- Stocks fell, but modestly, after the latest collapse in China’s stock market.
- Tech stocks and big retailers led the way down. U.S. oil prices rose slightly.
- The market is saying don’t raise rates in September or we will be sad.
- The Fed's minutes for its July end FOMC meet are due today, watch out for that.
- Stay hungry and foolish if you like, but most of all, stay alert.
Stock Markets Decline Modestly - It Could Have Been Worse
When China gets pneumonia, you have to expect to at least see some sniffles in other markets. But sniffles was all you got, as U.S. stocks fell only slightly, with the bulk of the damage done at the NASDAQ, in the afternoon. That average finished at about 5,059, down 0.64, near the session lows, while the S&P fell just 0.26% to 2,096 and the Dow just 0.19% or 34 to finish at 17,511. Technicians were pleased that stocks remained above their 200 day moving averages, with the S&P finishing 20 points above that level. If the multi-year uptrend is broken we could have real trouble, said the chartists.
Most of the big losses were in retail names like WalMart (NYSE:WMT), down 3.4% to $69.46 after reducing its earnings guidance for the year, and Wayfair (NYSE:W), an online furniture retailer that lost almost 10% of its value to finish at $45.21. Wayfair has now given back most of the gains it got by beating earnings estimates handily a week ago.
Big tech names were down, but modestly, with Amazon (NASDAQ:AMZN) losing just 22 cents, 0.04% of its value, to finish at $537, and Apple (NASDAQ:AAPL) losing 77 cents, 0.66% of its value, to finish at $116.40. Among the few tech gainers was Sprint (NYSE:S), up 26 cents or 5.76% to $4.86 – the shares began the week under $4. A decision to end two-year phone contracts, a new iPhone upgrade plan that's better than those offered by carriers like AT&T (NYSE:T), Verizon (NYSE:VZ) and T-Mobile (NYSE:TMUS), and some feisty tweets by CEO Marcelo Claure, were given credit for the move.
The other names that showed resilience were social media giant Facebook (NASDAQ:FB), which rose 1.3%, to $95, Gilead (NASDAQ:GILD), which was up 0.55%, Microsoft (NASDAQ:MSFT), which was up by as much, Expedia (NASDAQ:EXPE) and Akamai (NASDAQ:AKAM) which were up 0.25% and 0.38% respectively.
Tesla (NASDAQ:TSLA) continued to lead the tech stocks, gaining 2.25%, extending its near 5% rally on Monday, following a 66% upward revision in the price target to $465, by a Morgan Stanley analyst. Watch out for the stock today though, with the Tesla testing its autopilot features with Model S drivers.
The Problem is China
Lumber Liquidators (NYSE:LL) problems began earlier this year when some of its China-made product was found by California regulators to have dangerous chemicals in its finishes. The stock gained 5% backed by the news that it had hired a new compliance and legal officer.
The loss of 6.15% on the Shanghai Composite was the bug other markets around the globe just could not shake off.
Hong Kong’s Hang Sen was down 1.47%, and there was red ink around the world as the day wore on, although the amount of it grew less as it headed east. England’s FTSE was down 0.37%, and Brazil’s Bovespa actually managed a gain of 0.82% while protesters marched against corruption in the administration of President Dilma Rousseff.
What China was putting in doubt today was the global growth story, the idea being that if its economy goes into recession it will start sucking up capital rather than investing it, and cause a recession in a world where currencies are already being questioned by central bankers’ manipulation of supply and low interest rates. A clear example of the potential impact is in what the recent Yuan devaluation and the subsequent, orchestrated, Yuan stabilization did to the markets.
Your Home is a Valuable Castle - Housing Stocks Gain
Home builders were up with Lennar (NYSE:LEN) up $1.65 or 3% to finish at $55.59, the Ryland Group (NYSE:RYL) was up 0.89% to finish at $47.49, and D.R. Horton (NYSE:DHI) was up 45 cents or 1.44% to finish at $31.66. Rents are firmer, apartments are being built around the country, and that is expected to eventually translate into more demand for single-family homes, and home renovations.
Stocks tied to home building were working. Home Depot (NYSE:HD) rose $3.10, or 2.59%, to $122.80 after a solid beat on earnings, and even Lumber Liquidators, the hard-pressed flooring retailer, rising almost 6% to about $15. Lowes (NYSE:LOW), Home Depot’s main competitor, was up 0.73 cents or 52 cents at $73, in hopes that the earnings announcement due this morning will also contain good news.
So What Happens In The Markets Today?
China has a credibility problem. When stocks there rise U.S. analysts say it’s because of government manipulation. When they fall they say it’s a sign of trouble ahead. The problems at Lumber Liquidators, in fact, started with Chinese suppliers, who were found by California regulators in May, 2015 to have put too much formaldehyde in their finishes.
In a way, that means China means less than it did, and probably less than it should, to global markets. China is going to have to import expertise to rebuild the port of Tianjin, and to tackle its problems of pollution and worker safety.
I think that bodes well for U.S. markets. One major event will probably be the minutes from the Fed's FOMC meeting in end July. These will be out at 2 P.M. EST, and are likely to determine the market direction, at least for today, given the expectations. Stay hungry and foolish if you like, but most of all, stay alert.
See our daily stock market news section Markets This Morning, for a quick roundup of key events before the bell.