Disappointing earning reports and durable goods order data impact momentum
U.S. stocks recorded their biggest decline in three weeks on Tuesday, 27 January 2015 following a surprise drop in durable-goods orders and disappointing earnings from Microsoft and Caterpillar. Stocks careened lower at the start of today's session after several large companies cautioned that dollar strength will present a headwind to their future earnings. The weak data stoked fears that economic growth is decelerating.
The Dow Jones Industrial Average dropped as much as 380 points, but closed down 291.49 points, or 1.7%, at 17,387.21. The Nasdaq Composite ended the day with a loss of 90.27 points, or 1.9%, at 4,681.50. The S&P 500 closed down 27.53 points, or 1.3%, at 2,029.56.
Among Dow components, Microsoft and Caterpillar plunged to lead losses. In Nasdaq, its largest component, Apple slid 3.5%.
Just before the opening on Tuesday companies like Caterpillar, Procter & Gamble, and Microsoft issued weaker-than-expected earnings reports. There was a heavy slate of U.S. economic data out Tuesday that included durable goods orders, the S&P/Case-Shiller home price index, the U.S. flash services PMI, the consumer confidence index, and new residential sales. The data was a mixed bag and had little collective impact on the markets.
New York City missed the major impact of a massive winter storm that is pummeling the northeastern U.S. Tuesday. However, some New York-based markets' trading volumes were a bit thinner due to the storm.
The regular meeting of the U.S. Federal Reserve's Open Market Committee (FOMC) began on Tuesday and ends Wednesday afternoon. Traders will look for clues coming from that meeting, regarding when the U.S. central bank will begin to raise interest rates. Recent developments, including plunging crude oil prices, have led many to believe the Fed might not raise interest rates until late this year, or may have to wait until 2016.
However, cautious guidance from six Dow components was not the only issue as investors had to digest a disappointing Durable Orders report while Consumer Confidence and New Home Sales beat expectations.
Among stocks under focus, shares of Microsoft plunged 10% as a number of analysts downgraded the stock in the wake of earnings. The software group's commercial sales came in short of Wall Street's estimates. Caterpillar shares skidded more than 7% after the heavy-machinery maker gave a disappointing outlook for 2015 and reported earnings that missed forecasts. DuPont posted a fourth-quarter sales drop of 5%, citing a strong dollar. Shares in the chemical company were down. Shares of Procter & Gamble dropped more than 2% as results disappointed. 3M and Bristol-Myers Squibb were also down in the wake of results.
Bullion prices neded higher at Comex on Tuesday, 27 January 2015 at Comex. Gold prices ended the U.S. day session solidly higher on Tuesday, on more safe-haven demand as the U.S. stock market sold off following some downbeat quarterly earnings reports. A sharply lower U.S. dollar index on this day was also positive for the precious metals markets. Gold futures also added to modest gains Tuesday, after a sharp, unexpected fall in U.S. durable-goods orders hit stocks and triggered demand for havens.
Gold for February delivery rose $12.30, or 1%, to $1,291.70 an ounce. March silver futures gained 10 cents to $18.08 an ounce.
Gold found support after the Commerce Department said orders for durable U.S. goods dropped 3.4% in December. Market had forecast a rise of 0.1%. In addition, November durable orders were revised to show a 2.1% drop, versus an initial estimate of a 0.9% fall.
Crude-oil futures rose more than 2% on Tuesday, 27 January 2015 at Nymex as some optimism about curtailing output seemed to permeate markets and ahead of a fresh weekly report on stockpiles. Traders digested comments from key Middle Eastern oil officials in recent days, including a statement on Tuesday from Saudi Aramco Chief Executive Khalid al-Falih that Saudi Arabia would not be able to balance crude markets alone.
Light, sweet crude futures for delivery in March rose $1.08, or 2.4%, to settle at $46.23 a barrel on the New York Mercantile Exchange. The settlement snapped a three-day losing streak. Prices had weaved in and out of the red earlier in the day, trading as low as $44.81 a barrel and as high as $46.55 a barrel.
Treasuries round tripped, spiking in the morning just to spend the remainder of the session in a slide from highs. The benchmark 10-yr yield slipped one basis point to 1.81% after testing the 1.76% level in the morning.
Today's participation was below average with fewer than 700 million shares changing hands at the NYSE floor.
Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET while the FOMC will release its latest policy directive at 14:00 ET.
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