FOX Business: The Power to Prosper
The Dow suffered a triple-digit decline on Tuesday as Wall Street was spooked by a wave of bad news, including new tensions between North and South Korea, the euro plunging to a two-month low and the U.S. stepping up its probe of big fund managers.
The Dow Jones Industrial Average fell 142.21 points, or 1.27%, to 11036.37, the Standard & Poor's 500 slid 17.11 points, 1.43%, to 1180.73 and the Nasdaq Composite dropped 37.07 points, or 1.46%, to 2494.95. The FOX 50 lost 11.52 points, or 1.34%, to 848.06.
Wall Street was also hurt by bleak news on the domestic economy as the Federal Reserve downgraded its outlook for 2010 and 2011 and existing home sales in October slumped further than the markets had been bracing for.
But most of the focus was on North Korea shelling South Korea and Europe's debt mess sending the euro plunging below $1.34. Those fears were compounded by new signs the U.S. has stepped up its insider-trading probe by investigating big asset managers, including Janus Capital (NYSE:JNS).
“That’s what’s really scaring the hell out of everyone right now because no one really knows where this is going,” said Peter Kenny, managing director at Knight Capital. “It’s kind of taken over the conversation.”
Almost all 30 Dow stocks lost ground, led by Walt Disney (NYSE:DIS), JPMorgan Chase (NYSE:JPM) and Microsoft (NASDAQ:MSFT). The index's best performers were Verizon (NYSE:VZ) and Hewlett-Packard (NYSE:HPQ), which beat the Street.
The Nasdaq Composite slumped nearly 1.5% as tech stocks like Adobe (NASDAQ:ADBE) and eBay (NASDAQ:EBAY) took a hit.
“You’re seeing a significant exiting of risk as reflected in metals and commodities, which trade inverse to the dollar,” said Michael James, managing director of equity trading at Wedbush Securities. “Uncertainty is leading to selling.”
Despite it being a holiday-shortened trading week, Wall Street has seen significant turbulence, including a 150-point drop on Monday that it eventually recovered from. The bulls will have less time to make up the ground as the markets are closed on Thursday for Thanksgiving and open for just a half day on Black Friday.
Global Selloff Began in Korea
The markets were clearly rattled by reports that North Korea fired several rounds of artillery shells at South Korean sites, resulting in South Korea returning fire. South Korea warned it will unleash an "enormous retaliation" if North Korea attacks again and the U.S. "strongly condemned this attack" and said it is "firmly committed to the defense of" South Korea.
Markets from Asia to Europe feared the incident could lead to further military action that would destabilize the region. Signaling the level of concern in Korea, shares of Korean banks like KB Financial (NYSE:KB), Shinhan Financial (NYSE:SHG) and Woori Finance (NYSE:WF) all slumped about 4%.
In response, cash fled to the U.S. dollar, which is seen as a safe haven. The euro plunged 1.80% to $1.3375 -- its weakest level since September 21. A stronger dollar is seen as bearish because it weighs on dollar-traded commodities and exports.
But the euro was also under fire from fears about the European debt crisis that have lingered even in the wake of the rescue of debt-ridden Ireland this weekend. The debt concerns have persisted as Ireland appears to be facing resistance in implementing budget cuts, the cost to insure Spanish bonds have hit a record high and traders set their sights on other troubled countries like Portugal and Greece.
“The euro is getting crushed again” as the markets begin to realize “there’s more than just Ireland out here," said Joe Saluzzi, co-head of trading at Themis Trading
Hurt by the currency fluctuation, commodities retreated. Sinking for the third day in a row, crude oil fell 49 cents a barrel, or 0.60%, to $81.25. Copper slid 1.29% to $3.7010 a pound. Helped by the uncertainty, gold jumped $19.80 a troy ounce, or 1.46%, to $1,377.50.
At the same time, Wall Street has been spooked by the stepped-up insider-trading probe. Asset management giant Wellington Management, hedge fund manager SAC Capital and Janus Capital all received requests for information from the FBI. The developments have added an extra layer of uncertainty in the marketplace and threaten to further undermine investor confidence.
Wall Street also received mostly negative news on the economic front as the Fed now sees GDP growing just 2.5% and 3.3% in 2010 and 2011 respectively, down from 3.3% and 3.9% earlier. The central bank also predicted inflation will be below its informal target until 2013.
Also, the National Association of Realtors said existing home sales fell 2.2% in October to an annualized rate of 4.43 million units. Economists had been forecasting a more modest drop of 1%. The median price for existing homes slid 0.9% to $170,500.
On the other hand, Wall Street mostly yawned at a Commerce Department report showing U.S. gross domestic product grew at an annualized pace of 2.5% in the third quarter. Economists had expected the government to revise up its earlier estimate of 2% to just 2.4%. Still, the growth represents a disappointing pace, especially considering how deep the recession was.
J. Crew (NYSE:JCG) inked a $3 billion deal to be taken private by TPG Capital and Leonard Green & Partners. The $43.50-a-share deal represents a 16% premium and will hand J.Crew back to TPG, which previously owned the apparel maker. The agreement gives J. Crew a "go shop period" through January 15 to field competing bids.
Dynegy (NYSE:DYN) plans to end its proposed sale to private-equity giant Blackstone (NYSE:BX) due to shareholder resistance. Dynegy said it plans to immediately start a strategic alternatives process to solicit proposals from other parties.
Jack in the Box (NASDAQ:JACK) saw 10% of its market cap evaporate a day after posting non-GAAP EPS of 34 cents. Analysts had been looking for EPS of 36 cents. However, the hamburger chain’s sales of $563.2 million topped estimates and it forecasted a 4% to 6% rise in first-quarter same-store sales.
Campbell Soup (NYSE:CPB) missed estimates with a fiscal first-quarter profit of 82 cents a share. Analysts had called for EPS of 83 cents. Sales slid 1.4% to $2.17 billion, trailing estimates. The soup maker said it sees fiscal 2011 EPS up 2% to 4% and sales rising 1% to 3%.
Brocade (NASDAQ:BRCD) dropped 10% after the company said it sees fiscal first-quarter revenue of $535 million to $550 million, missing estimates for $553.32 million. The company also said it sees EPS of just 9 cents to 10 cents, compared with the Street’s view for 12 cents.
The U.K.'s FTSE 100 sank 1.75% to 5631.64, France's CAC 40 slid 2.47% to 3724.42 and Germany's DAX lost 1.72% to 6705.00.
In Asia, Hong Kong's Hang Seng tumbled 2.7% to 22896.10, China's Shanghai Composite plunged 1.94% to 2828.28 and Japan's markets were closed for a national holiday.