China worries drive profit-taking
David Russell | [email protected]
S&P 500 futures are down about two-thirds of a percent, matching declines of a similar magnitude in Europe. Shanghai fell 1.25 percent and Tokyo lost 2 percent. Commodities are down and the safe-haven Japanese yen is rallying.
The S&P 500 has climbed in nine of the last 10 sessions and has closed at new record highs every day since Thursday. Large amounts of cash on the sidelines, a modestly growing economy, and easy-money policies by the Federal Reserve have kept the money flowing into stocks.
Today's weakness comes after bad loans written off by Chinese banks tripled, spurring fears that defaults will increase going forward. Attention now turns to corporate earnings in the United States, with heavyweights including Caterpillar, Boeing, and Bristol-Myers Squibb issuing results.
CAT missed expectations by a wide margin, continuing a pattern of weakness, and is down 3.5 percent in early trading. BA is up 2 percent after surpassing consensus and raising guidance. BMY also beat but hasn't traded yet this morning.
Traders may also be watching the Nasdaq 100 and technology stocks after chip makers Broadcom and Altera cited weak mobile demand yesterday afternoon. High flyer Netflix.com also reversed sharply yesterday and closed down 9 percent despite a strong quarterly report. Investor Carl Icahn disclosed that he is selling 3 million shares of NFLX but still owns 4.5 percent of the company.
Another theme could be rotation into stocks that benefit from lower interest rates such as utilities and real-estate investment trusts. Both have outperformed the broader market in the last week following a long period of weakness. (See related story)
Worries about China are hitting oil, led by a 1.2 percent drop by West Texas Intermediate. Brent crude is only lower by a quarter percent. That price differential is potentially bullish for refiner stocks, which have also seen bullish option activity of late. Copper fell 1.4 percent and precious metals are down about 1 percent.
Foreign-exchange trading is following a similar pattern, with the euro, Australian dollar, and Canadian dollar are trading lower. The Japanese yen is up across the board, a classic pattern of risk aversion.