Risk aversion struck on Wall Street once again, as investors reverse recent trends by pulling out of most of the capital markets and cowering for safety in the U.S. dollar. The reversal of the capital markets’ recent direction left equity prices among the session’s many casualties. The Dow Jones Industrial Average (DJI) skidded 104 points, or 1%, to finish at 9867, its lowest close since the start of this month. It marked the fourth time in five trading sessions the Dow recorded a loss, and the first time it’s posted back-to-back triple-digit losses - the Dow lost 109 points Friday - since June.
Granted, it’s too early to say that the market has reached one of those crossroads, and is poised to succumb to the correction that analysts and traders have been awaiting since early September. After all, the industrial average has lost a little more than 2% off last week’s highs, and has been in a downtrend for just one week. So neither the scope of the selloff, nor the durability of the downturn, could be couched as representative of a market that’s ripe for a real slide, let alone described as the bear trap that many of the market’s most-skeptical voices have been anticipating.
Much as anything, it might have represented oversold conditions in the market for the U.S. currency, and a bit of a flight to quality amid another big slug of inventory in the government bond market, where $123 billion of new issues are being sold this week.
Financial stocks took the brunt of the selloff Monday, with Bank of America (BAC) relinquishing 5% amid indications that its ambitions to repay government borrowings and get itself out from under the thumb of Washington might not be easily realized. SunTrust (STI) fell 5%, and Fifth Third Bancorp (FITB) lost 8%, after bank sector analyst Dick Bove of Rochdale Securities, who some market watchers believed sent bank stocks lower last week with a post-earnings downgrade of Wells Fargo (WFC), cut his firm’s ratings on the regionals, saying the banks could continue to post losses throughout 2010.
Meanwhile, if the dollar had been oversold, there’s an argument to be made that oil had been overbought. Inventory levels have risen dramatically in the U.S., and demand has declined, but because of the weakness in the dollar, crude prices traded above $80 a barrel last week, hitting highs for the year. But the commodity backed off Monday, sinking 2%, largely because the dollar improved.
Shares of Exxon Mobil (XOM) eased 1%, while Chevron (CVX) lost 2%, ahead of the earnings reports due from each this week.
While the week does represent something of the high-water mark for earnings releases - nearly 200 components of the S&P 500 are slated to issue numbers - the week figured to amount to something of a triumph of quantity over quality. There’s just a handful of Dow components, compared with 16 last week alone, and most of the results could be classified as ”piling on” results, inasmuch as the industries have - with the notable exception of the energy business - already been represented by competitors.
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Stocks to Watch Today is a daily blog about key stock and market movements, written by Barrons.com stocks columnist Bob O'Brien. O'Brien updates this blog and provides video reports several times each trading day offering unique insight and analysis. O'Brien is a 14-year veteran of Dow Jones & Co., having most recently worked at Wall Street Journal Television, where he appeared daily on CNBC under the Journal's content-sharing agreement with NBC. Prior to WSJ Television, O'Brien was an equities market reporter at Dow Jones Newswires.
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