Biotech Crash Halts The Nike Boom - Markets This Morning

    • Nike led the Dow higher, but biotechs took the NASDAQ down
    • Oil and other commodities remain depressed
    • The hope of a Fed rate hike gave banking stocks a lift.

Stocks started strong, and the Dow Jones Industrial Average (INDEX:INDU) was up 264 points at its peak, led by Nike (NYSE:NKE). But biotechs crashed, there was more buyer’s remorse over the Fed’s decision on interest rates, and by the end of the day most of the averages had turned negative.

The Dow did finish with a gain, after bargain-hunters came in after 3 PM, but it was the only average up on the day. It finished up 113.35, .70%, finishing at 16.319. The Nasdaq Composite (INDEX:COMPX), on the other hand, was down 1.01%, 47.98 points, finishing at 4,686. The S&P 500 (INDEX:SPAL) split the difference, finishing down just .90, .05%, at 1,931.

A Tale of Two Stocks

Two stocks told the tale of the day.

Nike had reported great earnings on Thursday, net income of $1.179 billion, $1.34/share fully diluted, on revenue of $8.414 billion. Gross margins were an eye-popping 47%, and the company is delivering a dividend of 28 cents per share.

This sent shares rocketing from the opening, quickly rising from $115 to $123, and things only got better from then. The day’s high was $125.72, but the slow market eventually held the gains down and the stock finished at $125.02. That’s still a gain of $10.23, or 8.91% on the day, sending the market cap of the company up about $8 billion.

Contrast that with what happened to Valeant Pharmaceuticals (NYSE:VRX), a large drug and medical devices company with most of its operations in the U.S. but an official domicile, for tax purposes, in Canada. The shares started on the up at the open, fell in the 10 o’clock hour, got back to even by 11, but then began a gradual slide until the 2 o’clock hour, where they plunged to their low for the day of $190. This was followed by a bargain-hunter rally but the shares still finished down $10.03/share, 4.79%, to $199.47.

Commodities Still Falling

Oil led the commodity complex down, with West Texas Intermediate finishing down 9 cents or .3% to $45.61, natural gas shedding another .16% to $2.56/mcf, with silver, platinum and copper also falling (gold eked out a slight .22% gain). Commodities tied to Africa and Latin America were also down, with coffee falling .8% to $1.17/pound, and coffee falling .39% to 3,280/ton.

This means stocks tied to these commodities will remain depressed. Freeport-McMoran (NYSE:FCX), which has both oil and copper interests, fell another 1.90% to $9.80. Pioneer Natural Resources (NYSE:PXD), a large oil exploration company, dropped another 85 cents or .69% to $122.34. BHP Billiton (NYSE:BHP), the Australian mining company, was down another 1.8% to $31.04.

Big Banks Hope for Big Things

In an interview Fed chair Janet Yellen said she still favored a rate increase at some time this year, citing the continued growth of the U.S. economy and the need to normalize rates for the first time since the 2008 crash.

This caused the largest banks to rally. JP Morgan Chase (NYSE:JPM) rose $1.26%, or 2.09%, to finish at $61.48. Goldman Sachs (NYSE:GS) rose $2.75, 1.55%, to $179.66. Wells Fargo (NYSE:WFC) rose 1.88%, or 95 cents, to finish at $51.50. Smaller banks also drew a bid, with $BNY rising 2.8%, $1.08 to $39.60, and Northern Trust (NASDAQ:NTRS) going up 2.88%, $1.93, to $69.05.

A Better Day Internationally

One reason the Dow and other averages started up in the first place was because international markets were doing well.

While the Shanghai index finished down 1.6% the Hang Seng, considered a better bellweather on China’s economy, rose .36%. Mumbai’s Sensex was up .16%.

The big stars of the day were in Europe, where Germany’s DAX was up 2.77%, England’s FTSE was up 2.47%, and the French CAC-40 rose 3.03%.

The hope remains in Europe that the refugee crisis will loosen purse-strings and stimulate demand. What remains short in global markets are buyers, whether corporate or government.

So What Happens Now?

One magazine mapped the 2011 correction, when Europe seemed about to collapse, to the current market, and found some close correlations. If that analysis is right we’re near the bottom of the move and a multi-year boom should be about to start.

On the other hand, there are still super-bears out there. The collapse of Brazil could have knock-on effects – the Bill and Melinda Gates Foundation is suing Petrobras over its losses. There remain huge concerns over other emerging markets, which are dependent on Chinese manufacturers for their sales.

The only certainty, for now, seems to be uncertainty, and volatility, with averages making major moves in the absence of news. That can spell opportunity for a savvy trader. It can also spell disaster.

For a quick roundup of key news and events before the bell, check the daily news section - Markets This Morning.

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