The bears stormed back onto Wall Street Thursday morning as fears about a European debt crisis mounted and the labor markets took an unexpected step backward last week, pushing the Dow down nearly 200 points.
Today’s Markets
As of 11:11 a.m. EST, the Dow Jones Industrial Average fell 180.02 points, or 1.75%, to 10090.38, the Standard & Poor's 500 sank 22.01 points, or 2.01%, to 1075.27 and the Nasdaq Composite lost 43.03 points, or 1.96%, to 2147.56. The FOX 50 slid 14.65 points, or 1.84%, to 782.71.
Renewed fears that Portugal, Greece or Spain could default on their debts come a day before the all-important monthly jobs report and threaten to overshadow key earnings beats from tech bellwether Cisco Systems (CSCO: 23.31, 0.24, 1.04%) and card giant Visa (V: 85.2837, 1.8337, 2.2%).
“There’s going to have to be some sort of intervention. It’s driving fear into the market,” said Peter Kenny, managing director of Knight Capital Markets. “It is quite frankly overwhelming all of the positive data coming out of our current market — spectacular earnings, very solid and improving macro numbers for our domestic economy.”
The early plunge erased most of this week's gains, which had been spurred by upbeat economic and corporate reports, and pushed the Dow to its best two-day rally since early November.
Almost all 30 components of the Dow were stuck in reverse, led by declines of more than 3% for General Electric (GE: 16.12, -0.55, -3.3%), Merck (MRK: 37.64, -1.06, -2.74%) and Alcoa (AA: 13.03, -0.43, -3.19%). The index's only advancing stock was Cisco.
Thursday's selloff began overnight in Europe, where fears of governments defaulting on their debt resurfaced. Underscoring those worries, the cost of insuring Portuguese government default rose to a record high. The concerns about Portugal emerged after the government cut a bond auction due to a lack of demand and ahead of a key vote on its budget.
“There’s no relief from this selloff because CDS (credit default swap) spreads continue to widen and the cost of protecting the integrity of these national economies is becoming prohibitive,” said Kenny.
European markets were under heavy pressure as traders bet Portugal and Spain could join Greece in facing a debt crisis. Spain's IBEX 35 fell 2.5% in early trading while the PSI 20, the benchmark index for Portuguese Stock Exchange, plunged more than 4.5%.
The debt issue helped underscored the reemergence of the U.S. dollar as the world's reserve currency. As cash fled the suddenly weak euro, the greenback soared to a more than seven-month high, putting pressure on commodities, which tend to move in the opposite direction of the dollar. Gold plunged $40.70 a troy ounce, 3.64%, to $1071.30. Crude slid $2.85 a barrel, or 3.66%, to $74.13.
As a result of the currency and commodity action, the basic materials and energy sectors slid nearly 3%. Individual stocks such as Hecla Mining (HL: 4.67, -0.44, -8.61%) and AK Steel (AKS: 19.9, -1.38, -6.48%) took even bigger hits.
Jobs jitters were reinforced Thursday morning by a new report from the Labor Department that revealed initial jobless claims unexpectedly rose by 8,000 to 480,000 last week. The markets had been expecting claims would fall by 10,000. Continuing claims rose by 2,000 to 4.6 million.
“Ahead of tomorrow's payroll figure, the claims data has lost a bit of its recent momentum and reflects a private sector that still remains very reluctant to add workers,” Peter Boockvar, equity strategist at Miller Tabak, wrote in a note.
Wall Street is expecting Friday’s data will show the U.S. created 15,000 jobs in January — a potential turning point for the labor markets — and the unemployment rate stayed constant at 10%.
Meanwhile, earnings misses from MasterCard (MA: 226.23, -20.88, -8.45%) and Kellogg (K: 53.11, -2.13, -3.86%) weighed on market sentiment and partially overshadowed Cisco’s results and outlook. The company, which is seen as a key barometer of business spending, beat the Street with a non-GAAP profit of 30 cents , forecasted a strong recovery and predicted revenue will grow by a better-than-expected 23% to 26% during the current quarter.
On the consumer front, retailers released mostly positive same-store sales results for January. Department store Macy’s (M: 16.65, 0.4, 2.46%) posted unexpected growth in sales and upped its guidance. However, discount giant Target (TGT: 48.57, -2.04, -4.03%) said sales rose just 0.5%, missing estimates for 1.4%, and warned of a challenging 2010.
The selloff wasn’t slowed by a new report from the Commerce Department that showed factory orders jumped by 1% in December, beating estimates for a 0.3% gain. Excluding transportation, orders rose 1.2%.
Corporate Movers
Toyota Motors (TM: 71.4232, -1.9768, -2.69%) came under new pressure as the U.S. Department of Transportation said it is opening an investigation into brake problems in the 2010 Prius. Toyota, which acknowledged the problems, reported a stronger-than-expected quarterly profit of $1.69 billion and now sees a full-year profit. However, the auto giant warned it sees the previously-announced accelerator recall will cost $2 billion in the U.S. alone.
Bank of America (BAC: 15, -0.56, -3.6%) agreed to settle a suit with the Securities and Exchange Commission on charges the bank failed to properly disclose employee bonuses and financial losses at Merrill Lynch before that merger was completed in 2008. BofA would pay $150 million and strengthen its corporate governance and disclosure practices if the deal is approved by a judge.
Macy’s (M: 16.65, 0.4, 2.46%) surprised the markets by posting a 3.4% jump in same-store sales for January, prompting the department store operator to boost its fourth-quarter non-GAAP outlook to $1.35 to $1.37. Analysts had projected sales would be flat during December and Macy’s would earn $1.18 a share in the fourth quarter.
MasterCard’s (MA: 226.23, -20.88, -8.45%) net income jumped 23% last quarter but the world’s second-largest credit card network’s non-GAAP EPS of $2.43 missed the Street’s view by three cents. Revenue jumped 6% to $1.3 billion, matching estimates. MasterCard said its gross dollar volume rose 5.3% last quarter, while its purchase volume climbed 5.7%.
Kellogg’s (K: 53.11, -2.13, -3.86%) net income slipped 1.7%, translating to EPS of 46 cents. Revenue fell 1% to $2.9 billion. Analysts had projected stronger EPS of 49 cents yet weaker revenue of $2.94 billion. Still, Kellogg boosted its 2010 EPS view to $3.51 to $3.57 assuming no foreign exchange impact.
Burger King (BKS: 19.12, -0.59, -2.99%) beat the Street with EPS of 37 cents and a 2% increase in revenue to $645.4 million. Analysts had expected the fast food giant would earn 34 cents a share and post sales of $635 million.
Global Markets
The U.K.'s FTSE 100 fell 0.78% to 5212.34, France's CAC 40 sank 0.79% to 3763.37 and Germany's DAX was down 0.6% to 5638.30. The Bank of England left interest rates at 0.5% and the European Central Bank decided to leave its interest rate at 1%.
In Asia, Tokyo's Nikkei 225 tumbled 0.46% to 10355.98, Hong Kong's Hang Seng plunged 1.84% to 20341.64 and China's Shanghai Composite slid 0.28% to 2995.31
