Thursday stock drop sinks most issues

Wednesday’s stock rally proved to be a one-day respite as global selling resumed on Thursday with a vengeance.

Indeed, the U.S. market had one of its worst days in months, as the Dow Jones Industrial Average and the S&P 500 both dropped more than 1.5% and NASDAQ fell nearly 2%. Few stocks avoided the downturn, with down volume swamping up volume by about a 9-to-1 margin and declining issues beating gainers by about 8-to-1. All 10 sectors in the S&P 500 dropped, led by a 2.2% decline in tech stocks, as did all 30 Dow components and 98 of the biggest 100 stocks on NASDAQ.

While hardly unique in Thursday’s vast selloff, Apple shares dropped nearly 4% after problems were discovered with some of the company’s recently released products. Just three days after the company said it sold a record 10 million new iPhones in their opening weekend, some customers complained that the new 6 Plus device can bend under pressure, such as if sat upon. There were also some reported problems with an updated version of its iOS 8 mobile operating system. AAPL was the second most active stock, with nearly 100 million shares trading. The stock closed below $98 a share.

European shares were also down sharply while Asian stocks were widely mixed. The Stoxx Europe 600 fell 0.9% but the main equity indexes in Germany, France and Italy all dropped by 1.3% or more. The euro continued to weaken, at one point falling below $1.27, its lowest level against the dollar since November 2012. In Asia, Japan’s Nikkei 225 bucked the global downtrend by rising 1.3% after falling two straight days. The yen rose slightly against the dollar but remained near 109, its lowest level in more than six years. India’s Sensex dropped 1%, its third straight decline. Hong Kong’s Hang Seng index fell 0.6% while the Shanghai composite rose 0.1%.

While stocks were falling, bonds were rising. The 10-year U.S. Treasury note, for example, gained ½ point to lower its yield by six basis points to 2.51%. Media reports attributed some of the gains to the stronger dollar. Comparable German bund prices were higher by about ¼ point, with the yield on the 10-year security falling three bps to 0.97%, its lowest level in nearly three weeks.

U.S. economic reports released Thursday were fairly positive, so they could hardly be blamed for the stock selloff. Weekly unemployment claims rose by 12,000 to 293,000, but that was below the consensus forecast of 300,000. The four-week moving average remained below 300,000. The headline number for the notoriously volatile durable goods orders dropped a record 18.2% in August, a sharp reversal from the prior month’s 22.5% increase. Orders in the transportation sector dropped 42% after climbing 73% the prior month when the numbers were skewed upward by Boeing civilian aircraft orders. But excluding transport, orders rose 0.7%, reversing the prior month’s 0.5% decline.

Reports/dates/facts/links worth paying attention to over the next week:

  1. September 26: Second quarter GDP, first revision; University of Michigan consumer sentiment index (September).
  2. September 29: U.S. personal income and spending (August); pending home sales (August); Dallas Fed manufacturing survey (September); Japan industrial production (August); China Markit manufacturing PMI (September).
  3. September 30: Consumer confidence (September); Case-Shiller home price indexes (July); Chicago PMI (September).
  4. October 1: ADP national employment report (September); construction spending (August); ISM manufacturing composite index (September).
  5. October 2: Factory orders (August); weekly unemployment claims.
  6. October 3: Employment situation (September); ISM non-manufacturing composite index (September).

Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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