Yesterday, stocks overcame early weakness to finish in positive territory. Today, they’ll have their work cut out for them if they’re to repeat the feat, thanks to big drops in Caterpillar (CAT), United Technologies (UTX) and retailer likes TJX Companies (TJX), BestBuy (BBY) and L Brands (LB).
AP The S&P 500 has fallen 0.5% to 1,875 at 12: 36 p.m., while the Dow Jones Industrial Average has dropped 105.06 points, or 0.6%, to 16,406.80. The Nasdaq Composite has slipped 0.6% to 4,101.54, while the small-cap Russell 2000 has tumbled 1.4% to 1,098.35.
Caterpillar has fallen 2.5% to $102.81, making it the Dow’s biggest loser, after the mining company said machine sales had dropped 13% during the three months ended in April.
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United Technologies has dropped 1.3% to $113.54. One of its units announced today that it had signed $10 billion of long-term agreements with suppliers.
Retailers have been hammered this morning thanks to poor earnings from the likes of TJX, which missed earnings forecasts and cut the top-end of its guidance. That caused TJX to drop 6.7% to $54.51.
The bad feeling carried over into Best Buy, which has dropped 5.1% to $24.80, and L Brands, which has fallen 3.8% to $55.74. Neither Best Buy nor L Brands had anything resembling meaningful news today, yet still found themselves among the five worst performers in the S&P 500 today.
Gluskin Sheff’s David Rosenbergbelieves stocks are still paying for the big gains in 2012 and 2013:
We have this other little matter on our hands, which is valuation. At 15.3x, the forward P/E multiple for the S&P 500, it is slightly ahead of the long-run mean for 14.7x. Certainly not a bubble, but not exactly inexpensive either. In this phase of the investment cycle when the Fed is accommodation and the economy is expanding, the S&P 500 is rising, but doing so at an 11% average annual rate. Recall that this is a market that zoomed ahead 20% in 2012 and then by 30% in 2013. In other words, the market has simply gone up too far, too fast–there is a ton of good news priced in at current levels. Do the math of where the S&P 500 would be today if it had risen the customary 11% annually over the past two years, we’d be talking about the S&P 500 hovering close to the 1,630 level. Not a prediction–just food for thought.
Interactive Brokers Andrew Wilkinson considers what it would take for the VIX to get back to 20:
The CBOE Vix index is higher by almost 2.0% at 12.66 although remains relatively low compared to its rollercoaster ride seen during the financial crisis. Indeed the 20.0 strike for the Vix is a significant watershed that would require a radical change of heart among investors before volatility benchmarks could break to the upside. Such a move would perhaps take a 10%+ global market correction and a lurch higher in geopolitical risk alongside unrequited attention of an economic slowdown. As accustomed as they are to buying the dip, right now, such a combination hardly seems to be at the fore of investors' minds. And so using that level to sell against is currently seen as helping offset the cost of lower strike strategies aimed at capturing a still decent and prolonged jump in volatility…
You know what they say: Always use protection.
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