Dow closes down more than 200 points as oil sinks again
Stocks closed sharply lower Monday, weighed by a renewed decline in oil prices, as investors awaited key inputs on economic growth. A swath of earnings reports, data and the Federal Reserve’s statement are all due later in the week.
The major averages extended losses as the close approached, with the S&P 500 and Nasdaq composite losing more than 1.5 percent. The Dow Jones industrial average lost 208 points.
“I think this is to be expected as the market tries to discern a pattern from the economic releases as to whether the economy is retaining momentum or at least there’s a stabilization in the data,” said Quincy Krosby, market strategist at Prudential Financial.
“What’s really important is how (the Fed) views the economy and what they’re watching,” she said. “I think what’s going on, too, is a growing sense that central banks can only do so much.”
Crude oil futures extended losses to trade below $30 a barrel.
“This downtrend, it’s really only the energy, materials and industrials that are down but everything else is holding in there,” said Ilya Feygin, managing director and senior strategist at WallachBeth Capital.
“We’re kind of in a sightly new environment because there’s not a big rush to get out of equities, period. Just out of underperformers,” he said.
Materials, financials, energy and industrials were the greatest laggards in the S&P for the year so far, each down nearly 10 percent or more year-to-date as of afternoon trade Monday.
Caterpillar fell 5 percent in afternoon trade as one of the greatest contributors to declines on the Dow. Goldman Sachs downgraded the heavy equipment maker’s stock to “sell” from “neutral” on expectations of lower returns on capital amid lower global infrastructure investment.
“The CAT downgrade… brings back all the questions concerning China and emerging markets,” Krosby said.
Goldman Sachs traded more than 2.5 percent lower to also weigh on the Dow despite an upgrade to “buy” from “neutral” and price target increase by Nomura Securities.
The Nasdaq composite also declined more than 1 percent as most major tech names declined and biotech stocks weighed.
The Dow transports held more than 1 percent lower as nearly all constituents declined.
Oil settled down 5.75 percent, or $1.85, at $30.34 a barrel, reversing much of Friday’s a 9 percent surge as Iraq’s announcement of record-high oil production in December renewed concerns about oversupply.
“Today specifically I think it’s what’s happening with oil,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.
“None of the earnings reports that we’ve seen thus far have been able to move the market overall,” he said. But “if oil settles down, if not stabilizes, we might be able to see some gains.”
McDonald’s contributed the most to gains in the Dow. The stock held about 1.5 percent higher after briefly jumping 2.5 percent in morning trade to top $121 a share and hit a record high in intraday trade.
The firm said global same-restaurant sales rose a better-than-expected 5 percent, helped by the launch of all-day breakfasts in the United States and recovering demand in China. U.S. sales increased 5.7 percent. The fast food giant also posted earnings that beat on both the top and bottom line.
“The backdrop is oil but the good news is we’re paying attention to other things as well,” said Art Hogan, chief market strategist at Wunderlich Securities.
Halliburton reported earnings 7 cents above estimates on revenue slightly below forecasts, but the oilfield services giant was able to benefit from cost cuts amid falling oil prices. The stock reversed initial gains to hold about 2 percent lower in afternoon trade.
D.R. Horton posted earnings that topped expectations, with revenue also above estimates. Sales orders were up 9 percent from a year earlier, with the value of those orders rising by 12 percent. The stock fell more than 4 percent in afternoon trade.
Shares of Kimberly-Clark declined more than 2.5 percent in afternoon trade after the firm reported quarterly results that missed slightly on both earnings and revenue, noting impact from unfavorable foreign currency trends. Organic sales did rise by 5 percent.
More than 100 S&P 500 firms are due to report this week. Major tech firms set to announce quarterly results in the next few days include Apple, Facebook, Amazon.com and Microsoft.
“All the pain in earnings has been taken up front with massive slashing of forecasts,” said Jeremy Klein, chief market strategist at FBN Securities.
“I think (earnings are) going to reengage investors who have been sitting out of this market because of volatility,” he said.
In other corporate news, Johnson Controls, a U.S. maker of car batteries and heating and ventilation equipment, said it would merge with Ireland-based fire protection and security systems maker Tyco International. Shares of Johnson Controls held about 1 percent lower, while Tyco jumped more than 10 percent in midday trade.
Shares of Sprint declined 4 percent in afternoon trade after reports the firm will cut 2,500 jobs as part of a $2.5 billion cost savings plan.
No major economic data was expected Monday. The Dallas Fed January manufacturing production index came in at negative 10.2 versus 12.7 in December. The business activity index was minus 34.6 versus minus 21.6 the previous month.
Consumer confidence is due Tuesday, ahead of consumer sentiment and fourth-quarter GDP on Friday.
Also in focus is the Federal Reserve meeting Tuesday and Wednesday, as well as the Bank of Japan’s meeting later in the week.
“While we have economic news, all eyes are going to be on the Fed and do they offer any (interpretation) on recent events,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
Treasury yields held lower, with the 2-year yield near 0.87 percent and the 10-year yield at 2.03 percent in afternoon trade.
The U.S. dollar index traded slightly lower against major world currencies, with the euro above $1.08 and the yen at 118.49 yen against the greenback.
Stocks closed higher Friday to post their first positive week of 2016. As of afternoon trade Monday, the major U.S. averages were off more than 7 percent for the year so far and more than 10 percent below their 52-week intraday highs, in correction territory.
“I think to some extent we accomplished quite a bit last week. We now have to see if we can form a base and build some confidence before markets can begin to lift,” said Bruce McCain, chief investment strategist at Key Private Bank. “I think the real question is, are we slipping into recession, and our belief is, although it certainly looks like it in some areas, we just need to gain some confidence that a lot of that (is in industrials).”
European stocks closed lower Monday declines in oil prices weighed.
Asian stocks ended higher, with the Hang Seng up almost 1.4 percent and the Nikkei 225 up nearly 1 percent. The Shanghai composite closed more than half a percent higher.
U.S. stocks closed higher Friday to post their first positive week of 2016, helped by a recovery in oil from multiyear lows and hopes of stimulus overseas.
Excessively low inflation hurts consumers and damages the European Central Bank’s credibility, Mario Draghi, the bank’s president said on Monday, defending loose monetary policy and the bank’s December rate cut.
Draghi’s remarks Thursday raised expectations of stimulus at the ECB’s March meeting and boosted stocks in both Europe and the United States.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held in the 20s, trading near 23 Monday afternoon.
That level on the VIX still indicates “there’s a fair amount of concern out there that the rebound we saw last week might not be sustained,” Frederick said.
About four stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 573 million and a composite volume of 2.7 billion in afternoon trade.
Gold futures for February delivery settled up $9.00 at $1,105.30 an ounce.
—CNBC’s Peter Schacknow and Reuters contributed to this report.