- Stocks started the day sharply higher, but a wave of selling in the last hour sent them down over 1%.
- Big tech stocks held up well, big international stocks took it hard.
- China’s easing moves were praised, but were its computers behind the late-day selling?
Stock Markets See Hope But End Down Finally
After spending most of the day up by nearly 2%, U.S. stocks were hit by a flood of sell orders in the last hour that put them down for the day. The opening was as ferocious on the buy side as the previous morning had been on the sell side, with the NASDAQ up 3.5% within minutes of opening at 9:30 AM.
But there was little enthusiasm on the buy side, and the imbalance of sell orders – as much as $3.5 billion worth by one estimate – told in the end. The Dow lost 204.91 or 1.29% to finish at 15,666, the S&P 500 lost 25.60 or 1.35%, and the NASDAQ finished down 19.79 or 0.44% to finish at 4,506. The Volatility Index or VIX, which measures nervousness in the market, finished at 36.02, up from the 31 level where it started the day and the highest level it’s hit since September, 2011.
The biggest losers were international companies like United Technologies (NYSE:UTX), down 2.07 to finish at $88.80, General Electric (NYSE:GE), down 59 cents to finish at $23.48, down 2.47%, and Merck (NYSE:MRK), down $2.84 or 5.26% to finish at $51.16.
Blame the Computers For The Stock Market Fall
Big tech held its own. Apple (NASDAQ:AAPL) managed to finish up 62 cents to $103.74, Amazon (NASDAQ:AMZN) was up $3 at $466.37, and Netflix (NASDAQ:NFLX) was up $4.64 to finish at $101.52. There was a lot of re-adjustment here after markets closed, with Google (NASDAQ:GOOG) going up $7.41/share after finishing the day down $5.64 at $612.47, and Microsoft (NASDAQ:MSFT) quickly gaining 15 cents after losing $1.21 during regular trading to finish at $40.47.
But computerized trading took much of the blame for the market’s fall. The flood of sell orders came in starting at 3 PM, after individual traders have finished their business, and kept accelerating into the close. Were these Chinese buyers sitting on fat losses who needed to sell U.S. assets to pay back margin loans?
China Cuts Interest Rate And Reserve Ratio - The Big Move
Until the last hour, the day’s big news had been China’s big move toward easier money. After the Shanghai Composite fell a whopping 8.06%, China cut discount rates and reserve requirements, making lending easier. The move was praised as a “measured response” by observers and seemed at first to reassure U.S. investors.
The Chinese move led to some strong gains in Europe, 4.97% in the German DAX and 3.09% in the English FTSE 100. Maybe it was foreshadowing that the French CAC 40 finished down 1.35%? A lot of French companies do big business in China.
Oil was up a little bit, with West Texas Intermediate rising 53 cents to $38.83, Brent crude rising 27 cents to $42.96, and natural gas rising 4 cents to $2.69/mcf. Better than before, but still well below a price at which U.S. producers can make money.
How is the Economy?
There were more indications that the stock market action has little to do with the current state of the U.S. economy. Consumer confidence rose sharply. Bond prices rose, dropping yields, with the 10-year U.S. bond finishing at 2.08%. The dollar generally rose in value, with the dollar index finishing at over 94 . The dollar finished up against the Euro at $1.15, higher against the Japanese Yen at 119, higher against the Chinese Yuan at 6.41.
So What Happens In The Markets Today?
China, China, China. Traders walked away from their jobs in a more depressed state than they had the day before, having expected a rally and seeing it fail. There have been expectations of a rally in the markets, but it hasn't materialized. Where a few days before there was talk of “maybe” taking a September rate hike by the Federal Reserve off the table, they were left wondering if more Quantitative Easing might be coming to match China’s own easing.
The real lesson of today, in my view, is that we’re one global market. When people lose money in one market, they try to get it out of other markets. When governments act on one side of the world, it’s quickly felt on the other side of the world. We are all hostage to one another, and to a lot of U.S. investors that’s very, very frightening.
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