Wall Street Pummeled in the Wake of Weak Earnings, Data

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U.S. equities plunged more than 2% Tuesday after a blizzard of economic data pummeled stocks.

At the close of trade the Dow Jones Industrial Average plunged 291 points, or 1.65% to 17387. The S&P 500 shed 27 points, or 1.3% to 2029, while the Nasdaq Composite dropped 90 points, or 1.89% to 4681. The Dow recovered from heavy losses earlier in the day in which it fell as much as 390 points, the biggest drop in three months.

Meanwhile, the energy and utility sectors were the only two S&P 500 sectors in positive territory, as the technology sector sank 2.46%.

Earnings Fuel the Fire

Fourth-quarter earnings season hit the Dow especially hard as results from heavy hitters disappointed Wall Street. Microsoft (NASDAQ:MSFT), Caterpillar (NYSE:CAT), Intel (NYSE:INTC), and Procter & Gamble (NYSE:PG) were the biggest losers on the blue-chip average, adding fuel to the selloff’s fire. After the closing bell Wednesday, Microsoft revealed fiscal second-quarter revenues that beat Wall Street expectations, but it its bottom line was hit by higher expenses including the tech titan’s restructuring plan and integration of Nokia, and an IRS audit-adjustment tax expense during the quarter. The firm’s fiscal third-quarter sales outlook also came as a disappointment. Shares fell in after-hours action, and continued the decline Tuesday, falling more than 8%. Meanwhile, a stronger dollar and the continued decline in global oil prices weighed heavily on Caterpillar, leading the world’s biggest maker of heavy machinery to lower its sales and revenues outlooks for the year. “Two big points in all this: 1) Earnings are starting to matter; and 2) The stronger dollar is starting to matter for earnings and everything else,” Michael Block, chief strategist at Rhino Trading Partners said in a note to clients Tuesday morning. “What we and the policy makers do about that second point is a big theme for 2015 and beyond.” Block discussed that topic with Maria Bartiromo on ‘Opening Bell’ and said there are two sides to the stronger dollar coin: More money in consumer pockets, but a disadvantage for companies trying to compete with other conglomerates overseas.

Data Dump

In addition to weak earnings, investors parsed a deluge of data on the health of the U.S. economy.

Perhaps the worst of the data was durable goods orders, which dropped 3.4% in December, a reading that came in far below the FactSet estimate calling for a 0.5% increase. Excluding the volatile transportation component, long-lasting goods orders dipped 0.8% compared to a FactSet estimate for a 0.6% tick higher.

Traders also got a snapshot of the U.S. housing market: The closely watched S&P Case-Shiller home prices index showed a non-seasonally adjusted 0.2% fall in prices for 20 major metro areas, which was in-line with expectations. The gauge was up 4.3% from the same period the year prior, which matched expectations, but was the slowest pace since October 2012. New home sales data from the Commerce Department, meanwhile came in better than expected as sales rose to an annualized rate of 481,000 units in December from 431,000 units the month prior. The reading beat expectations for a shallower increase to 450,000 units.

Finally, a reading on consumer confidence showed shoppers were more optimistic as the holiday shopping season came to a close. The Conference Board reported its gauge jumped to 102.9 in January from 93.1 in December, which topped expectations for an increase to 96.

Chris Chistopher, director of consumer economics at IHS Global Insight noted to clients Tuesday consumer confidence is nearly 30% higher in January this year compared to last, which helped boost spending on autos, large-ticket durable goods, and clothing.

“This is a good report,” he said. “It indicates that consumer confidence is starting the New Year at a relatively elevated level. We expect consumer confidence to gain further traction in 2015 as job prospects and disposable income growth increase.”

Commodities Bounce

U.S. crude futures traded more than 2% higher, a move that barely dents the 60% loss oil has taken over the past 12 months. Gold, meanwhile, rose 0.93%.

Elsewhere, the euro jumped 0.87% against the U.S. dollar to $1.1336. The yield on the benchmark 10-year U.S. Treasury note fell 0.05 percentage point to 1.78% as traders bid up the safe-haven asset.