NEW YORK (Reuters) - Wall Street stocks tumbled more than 2 percent on Tuesday as disappointing forecasts from industrial bellwethers Caterpillar and 3M piled on to concerns over Saudi Arabia’s diplomatic isolation, Italy’s finances and trade-war fears.
All the three major Wall Street indexes were trading below their 200-day moving averages, a key technical indicator of long-term momentum and all 11 major S&P sectors were in the red, continuing what has been a punishing month for U.S. stocks.
STEPHEN ANISTON, PRESIDENT, BLACK PEAK CAPITAL, FAIRFIELD, CONNECTICUT
“Judging by the options market, there is no massive panic. If anything, the VIX today is a little bit lower than it was a couple of weeks ago. There is a little bit less panic than the last time we dropped.
“It’s still early in the day. The (S&P 500) 2,700 level is the key level it needs to hold today. If we break down during the day, it could get a lot worse.”
“The VIX markets are essentially discounting the drop. They are saying it is going to end soon. Still, it’s just midway through the day.”
PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW ASSET MANAGEMENT, CHICAGO
“A lot of it is fallout from overseas, overnight trading with China falling three, four percent. There are still a lot of concerns about the implications for US/China trade or the lack thereof. And earnings season as gotten off on the wrong foot. A lot of companies are doing okay but not fabulous. 3M this morning is a perfect example. And even Caterpillar, which beat on some metrics, the stock’s still getting hurt. You’re seeing investors starting to believe that the best earnings growth is behind us.
“Certainly the Saudi Arabia stuff is disturbing. There has not been anything from the administration, it hasn’t very forceful in denouncing what’s going on and I think there’s some concern about what the implications might be certainly around energy and destabilization in the middle east.
“I don’t know how much the elections are yet baked into the market. I think there’s some concern about the election but I’m not yet sure it’s being handicapped well because I don’t think investors know what the implications are going to be with a split congress. I don’t think there’s a consensus on how that’s going to work.
“We’re looking at, from a technical perspective, the (S&P 500) 2700 area being breached as being a problem for the market. I don’t think we’re out of the woods yet as far as this correction goes. I’m not sure if this is the beginning of a bear market but certainly there are some red flags that are flying at this point. I think it pays to be cautious here. We’re seeing value outperform growth after growth really killing value for the better part of the last 10 years. Valuations as a whole are being stretched, in growth vs. value, to their greatest extent since 2000. There are things in the market that would give us a reason to pause and move out of the growth part of the market and move at least toward value and be a little bit more defensive.”
GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK
“Markets are getting a little bit nervous about China in general and that’s weighing on equities and you’re finally seeing rates start to react. There is certainly quite a bit more equity volatility and I think finally rate markets are starting to notice that there’s a little bit of uncertainty, so you do have a bit of a flight to safety. It’s the usual concerns about Chinese growth, there’s nothing particularly new. There was excitement about the stimulus plan, but I think the concern is still perhaps it’s not enough to boost the Chinese economy, that China’s actually slowing. I think that’s weighing on stocks globally.”
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK
“Markets are worried about politics and earnings. They are increasingly worried about the outcome of mid-term elections, trade tensions with China and also uncertainty with regards to the outcome with Saudi Arabia and worries about Italy’s budget.
“I think this impacts the U.S. because it injects additional uncertainty into an already vulnerable stock market.
“Stock markets are vulnerable because of the age of the bull-market, the expensiveness of this bull market and the confusion as to why the sell-off started on Sept 20.
“Investors remember that prices lead fundamentals and they are worried that the price decline is a harbinger of weakening fundamentals.
“Results from Caterpillar and 3M are an additional concern that the trade tensions are indeed pressuring corporate earnings and we possibly have been seeing a peak in earnings growth and as a result we might need to see further contraction of PE ratios.
“Technology was the sector that had the best performance this year and investors are attempting to extract before the profits are all gone, also since Tech is a major international player and trade tensions are adding to concerns of near-term outlook for tech.
“The theme of the day is how low can you go. Is this the beginning of a much deeper decline or is this simply the final shake-off before the pull-back fully runs its course?
“We are in a risk-off environment right now. I think the real question is what happens going forward, do investors believe that we are going through a typical periodic pullback in prices or is this the beginning of something deeper.
“The stock market has everyone’s attention. The dollar/yen is moving almost tick-to-tick with stocks.
“Markets are starting to wonder if the good times generated from Trump’s tax cuts and deregulation are in the rearview mirror and what’s ahead is fallout from protectionist policies, and that has started to eat into corporate earnings.”
OLIVER PURSCHE, CHIEF MARKET STRATEGIST, BRUDERMAN ASSET MANAGEMENT, NEW YORK
“It’s overall geopolitical pressure coming together: Italy, Brexit, Saudi Arabia. Brexit is dragging out longer and longer. There doesn’t seem to be a clear resolution there. You go to Italy essentially saying to the EU, ‘We know we agreed to certain measures of fiscal austerity, but we’re not going to do it. We’re increasing spending.’ That’s causing bond volatility in Europe. And then there’s obviously the Jamal Khashoggi assassination. The question there is: will the U.S. and the rest of the world put some sanctions on Saudi Arabia as a result of that? If they do, Saudi Arabia could either curb oil production and drive oil prices higher as retribution, or - to me worse as a long-term outcome - do they start striking more deals with China and Russia, something that would be damaging to the U.S. and the West in general?”
“There’s the question of impact on global growth from tariffs and the ongoing trade war. President Trump and President Xi have agreed to meet during the G-20 summit, but that’s post-election. It’s clear that nothing is going to happen for three to four weeks.”
“The third thing, and probably most critically, it’s pretty clear that the market is saying that it feels the Federal Reserve is being too hawkish. The combination of interest rate hikes that have already occurred and that are planned - for December, it’s very likely that they are going to raise rates; whether they do or do not in 2019 is still a question. Couple that with the deleveraging of its balance sheet, and the market is saying that this is too much, especially looking at tougher earnings going into 2019, and then the headwinds in terms of the strong dollar and tightening monetary policy. Potentially there will be an impact from the midterm election. It’s a question in the market whether or not the Democrats have enough votes to try to overturn some of the fiscal policy initiatives that the Trump administration has undertaken, i.e. mainly the tax cuts.”
“You put all that together, and it’s a very questionable environment. The risk far outweighs the potential bull argument.”
“We have been looking at this and saying there are lots of uncertainties and concerns whether it is the Fed increasing interest rates or slowing growth in China, but it’s solid earnings growth and economic growth that are the longer-term drivers. Well today you have got some big earnings misses and I think that has led investors to be concerned about will we continue to see solid earnings growth, especially with companies having beat the expectations but now saying the future doesn’t look quite as good. Lowering guidance is probably the more important part of what we heard this morning.”
STOCKS: The Dow was down 524 points, or 2.08 percent. The S&P 500, was 2.26 percent lower. The tech-heavy Nasdaq was down 2.61 percent, and reentered correction territory on an intraday basis by trading more than 10 percent below its August 29 closing high.
TREASURIES: The yield on the U.S. 10-year Treasury note fell to 3.1166 percent.
VIX: The Cboe volatility index jumped 22 percent to 23.71.
Dollar: The U.S. dollar index was off 0.01 percent
Compiled by Alden Bentley