The Federal Reserve may ultimately come to the market's rescue if necessary, but yesterday there were no safety nets. Following a spate of disappointing economic data that validated global slowdown concerns, the major averages, along with commodities, got hit hard with selling pressure. The Dow Jones Industrial Average outperformed with a loss of "only" 1.96%.
Basically, it was a trend down day with sellers dictating the action throughout the session. They had their share of excuses for doing so, too. In addition to the disappointing data, reports that Goldman Sachs said the S&P 500 could move to 1285 in the short term, coupled with word that a Moody's downgrade of 15 global bank and securities firms was imminent, took the wind out of the market's sails.
And of course there were reports that yesterday's selling was a delayed response of disappointment that the Fed did not do more on Wednesday other than to extend Operation Twist. Sigh.
The S&P futures are up modestly this morning, though.
Reportedly (the word that keeps on giving), there is a measure of relief that the downgrades by Moody's for some firms were not as severe as expected. Morgan Stanley (MS) is being held out as the prime example in that regard as it saw its debt rating cut by two notches rather than three notches, which was advertised as possible by Moody's. Shares of MS are up close to 3.0% in pre-market trading.
The positive disposition in the U.S. this morning is helping to keep losses in check in Europe, although most of the major bourses are still down close to 1.0%. Spain's IBEX (+1.3%) is a notable exception as it is getting a boost from a continued easing in the yield on its 10-year debt (-7 basis points to 6.47%).
There are no economic releases today, so it is expected that headlines out of Europe will help dictate things after the opening bell. The leaders of Germany, France, Italy and Spain are holding a "mini summit" in Rome to hash out some ideas ahead of next week's EU Summit. Eurozone finance ministers are also meeting today.
Some relevant earnings news today includes a quarterly report from Darden Restaurants (DRI) that was in-line with expectations but included a full-year outlook that was below the consensus estimate. Separately, Ryder (R) issued an earnings warning for the second quarter and the full-year that it attributed primarily to lower than expected results in its Fleet Management Solutions business segment.
The market is in the pernicious earnings warning period as the quarter comes to a close. Already we have seen other high-profile warnings from Procter & Gamble (PG) and Nucor (NUE) that were related to macro demand issues. In turn, analysts' consensus earnings estimates are coming down.
This could be a risky period for the equity market certainly if warnings pick up since that would punctuate the idea that the global slowdown is finally throwing a wrench into what has been a powerful earnings growth engine. In essence, another volatility factor for the market could be brewing.