Disappointing data from overseas lead to negative momentum
U.S. stocks closed sharply lower on Tuesday, 05 August 2014 following reports that Russia is building up its military presence on the border with Ukraine. Equity indices were on the defensive from the get-go with the early weakness weakness attributed to disappointing data from overseas. China got the ball rolling overnight with a disappointing HSBC Services PMI report. Fears that the Federal Reserve might raise interest rates sooner than expected in the wake of fresh signs that the economy is gaining strength lingered in the background.
The Dow Jones Industrial Average dropped 139.81 points, or 0.8%, to 16,429.47. The Nasdaq Composite fell 31.05 points, or 0.7%, to 4,352.84. The S&P 500 closed 18.78 points, or 1%, lower at 1,920.21.
The dollar index rose 0.3% to 81.57 as U.S. factory orders in June increased to a seasonally adjusted 1.1%, above the 0.6% rise forecast.
In overnight news, there was some downbeat economic data coming out of China. The HSBC China services purchasing managers index (PMI) fell to 50.0 in July from 53.1 in June. That was the lowest reading in the nine year history of this particular index. A reading over 50.0 suggests expansion and a reading under 50.0 suggests contraction. The Asian stock markets were pressured on the news. The news was a bearish underlying factor for the raw commodity sector.
Meantime, in the European Union, retail sales for the bloc rose 0.4% in June from May, the fastest pace since 2007. The Markit data firm reported the EU's composite PMI came in at 53.8 in July from 52.8 in June. That reading was as bit weaker than expected.
U.S. economic data released Tuesday was substantial including, the U.S. services purchasing managers index (PMI), manufacturers' shipments and inventories, the global services PMI, and the ISM non-manufacturing report. Taken together, this data was upbeat and fell into the camp of U.S. monetary policy hawks who favor raising U.S. interest rates sooner rather than later.
Durable goods orders increased 1.7% in June after declining 0.9% in May, representing a significant upward revision from the advance release (+0.7%) Excluding transportation, durable goods orders rose 1.9% in June, up from an originally reported 0.8% increase in the advance release. The ISM Non-manufacturing Index increased to 58.7 in July from 56.0, while the consensus expected an increase to 56.5. That was the highest reading since the ISM reformulated the index in January 2008.
Among individual companies, shares in Coach rallied 4.3% after better-than-expected earnings. Target shares fell 4.4% after the retailer lowered its outlook. Walgreen fell 4.2% on reports of the drugstore chain's intent to keep its headquarters in the U.S. after it takes over British pharmacy chain Alliance Boots, rather than move its domicile abroad to lower its tax bill.
Bullion prices retreated for a second session on Tuesday, 05 August 2014 in response to a firm U.S. currency on the back of strong economic data. Strong dollar inex also pushed prices lower. Gold has been under pressure since Monday as investors flocked back to stocks after last week's big drop on the major indexes. Gold for December delivery shed $3.60 to settle at $1,285.30 an ounce. September silver fell 40 cents to $19.83 an ounce.
Crude-oil futures on Tuesday, 05 August 2014 ended at their lowest point in six months as traders prepare to parse the week's inventories reports. Expectations of stronger oil demand for the rest of this year as well as concerns about international conflicts are keeping prices afloat, however.
Light, sweet crude futures for September delivery lost 91 cents, or 0.9%, to settle at $97.38 a barrel on the New York Mercantile Exchange.
Participation was a bit below average with fewer than 690 million shares changing hands at the NYSE.
Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET, while the June Trade Balance (consensus -$45.20 billion) will be released at 8:30 ET.
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