Bulls Feel the Winter Blues
Stocks closed the week on a sour note as the bearish action
Extending yesterday's emerging markets-driven sell-off, the S&P 500 (INDEXSP:.INX) fell -2.09% to 1790.29 as investors fled from anything risk-related.
Looking at the other indices, we saw substantial weakness in the small-cap Russell 2000 (INDEXRUSSELL:RUT), and the Nasdaq Composit e (INDEXNASDAQ:.IXIC) underperformed slightly despite positive action in earnings winners Microsoft ( MSFT ) and Starbucks ( SBUX ).
Sector-wise, economically sensitive and momentum-based sectors were hurting today, with housing, financials, biotech, and social media coming under significant pressure.
We also saw the VIX (INDEXCBOE:VIX) spike 31.7% to 18.14, a level not seen since mid-December 2013, and the 10-Year US Treasury yield fell 14 bps to 2.735% as investors sought a safe haven.
There wasn't any one specific identifiable downside catalyst today, but in hindsight, market conditions seemed ripe for a pullback. Volatility in currencies, most notably in Argentina, has been picking up significantly in recent days, driving worries about contagion and a collapse in confidence. Traders are also increasingly concerned about a drop in Chinese economic activity and liquidity pressures in Turkey.
Stateside, earnings season has been underwhelming at best. The S&P 500 is coming off a spectacular year and is slightly overvalued based upon traditional metrics like P/E ratios.
Therefore, the current action in the US is best described as aggressive profit-taking, as uncertainty is increasing following a year of smooth gains amid low volatility.
In company news, we saw strong earnings from the aforementioned Microsoft and Starbucks after the close Thursday, while this morning, consumer staple giants Procter & Gamble ( PG ) and Kimberly Clark ( KMB ) reported upside surprises. On the negative side, State Street ( STT ) and Xerox (XRX) sold off after disappointing Wall Street.
On the commodities side, natural gas was the story today, crossing the $5 mark for the first time since 2010 in reaction to the recent spate of cold weather, which is driving up demand.
There were no US economic reports today.
Tomorrow's Financial Outlook
Barring some unforeseen international event over the weekend, the biggest news on Monday will be Apple's (AAPL) fiscal fourth-quarter earnings report, which is due in the afternoon.
Other names reporting earnings include Caterpillar (CAT) and American Electric Power (AEP) before the open, and Seagate (STX) and US Steel (X) after the close.
At 10:00 a.m. EST, December 2013 new home sales data will be released. Consensus stands at 455,000.