Investor concerns about the European banking system dragged
domestic benchmarks lower on Thursday. One of Portugal's largest
banks, Banco Espírito Santo SA, failed to make bond payments. These
jitters compelled investors to park money in safe haven-assets.
Economic data from Asia was also disappointing and led investors to
cut equity exposure. Domestic economic reports were limited to
encouraging initial claims numbers and a less-than-expected rise in
U.S wholesale inventories.
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Ahead of Wall Street
The blue-chip index dropped as much as 180.23 points shortly after
the opening bell. The S&P 500 too briefly declined 1.0% in
early trade. That was the largest daily drop since April 10.
However, the benchmarks recovered most of the initial losses.
The Dow Jones Industrial Average (DJI) declined 0.4% to close
Thursday's trading session at 16,915.07. The Standard & Poor
500 (S&P 500) too dropped 0.4% to finish at 1,964.68. The
tech-laden Nasdaq Composite Index closed at 4,391.46; declining
almost 1.4%. The fear-gauge CBOE Volatility Index (VIX) surged 8.1%
to settle at 12.59. Total volume for the day was roughly 5.84
billion shares, slightly more than last month's average of 5.79
billion. Decliners outpaced advancing stocks on the NYSE. For 67%
stocks that declined, 30% advanced.
Benchmarks opened lower on Thursday following reports that Banco
Espírito Santo SA, one of Portugal's biggest banks, missed payments
on some of its short-term debts. Shares of Banco Espírito Santo
were suspended from trading. Shares of the bank plunged 17.2%
before getting suspended. The share lost 46% year to date.
Shares of Espirito Santo Financial Group, the largest shareholder
in Banco Espirito Santo SA, were suspended from trading. The
controlling shareholder attributed "ongoing material difficulties"
at its parent company Espírito Santo International to be reason
behind this suspension.
This sparked off concerns about the financial health of Portugal's
top-listed bank. This incident also sent shock waves across
European markets, reviving memories of the region's debt crisis.
Major European indexes such as Portugal's PSI, Germany's DAX,
Spain's IBEX and Italy's FTSE MIB dropped 4.2%, 1.5%, 2.0% and
Investors also reduced their exposure to equities after overnight
news on China's trade data turned out to be discouraging. China's
exports increased 7.2% year-over-year in June, up from previous
month's growth of 7.0%. Imports also grew by 5.5% year-over-year in
June, versus a 1.6% fall in May. However, the rise in both export
and import figures were less than most analysts' expectations.
China's trade surplus in June decreased to $31.6 billion from May's
$35.9 billion. In May, China's trade surplus was at a five-year
high. Additionally, a decline in Japan's Core Machinery Orders by
19.5% in May also added to bearish sentiment.
On the domestic front, the number of people who applied for
unemployment benefits in the first week of July decreased to a
seven-year low. The U.S. Department of Labor reported yesterday
that the advance figure for seasonally adjusted initial claims
dropped 11,000 to 304,000 in the week ending July 5. The 4-week
moving average also decreased to 311,500 from previous week's
unrevised average of 315,000.
This drop in claims for unemployment benefits came in after the
U.S. Bureau of Labor Statistics reported last week that total
nonfarm payroll employment jumped 288,000 in June. The unemployment
rate also dropped to 6.1%, touching the lowest level since
The U.S. Department of Commerce announced that the US wholesale
inventories rose 0.5% in May following a downwardly revised 1.0%
growth in April. This is lower than the consensus estimate of an
increase of 0.7%.
Among individual stocks, Lumber Liquidators Holdings, Inc. (
) was among the day's biggest decliners in percentage terms. Shares
of the company plunged 21.5% after the company reduced its earnings
outlook for the year. The company projected earnings per share for
2014 to be in the range of $2.65 to $3.00, down from the earlier
projection of $3.25 to $3.60 after the market closed on Wednesday.
Nine out of 10 sectors of the S&P 500 ended in the red. The
SPDR S&P Homebuilders (XHB) declined almost 1.7%, the highest
among the S&P 500 sectors. Key housing stocks from the sector
such as DR Horton Inc. (NYSE:
), Toll Brothers Inc. (NYSE:
), PulteGroup, Inc. (NYSE:
), Lennar Corp. (NYSE:
) and KB Home (NYSE:
) decreased 0.1%, 1.0%, 0.9%, 0.8% and 2.6%, respectively.
The Energy Select Sector SPDR (XLE) declined about 1.0%, the second
largest loser among the S&P 500 sectors. Key energy stocks such
as Exxon Mobil Corporation (
), Chevron Corporation (
), Schlumberger Limited (
), Halliburton Company (
) and Transocean Ltd. (
) dropped 0.9%, 0.9%, 1.3%, 1.9% and 1.3%, respectively.
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