Daily Management Review

Bloodbath on Wall Street and in capital markets around the world


Markets around the world have had a bloody week. While markets in the U.S have retreated, the Shanghai stock market has hit rock bottom. Here’s hoping it doesn’t cave out

This week began on a bloodbath, shares on Wall Street fell sharply on concerns about the slowing down of the Chinese economy. Shares in the Shanghai stock market hit rock bottom – their eight year lows.
The Dow Jones industrial average fared much better, although it fell, the fall though wasn’t vertical. It fell to its lowest levels in over 5 months. The Nasdaq composite index was at its four-week low while the S&P 500 touched its lowest in more than two weeks.
Shares in China did a vertical dive and fell by an unprecedented 8% despite rescue plans from the government to prop up valuations. Clearly those plans ran out of steam. This certainly raises disturbing questions as to whether Beijing has what it takes to stop the market from crumbling.
Following their counterparts, commodity prices mirrored the downward spiral of the shares with the Thomson Reuters CRB commodities index touching its six year low. Oil prices hit their four-month low.
"This really has its roots in nervousness that began in the U.S. at the end of last week. Shanghai is an artificial market at the moment reliant on government support, and they have thrown the kitchen sink at it in recent weeks. The selling just ratcheted up steadily this morning," said Andy Sullivan, a portfolio manager at GL Financial Group.
Shares of Apple fell by a record 1.3% and weighed the most on the S&P and the Nasdaq. Goldman Sach’s share dropped by 1.7% and dragged the Dow Jones Index with it. Out of 10 major sectors in the S&P, 9 were lower than the energy index's 1.57% fall making the market slide further.
With big oil, pharma companies and social media stocks scheduled to come out with their reports, hopefully this slide will hit some resistance. S&P 500 earnings from the second-quarter have been mixed though, 74% of companies have managed to beat analysts' profit expectations. Of these 52% have passed analysts' revenue expectations.
Adding to these concerns of lukewarm earning, investing in the S&P 500 could be relatively risky since it is trading at 16.9% of its forward 12 month’s earnings. As per StarMine Data, it is also just above its 10 year median of 14.7%. Only a couple of stocks are gearing it ahead.
Added to this concern, is the forthcoming economic data based on which the U.S Federal Reserves, after its two day meeting, will take a call regarding a first possible hike in interest rates.
However, U.S. business investment plans made a dramatic comeback this June, and it looks like capital spending cuts on manufacturing are finally having an effect on the economy. Investors though are keeping a sharp eye on the economic data streaming out, and are eye balling every move made by the Federal Reserve.
The Commerce Department came out with a positive bulletin stating that non-defense capital goods orders, other than aircrafts, rose by 0.9% last month.
Pharmaceutical companies, such as Teva Pharmaceutical saw its shares jumped by 10.7% to $68.6 after it agreed to buy Allergan generic’s drugs business for $40.5 billion. Earlier it had bid to buy Mylan. While Allergan’s shares rose by 5.8% to $325.21 while Mylan’s fell by 13.9% to $56.75.
Fiat Chrysler’s shares fell by 5.5% at $14.32 after the National Highway Traffic Safety Administration, announced a $105 million fine for its lapses leaving Fiat Chrysler no option but to recall 1.4 million vehicles.
Beating the bearish embrace was Beacon Roofing Supply which was up 11.4% to $33.52 after it agreed buy its competitor Roofing Supply Group in a deal valued at about $1.1 billion.
Source: Reuters.com