Stocks veered lower Thursday as the stock market reopened to a thick mix of international news, China trade concerns, falling oil prices and earnings reports.
News of the Dec. 1 arrest of a Chinese technology executive in Canada set the tone for the morning’s trade, rattling confidence in U.S.-China trade talks, and sending stock markets in Asia and Europe sharply lower. China stocks were under intense pressure.
Chip stocks were volatile, with ST Microelectronics (STM) and Macom Technology (MTSI) down hard at the open. Earnings news lifted retailer Five Below (FIVE), while Signet Jewelers (SIG), Momo (MOMO) and Thor Industries (THO) dived after their reports.
The Nasdaq Composite led the stock market’s early retreat, opening to a 1.8% decline. Wynn Resorts (WYNN) and China’s JD.com (JD) fell hardest among Nasdaq 100 stocks. The S&P 500 dumped 1.4% at the starting bell, dropping below the 2,7000 mark. SVB Financial (SIVB) fell tothe bottom of the S&P 500 list, followed closely by a oil-related names.
Huawei CFO Arrest; Yield Curve Inversion
News reports said Canadian authorities on Saturday arrested CFO Sabrina Meng of China’s telecom giant Huawei Technologies. The U.S. had requested arrest and extradition of Meng, linked to alleged infractions by Huawei of U.S. sanctions upon Iran. Meng is the daughter of company founder Ren Zhengfei, and reportedly in line to be a potential successor to her father.
China strenuously protested the arrest, but the incident may not deter U.S.-China trade talks. The Washington Post quoted China’s Ministry of Commerce spokesman expressing “confidence that China and the U.S. can reach a (trade) agreement within 90 days.” China’s Ministry of Foreign Affairs had requested that the U.S. “clarify the grounds for the detention.”
Stock markets also have been rattled this week by a slight inversion of the yield curve, which tracks the relationship between short-term and long-term bonds. Some shorter-term bond yields this week began to overtake those of some long-term issues, circumstances that have many times prefaced an economic slowdown. The yields on the two-year bond traded at 2.77%, and on the five-year note at 2.76%, early Thursday. The 10-year yield as down 2 basis points to 2.9%.
Dow Jones Gives Up 25,000; S&P 500 Undercuts 2.700
The Dow Jones industrial average has struggled since Oct. 12 to re-establish support at its 50- and 200-day moving averages. After retaking both moving averages on Nov. 28 through Dec. 3. Tuesday’s session erased those gains and left the Dow back below both lines, although still narrowly above the 25,000 mark. But as trade starts Thursday, the index lost that support. The Dow ended Tuesday 3.8% above an Oct. 29 low, and 7.1% below its record high from Oct. 3.
The S&P 500 retook both its 50- and 200-day lines on Monday, but gave up those gains in Tuesday’s session. The index was sitting squarely on the 2,700 line, but made a sharp break below that level at Thursday’s open, but held above its prior low set at 2,603 on Oct. 29.
The Nasdaq has not spent any real time above its 200-day line since mid-October, and above its 50-day line since the start of that month. Tuesday’s breakdown left the Nasdaq almost 4% below its 50-day level and 5% below its 200-day line. Thursday’s premarket action suggested the index would hold well above its prior low, marked on Nov. 20.
Layoffs Rise; Oil Prices Sink As OPEC Meets
Layoffs announced by U.S. employers rose 28%, year-over-year, in November, according to the Job Cuts Report from Challenger, Gray & Christmas. Much of the increase was due to General Motors’ plan to layoff 14,000 workers. Total layoffs were 29% less than those announced in October.
The Labor Department revised its estimate of growth in third-quarter productivity to 2.3% in the third quarter, up from its prior estimate of 2.2% and in line with analyst forecasts, still well below the 3% gain in the second quarter. The unit labor cost estimated was revised to a slowed 0.9% gain, sharply below a 1.2% initial estimate and undercutting views for a 1.1% gain.
Oil prices pared some early losses, but West Texas Intermediate remained down more than 3%, above $51 a barrel. Europe’s Brent crude benchmark dipped 2.7%, to just below $60. Oil prices tumbled as much as 5% early, after the Saudi energy minister implied a lower-than-expected cut to production as the Organisation of Petroleum Exporting Countries began its meeting in Vienna. OPEC will meet with Russia and other non-OPEC partners on Friday. Weekly U.S. crude supplies data are due out from the Energy Information Administration at 11 a.m.ET. WTI oil prices are down 34% from their Oct. 1 high.
Stocks: Facebook, Five Below, Shire, Vanda
Netflix (NFLX), Facebook, Amazon.com (AMZN) and Apple (AAPL) all traded down hard at the open. Facebook dropped 2%, after Stifel Nicolaus downgraded the stock to hold, from buy. The note maintained the stock’s 150 price target, but said the company had “created too many adversaries” for the business not to suffer long-term consequences. Facebook shares have fallen 39% since July.
IBD 50 stock Five Below jumped 2.5% early, after reporting Wednesday its third-quarter revenue and earnings topped analyst expectations. Holiday season guidance was mixed. The stock is in the 12th week of a possible base pattern.
Ireland’s Shire Group rose 3% as investors responded to news Wednesday that shareholders of Japan’s Takeda had voted to support the company’s proposed $61 billion takeover of Shire.
Washington D.C.-based biotech Vanda Pharmaceuticals (VNDA) climbed more than 3% in premarket action. The developer of nervous system treatments had spiked 26% Monday on positive trial results.
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