Stocks Selloff amid Global Slowdown Fears

Published on Thursday, 21 June 2012 18:10 Written by Christopher Lynn

New York, June 21^st (TradersHuddle.com) – Stocks tumbled, posting their second worst single session decline of the year, as fears over global economic slowdown, coupled with euro zone debt woes spurred a risk aversion trade. Dismal economic reports around the world, with participants still digesting the lack of aggressive stimulus from the Fed, became a perfect mix to spur the selloff.

The Dow Jones Industrial Average lost 250.82 points, or 1.96%. The S&P 500 index tumbled 30.18 points, or 2.23%, while the NASDAQ plunged 71.36 points, or 2.44%.

The market started near the unchanged line as participants continued to digest the Fed’s failure to provide aggressive action to stimulate the sluggish U.S. economy. Overseas markets had a lackluster and mixed session amid data showing Chinese factory activity slowing down for the eight-straight month, disappointing German PMI, and yields for short and medium term debt in Spain hitting record highs.

Hopes of QE3 kept buoyancy on stocks and commodities for most of the day, in the final hour of trading a report that central banks will inject liquidity following the Greek elections helped boost gains into the close. Central banks are worried over bank runs in Greece and other euro zone periphery countries if the leftist party, which is seen as anti bailout, wins. Economic data also weighed, with weekly jobless claims coming in higher than expected

The economy and troubles in Europe were the focus in the session and were the major culprits for stocks to move sharply lower. The Philadelphia Fed Index, considered an economic barometer, showed contraction in the economy, while the PMI showed manufacturing growing at its slowest pace in 11 months., and finally, home sales fell in May, casting doubts on a housing rebound.

Adding to the woes, and spurring a risk off trade, Goldman Sachs recommended going short the equity market, as it would need to price a deteriorating global growth picture. In Europe, independent auditors calculated that Spain's troubled banks could need as much as 62 billion euros in new capital, less than the 100 billion the euro zone countries made available to Spain.

The sharp decline was broad based with all of the S&P 500 sectors closing with sizeable losses. The energy sector plunged more than 4%, as crude oil tumbled below $80 per barrel, hitting its lowest close since October 2011, meanwhile material stocks lost more than 3% as a group and technology, financials, and consumer discretionary lost more than 2%.

Cameron (NYSE: CAM) plunged more than 7% to the bottom of the energy sector, settling at $41.2, while EQT Corp (NYSE: EQT) was the top performer in the sector, falling 0.61%. EQT was upgraded to a Buy from Hold at Deutsche Bank.

Also, Chesapeake Energy (NYSE: CHK) fell nearly 5% despite announcing the appointment of former ConocoPhillips Chairman Archie Dunham as chairman of the company.

A risk-off trade and fears of slowing global demand impacted materials. Alcoa (NYSE: AA), the aluminum producer, tumbled more than 4% to post the biggest percentage decline in the Dow Jones Industrial Average. Concerns over global growth and fears over a hard landing in China weighed on the stock and the economic sensitive sector. The Chinese weak data hit Freeport McMoRan (NYSE: FCX) particularly hard, making it the worst stock performer in the sector. Freeport tumbled nearly 7% on news that the factory activity in the largest user of copper in the world slowdown. Newmont Mining (NYSE: NEM) was also one of the biggest decliners in the sector, losing more than 5%, as gold prices slumped below $1600 an ounce.

Financials were weighed by fears of the slowdown in global growth and by a report that speculated that Moody’s was ready to downgrade 15 global investment banks. Bank of America (NYSE: BAC) tumbled 3.9% to $7.82, posting the third biggest decline in the blue chip index. However, the stock was able to close above its 50day moving average at $7.78. In after hours Moody’s cut the ratings of 15 banks, including JPMorgan, BofA, and Citigroup.

In tech land, Micron Technology (NASDAQ: MU) lost more than 7%, logging the biggest decline in the sector after the company reported disappointing earnings. Micron said it lost $0.32 per share for the quarter, a bigger loss than expected. While telecommunication stocks were on top of the sector, whit Sprint Nextel (NYSE: S) shrugging off weakness and climbing 1.6%.

Apple (NASDAQ: AAPL) lost 1.38% to $577.67, outperforming in the sector and the S&P 500. Jefferies reiterated its Buy rating and its target price of $800. The stock was able to close above its 50day moving average at $576.16.

In the earnings front, Bed Bath and Beyond (NASDAQ: BBBY) plunged to the bottom of the S&P 500, as shares slumped nearly 17%. The retailer beat earnings expectations by $0.05 per share but missed revenues consensus, while adding to its woes by issuing downside earnings guidance for its fiscal second quarter. CarMax (NYSE: KMX) lost 7.2% to $25.88 after it missed earnings by a penny on revenues that were below expectations.

Also, Conagra (NYSE: CAG) was one of the best performers in the S&P 500 as shares gained 2.7% after it beat earnings expectations and issued upside earnings guidance for fiscal 2013.

Elsewhere, Facebook (NASDAQ: FB) shrugged off the market weakness and in fact gained 0.76% to $31.84 as the stock received mixed ratings. Argus initiated coverage with a Hold, while Nomura did with a Buy.