Software Joins The VW Downturn - Markets This Morning

  • The widening Volkswagen scandal, and fears of a German slowdown, took stocks down around the world.
  • Technology issues joined in, and damage to the drug group widened over price-gouging.
  • Commodities and oil were also hit. Buyers are needed.

Bad news from Europe and fears of a slowing U.S. economy took stocks down on Tuesday, with tech issues joining biotech in the loss column.

The Dow Jones (INDEX:INDU) finished down 1.09%, 179.72, to finish at 16,330. The S&P 500 (INDEX:SPAL) was down 1.23%, 24.23, to finish at 1,942. The Nasdaq (INDEX:COMPX) was down 1.50%, or 72.23, to finish at 4,756.

Things could have been worse. Early in the afternoon the Dow and S&P were down 1.5% and the Nasdaq was down 2%. It was a late day rally, after European markets closed, that made the numbers respectable.

This time tech joined in the downturn. Apple (NASDAQ:AAPL) dropped 1.57%, or $1.81 to $113.40. Amazon.com (NASDAQ:AMZN) fell $9.99, or 1.82%, to finish at $538.40. Netflix (NASDAQ:NFLX) lost 1.82%, or $1.83, to finish at $98.47. Microsoft (NASDAQ:MSFT) lost .48%, or 21 cents, and finished at $43.90. Google (NASDAQ:GOOG) (NADAQ:GOOGL) lost 2.07%, or $13.78, to finish at $653.20.

Blame it on Volkswagen

While China’s Shanghai market eked out a gain of .92% to start the day, while Japan’s Nikkei fell 1.96%, it was Europe that was the disaster of the day, specifically Germany, where the DAX dropped 3.8%, the French CAC-40 dropped 3.42%, and the English FTSE lost 2.82%.

The reason for that was the widening Volkswagen (OTC:VLKAY) scandal, now called Dieselgate. The German car company, which previously said its software faked emissions results on 500,000 vehicles, announced that up to 11 million vehicles might be affected.

The sovereign wealth fund of Qatar alone lost $5 billion.  Volkswagen, whose ADRs are traded in New York lost 15.48% for the day, finishing at $25.44. This came after a similar-sized move on Monday, and meant the German car company has now lost one-third of its value in the space of two days.

The company set aside almost $10 billion to deal with costs, but that looks woefully insufficient. Die Welt, a German newspaper, expressed fears that the company could go under completely. Both the economy and the national reputation are now at risk.

The Other Scandal

The U.S. biotech “scandal” (it’s in quotes because while people are upset no laws have been broken) involving Turing Pharmaceuticals’ price-gouging, seemed to spread to other drug makers as Glaxo SmithKline (NYSE:GSK) fell 2.74%, or $1.09/share, to finish at $38.70, AstraZeneca (NYSE:AZN) fell 3.97%, or $1.33, to finish at $32.21, Abbvie (NYSE:ABBV) lost 2.78%, or $1.65, to finish at $57.74.

The fear in this case is of a political backlash. Democratic front-runner Hillary Clinton said that if elected she would cap patients’ out-of-pocket drug costs at $250/month, let Medicare negotiate directly on drug prices, and deny write-offs to the industry on direct-to-consumer advertising. If her plan gathers political support, both against rival Sen. Bernie Sanders and in polls matching her head-to-head against Republicans, stocks could fall further.

Commodities Down Too

Commodities, and the companies producing them, also fell on Tuesday. Copper had its worst day in two months, as did other industrial metals, and grain and oil prices also fell. West Texas Intermediate crude was down 1.82%, to $45.83, on the October contract. The U.S. coal market has gotten so bad that Teco Energy could not get Cambrian Coal to pay anything up-front for its mines.

So What Happens Now?

Demand needs stimulus. If Chinese demand does not recover, and Europe does not decide to face the ongoing refugee crisis with more spending, it’s hard to see the current rout in stock prices ending any time soon. But hope springs eternal. Buyers are wanted.

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

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  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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