Stocks Fell amid Diminishing Fed Hopes

Published on Thursday, 23 August 2012 18:01 Written by Christopher Lynn

New York, August 23^rd (TradersHuddle.com) – Stocks slumped on weaker than expected jobless claims data and after hopes for the Fed providing further stimulus eased. Data points in Europe and China signaled that the global economy will likely continue to slowdown, as Europe will enter a new recession and as the pace of growth in the Chinese economy would continue to be under pressure, lacking additional central bank action.

The Dow Jones Industrial Average tumbled 115.30 points, or 0.88%. The S&P 500 index lost 11.41 points, or 0.66%, while the NASDAQ slumped 20.27 points, or 0.81%.

The market started in negative lower as futures drifted lower after disappointing weekly jobless claims data and after St. Louis Fed President James Bullard dampened hopes for the Fed providing further stimulus, saying current economic conditions are not weak enough to warrant action. Fed hopes had helped overseas markets after the latest FOMC meeting minutes showed that policymakers were getting closer to agreeing on QE3.

The Fed hopes had offset Chinese data that showed that factory output dropped the most in nine months, while PMI data in Europe showed the region was heading into a new recession, despite better than expected German and France PMI figures.

On economic news, jobless claims climbed to their highest level in 5 weeks, while New home sales gained 3.6% in July, but prices declined. Additionally, manufacturing inched higher in August but hiring in the sector slowed, while weak overseas demand limited the pace of overall growth.

The session also brought volatility on the commodity markets, with precious metals seeing an increased bid, as hopes for central bank action around the world, spurred appetite for a currency hedge. Meanwhile, Crude oil turned sharply lower in afternoon trading, as participants booked profits after the recent rally.

The retreat was broad based, with all of the S&P 500 sectors ending lower. Materials, energy, and utilities slumped more than 1%, while healthcare and consumer stocks logged the smallest declines.

In the materials sector, steelmakers were a source of weakness after Dahlman Rose downgraded the sector amid concern over future demand, as the global economy slows down. United States Steel (NYSE: X) was the worst performer in the sector, tumbling nearly 7% to $21.19, while Nucor Corp. (NYSE: NUE) slumped 3.5% in the session. Both stocks were downgraded to a Neutral from Buy at Dahlman Rose.

Also in the sector, Alcoa (NYSE: AA) lost 2.7% in the session, posting one of the biggest declines in the Dow Jones Industrial Average. The aluminum producer slumped amid worries over global demand.

Other notable movers in the blue chip index include Caterpillar (NYSE: CAT), Boeing (NYSE: BA), and Hewlett Packard (NYSE: HPQ).

HP plunged more than 8%, making it the worst Dow component, after the tech giant posted earnings that were inline with its preannouncement on revenue that was shy of consensus, while it lowered its fiscal 2012 earnings guidance to inline with consensus and it struck a cautious tone amid a challenging global economic environment. The stock has been traded at very cheap valuations compared with the S&P, but still concerns over the turnaround story kept buyers on the sidelines.

Caterpillar lost more than 1% in the session despite Credit Agricole initiating coverage on the stock with an Outperform rating., Participants dismissed the call amid the worries on global growth and after the hopes for Fed easing diminished in the session.

Boeing was also a drag in the index and the industrial sector after the stock lost 3.4% to $70.36 on news that Australian airline Quantas cancelled an order for 35 new 787 Dreamliners valued at $8.5 billion at list prices. The airline swung to a loss, impacted by higher jet fuel prices, forcing it to announce cuts to its spending commitments.

In the consumer space, Big Lots (NYSE: BIG) got crushed, with shares plunging 20% to $30.76 after its earnings report missed expectations and the closeout retailer cut its fiscal 2013 EPS guidance below consensus. Meanwhile, Hormel Foods (NYSE: HRL) gained 1.4% in the session after its quarterly results meet expectations. Also, the maker of canned meats like Spam reaffirmed its 2012 EPS earnings guidance, saying that increased grain costs will present a challenge in the future quarters, but cited that the strength of its balanced business model and the vibrancy of its branded, value-added portfolio would help support earnings and sales growth.

In tech land, hardware makers were under pressure following the quarterly results from HP. Dell (NASDAQ: DELL) declined another 3.8% in the session, adding to its slump following its own earnings disappointment earlier in the week. Seagate Technology (NASDAQ: STX) dropped more than 4%, while First Solar (NASDAQ: FSLR) was the best performer in the sector, climbing 2.8%.

Even Apple (NASDAQ: AAPL) saw weakness in the day, along the other hardware makers. The stock lost 0.9% to $662.63. Yesterday, Needham bumped its target price to $750 from $620.

Facebook (NASDAQ: FB) ended near the unchanged line after trading as low as $19.36. The social media company announced a new iPhone and iPad app, which will be twice as fast as the prior version, while providing increased screen space to the news feed. The app will try to capitalize in the company’s new sponsored news feed, which has been generating increased clicks for advertisers. Separately, the Federal Trade Commission provided the green light for Facbook’s acquisition of Instagram to proceed.

Meanwhile, in the energy sector, ancillary plays like Alpha Natural Resources (NYSE: ANR) saw downward pressure. The maker of metallurgical coal slumped 7.4% to $6.59, posting the biggest decline in the sector. Rival Peabody Energy (NYSE: BTU) dropped 4%. Coal stocks had seen a rally earlier in the week after the U.S. Court of Appeals in Washington threw out an EPA rule over limits on sulfur dioxide and nitrogen oxide emissions.