Worthington Industries, Inc. (WOR ), the maker of steel drums, tanks, and other metal-based products reported earnings of 48 cents per share. That was less than the 53 cents analysts were expecting. WOR also gave disappointing guidance news. Shares of the stock yield 3.25%.
- Following WOR, Steelcase Inc. (SCS ) reported slightly better numbers, with an earnings beat of 3 cents. The office furniture and furnishings maker reported EPS of 38 cents per share and yields 2.5%
Thursday seems to be THE day when it comes to releasing big time economic data and this week was no different. To start with were durable goods; the number, which looks at the value of new purchase orders placed with manufacturers for durable goods, was expected to show an increase but came in flat. Unemployment claims, on the other hand, showed a slight uptick in the number of new filers. Both of these pieces of data highlight potential cracks in the U.S. economy, as did a dour profit warning and massive restructuring plan from Caterpillar (CAT ). Not helping either were Yellen’s comments regarding the state of the economy.
The potential for slowing growth in the U.S. sent stocks falling. At one point the Dow Jones sank 264 points before settling only 78.57 points down to reach 16,201.21. The S&P 500 lost 6.52 to reach 1,932.24, while the NASDAQ decreased 18.27 to settle at 4,734.48.
There were no dividend-related earnings reported on Thursday.
This Friday could continue the downtrend of the market. One of the biggest pieces of economic data, GDP growth, will be released before the bell rings. Analysts are expecting a solid 3.7% figure. However, given the recent missteps with regards to other economic sticking points, that number could come in lower. Investors should expect Friday to continue with the volatility.
Premarket futures has the Dow increasing by 39 points, with the S&P and NASDAQ rising by 2.25 and 2.75, respectively.
There are no dividend-related earnings reported this Friday.
The Bottom Line
This week was all about the downtrend of the market. Next week could bring more of the same. On the economic front, we get tons of data on consumer spending and jobs. Everything from hourly wages to personal spending data will be reported. If any of these numbers fail to impress, then the idea that the economy is starting to crack will take hold and send stocks lower.
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